1991 (4) TMI 174 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Officer (ITO) overlooked the provisions of section 69D of the Income-tax Act, 1961, regarding the borrowings on hundi.
2. Whether the Commissioner of Income-tax was justified in invoking section 263 of the Income-tax Act, 1961, to revise the ITO's order.
3. Whether the transactions amounting to Rs. 12 lakhs were genuine and not hundi loans.

Detailed Analysis:

Issue 1: Overlooking Provisions of Section 69D
The primary contention was that the ITO did not make an addition under section 69D of the Income-tax Act, 1961, despite the tax audit report indicating that the assessee borrowed Rs. 12 lakhs on hundi other than through account payee cheques. The Commissioner of Income-tax argued that the ITO's failure to apply section 69D rendered his order erroneous and prejudicial to the interests of the revenue. However, the assessee contended that the borrowings were cash transactions without any hundi or promissory notes, and the ITO was satisfied with the genuineness of the transactions after calling for confirmatory letters from the financiers.

Issue 2: Justification of Section 263 Invocation
The Commissioner of Income-tax issued a notice under section 263, suggesting that the ITO overlooked section 69D, making the order erroneous and prejudicial to the revenue. The assessee objected, stating that the ITO had already scrutinized the transactions and was satisfied with their genuineness. The Commissioner, however, believed that the ITO should have made an addition under section 69D if the borrowings were by means of hundies. The Commissioner set aside the ITO's order to enable further scrutiny into the genuineness of the transactions.

Issue 3: Genuineness of Transactions
The assessee's counsel argued that the ITO had already examined the transactions' genuineness by calling for confirmatory letters and scrutinizing the documents. The ITO's actions indicated that he did not consider the loans as hundi loans, which was why no addition under section 69D was made. The assessee provided confirmatory letters from creditors, which were scrutinized by the ITO. The Tribunal found that the ITO had indeed looked into the nature and genuineness of the loans, as evidenced by the detailed scrutiny and confirmatory letters on record.

Conclusion:
The Tribunal concluded that the ITO had not overlooked the information provided in the tax audit report and had scrutinized the transactions' genuineness. The ITO's conduct and the detailed scrutiny of the loans indicated that he did not consider them as hundi loans. The Tribunal held that the Commissioner of Income-tax's invocation of section 263 was not justified, as there was no error in the ITO's order resulting in prejudice to the revenue. Consequently, the Tribunal vacated the Commissioner's order and allowed the appeal.