1985 (10) TMI 73 - HC - Income Tax

Summary

Issues Involved:
1. Interference by the Income-tax Appellate Tribunal with the Appellate Assistant Commissioner's order.
2. Deletion of Rs. 50,000 by the Tribunal based on discharged hundis and cheques.
3. Tribunal's finding on the assessee discharging the burden of proof for Rs. 50,000.
4. Deduction of interest on hundi loans for the assessment year 1963-64.
5. Deduction of interest on hundi loans for the assessment year 1965-66.
6. Deduction of interest on hundi loans for the assessment year 1964-65.

Issue-wise Detailed Analysis:

1. Interference by the Income-tax Appellate Tribunal with the Appellate Assistant Commissioner's order:
The primary issue was whether the Tribunal was right in law in setting aside the Appellate Assistant Commissioner's (AAC) order, which directed the Income-tax Officer (ITO) to redo the assessment according to law. The High Court found that the Tribunal wrongly cast the burden of proof on the Revenue. The court emphasized that the burden is on the assessee to support the entries in his books of account, and the Revenue is not required to disprove until a satisfactory explanation is provided by the assessee. The court cited several precedents, including *Kale Khan Mohammed Hanif v. CIT* and *Sreelekha Banerjee v. CIT*, to support this view. Consequently, the court answered this issue in the negative, favoring the Revenue.

2. Deletion of Rs. 50,000 by the Tribunal based on discharged hundis and cheques:
The Tribunal had deleted the addition of Rs. 50,000 based on discharged hundis and cheques showing interest payments, despite the creditor's general statement that his genuine transactions were all for amounts less than Rs. 2,500, except for one party. The High Court noted that the Tribunal ignored the significance of the creditor's statement, which indicated that amounts over Rs. 2,500 were hawala transactions. The court held that the Tribunal erred in deleting the addition without considering the full context of the creditor's statement and the lack of supporting evidence from the assessee.

3. Tribunal's finding on the assessee discharging the burden of proof for Rs. 50,000:
The Tribunal held that the assessee had discharged the burden of proof regarding the Rs. 50,000 loan. However, the High Court found this to be incorrect. The court emphasized that the burden of proving the genuineness of the loan entries was on the assessee and not on the Revenue to disprove them. The court highlighted that the assessee failed to provide reliable evidence to support the entries, and the statement of the deceased creditor, Ramdas, indicated that transactions over Rs. 2,500 were hawala transactions. Therefore, the Tribunal's finding was deemed erroneous.

4. Deduction of interest on hundi loans for the assessment year 1963-64:
The Tribunal allowed the deduction of interest on hundi loans for the assessment year 1963-64. However, the High Court did not specifically answer this issue, as it was contingent on the final order to be made by the ITO pursuant to the AAC's direction for a fresh assessment. The court's decision on the first issue implied that the ITO would need to reassess the matter, including the deduction of interest on hundi loans.

5. Deduction of interest on hundi loans for the assessment year 1965-66:
Similar to the previous issue, the Tribunal allowed the deduction of interest on hundi loans for the assessment year 1965-66. The High Court did not address this issue separately, as it depended on the final reassessment by the ITO. The court's ruling on the first issue indicated that a fresh assessment would be required to determine the validity of such deductions.

6. Deduction of interest on hundi loans for the assessment year 1964-65:
The Tribunal also allowed the deduction of interest on hundi loans for the assessment year 1964-65. The High Court did not provide a specific answer to this issue, as it was linked to the final reassessment by the ITO. The court's decision on the first issue suggested that the ITO would need to reevaluate the deduction of interest on hundi loans during the fresh assessment process.

Conclusion:
The High Court concluded that the Tribunal wrongly interfered with the AAC's order and misapplied the burden of proof. The court directed the ITO to make a fresh assessment in accordance with the law and after affording the assessee a reasonable opportunity to examine and cross-examine witnesses. The court answered the first issue in favor of the Revenue and did not address the remaining issues, as they were dependent on the outcome of the fresh assessment. The parties were directed to bear their respective costs.