1985 (4) TMI 96 - AT - Income Tax

Issues Involved:
1. Unexplained investment in immovable property for the assessment year 1969-70.
2. Deduction of interest as expenses incurred from the income under the head 'Income from house property' for the assessment year 1970-71.
3. Addition of Rs. 1,15,000 as income from undisclosed sources for the assessment year 1968-69.

Detailed Analysis:

1. Unexplained Investment in Immovable Property (Assessment Year 1969-70):
During the assessment of the assessee for the year 1969-70, the Income Tax Officer (ITO) found that the assessee had invested Rs. 1 lakh in the purchase of property 'Devi Sadan' at Matunga. The ITO requested the assessee to disclose the source of this investment. The assessee explained that the amount was sourced from loans taken from Indian Carbon Co. (Rs. 25,000) and Keshavji Naik Trust (Rs. 60,000), and a withdrawal of Rs. 15,000 from Eastern Engineers, where the assessee was a partner. The ITO demanded the production of the bank pass book to verify these transactions, which the assessee could not produce, claiming it was missing. Consequently, the ITO inferred that the Rs. 1 lakh was income from undisclosed sources and added it to the returned income.

On appeal, the Commissioner (Appeals) observed that the property was mortgaged to Indian Carbon Co. and Keshavji Naik Trust, indicating that the loans were indeed used for the property purchase. The Commissioner (Appeals) accepted the assessee's explanation regarding the Rs. 15,000 withdrawal from the firm, noting that household expenses were likely covered by the assessee's husband. Thus, the Commissioner (Appeals) deleted the addition of Rs. 1 lakh.

Upon further appeal by the department, the Tribunal upheld the Commissioner (Appeals)'s decision, confirming that the loans from Indian Carbon Co. and Keshavji Naik Trust were used for the property purchase and that the Rs. 15,000 withdrawal was not for household expenses. The Tribunal found no justification for the ITO's inference of undisclosed income and confirmed the deletion of the Rs. 1 lakh addition.

2. Deduction of Interest as Expenses (Assessment Year 1970-71):
The issue for the assessment year 1970-71 was whether the assessee was entitled to claim interest of Rs. 10,200 as expenses incurred from the income under the head 'Income from house property'. The Tribunal had already held that the investment in the house was duly explained in the previous year. Thus, it followed that the interest paid on the loans aggregating Rs. 85,000 taken for acquiring the property was deductible under section 24 of the Income-tax Act, 1961. The Tribunal confirmed the order of the Appellate Assistant Commissioner (AAC) directing the ITO to allow the interest deduction.

3. Addition of Rs. 1,15,000 as Income from Undisclosed Sources (Assessment Year 1968-69):
For the assessment year 1968-69, the ITO found a cash credit of Rs. 1,15,000 in the assessee's account with the firm Eastern Engineers. The assessee claimed this amount was a loan received in cash from her father, Shri Markhi Ganga. The ITO, after communication with the ITO, Porebunder, found that Shri Markhi Ganga was not cooperating in the enquiry. The assessee could not produce the necessary documentary evidence, including the pass book, to support the loan claim. Consequently, the ITO added the amount as income from undisclosed sources.

On appeal, the Commissioner (Appeals) accepted the loan as genuine based on a certificate from the Gram Panchayat and an affidavit from Shri Markhi Ganga, noting that the ITO, Porebunder, had accepted the loan in wealth-tax returns. However, the Tribunal found that the evidence was insufficient and not convincing. The Tribunal noted that the best evidence would have been the testimony of Shri Markhi Ganga, which was not produced. The Tribunal held that the assessee failed to prove the genuineness of the loan and restored the ITO's addition of Rs. 1,15,000 as income from undisclosed sources.

Conclusion:
The Tribunal dismissed the appeals for the assessment years 1969-70 and 1970-71, confirming the deletion of the Rs. 1 lakh addition and the allowance of the interest deduction. However, for the assessment year 1968-69, the Tribunal allowed the department's appeal, reinstating the addition of Rs. 1,15,000 as income from undisclosed sources.

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