1985 (3) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 15,03,090 as income from other sources under Section 69 of the IT Act, 1961.
2. Burden of proof regarding investments represented by undated promissory notes and undated stamp receipts.
3. Applicability of Section 69 of the IT Act.
4. Addition of Rs. 3,05,000 representing cash credits in the books of the assessee under Section 68 of the IT Act.

Issue-wise Detailed Analysis:

1. Deduction of Rs. 15,03,090 as Income from Other Sources Under Section 69:
The Department's appeal contested the deduction of Rs. 15,03,090, which the Income Tax Officer (ITO) added as income from other sources under Section 69 of the IT Act, 1961. The assessee, engaged in financing film producers, had his premises raided in October/November 1976, leading to the seizure of undated promissory notes and undated stamp receipts totaling Rs. 79,92,000. Initially, the draft assessment included Rs. 43,56,140 as income under Section 69, but the final assessment added only Rs. 15,03,090. The Commissioner of Income Tax (Appeals) [CIT (A)] deleted these additions, prompting the Department's appeal.

2. Burden of Proof Regarding Investments Represented by Undated Promissory Notes and Undated Stamp Receipts:
The Department argued that the CIT (A) incorrectly held that the burden of proving the assessee's investments during the financial year 1976-77 lay with the Department and that the assessee's explanation was satisfactory. The Tribunal noted that Section 69 requires the Department to establish that the investments were made during the financial year in question. The possession of undated promissory notes and undated stamp receipts raises a presumption of investment but does not conclusively prove the year of investment. The ITO failed to verify the facts from the film producers who executed the promissory notes and receipts.

3. Applicability of Section 69 of the IT Act:
The Tribunal emphasized that Section 69 has three limbs: (i) the assessee made investments, (ii) these investments are not recorded in the books of account, and (iii) the assessee offers no satisfactory explanation. The ITO must establish the first two conditions before the assessee's explanation is considered. The Tribunal found that the ITO did not establish that the investments were made in the financial year 1976-77. The CIT (A) correctly held that Section 69 was not applicable, and the addition of Rs. 15,03,090 was rightly deleted.

4. Addition of Rs. 3,05,000 Representing Cash Credits in the Books of the Assessee Under Section 68:
The ITO added Rs. 3,05,000 as income from undisclosed sources under Section 68, noting that the cash credits were entered in pencil, lacked narration, and were not ledgerized. The assessee claimed these entries represented receipts from Messrs KPS Films. The CIT (A) found the identity of the creditor established, the creditor assessed to tax, and the financial capacity proven. The Tribunal agreed with the CIT (A), noting that the assessee had credited Messrs KPS Films' account with Rs. 8,00,000 and had repaid the amounts between January and July 1976. The deletion of the addition was justified.

Conclusion:
The Tribunal upheld the CIT (A)'s order, dismissing the Department's appeal. The Tribunal found that the conditions for applying Section 69 were not satisfied, and the addition of Rs. 3,05,000 under Section 68 was also unjustified.