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Issues: Appeal against addition of income under s. 69D of the IT Act for loans without hundies executed, application of s. 69D, treatment of cash credits under s. 68 of the IT Act, failure to consider explanations by the assessee, remand for reconsideration under s. 68.
Analysis: The judgment involves an appeal against the addition of Rs. 45,208 in the assessee's income under s. 69D of the IT Act for loans without hundies executed. The Income Tax Officer (ITO) treated the loans as borrowed on a hundi and taxed them under s. 69D. The Appellate Assistant Commissioner (AAC) dismissed the appeal. The Tribunal noted that s. 69D applies when an amount is borrowed on a hundi without an account payee cheque drawn on a bank. Since no hundies were executed in this case, s. 69D was deemed inapplicable, despite attempts by the ITO and AAC to justify its application based on the absence of banking channels. The Tribunal highlighted that the ITO rectified the mistake by conceding that s. 69D did not apply to the case, accepting two loans but treating one as income due to lack of proof of source. The judgment further delves into the treatment of cash credits under s. 68 of the IT Act. Under s. 68, if the assessee fails to explain the nature and source of a cash credit satisfactorily, it may be charged to income tax. The Tribunal emphasized that while s. 69D focuses on hundi transactions, s. 68 requires the ITO to consider the explanation provided by the assessee. In this case, the ITO and AAC did not properly evaluate the explanations offered by the assessee regarding the loans. Consequently, the Tribunal set aside the assessment order and the AAC's decision related to the alleged borrowings, directing the ITO to reconsider the matter under the provisions of s. 68 of the IT Act and make a suitable order. In conclusion, the appeal was allowed, highlighting the need for a reassessment of the loans in accordance with the provisions of s. 68. The judgment underscores the importance of considering explanations provided by the assessee in cases of cash credits and the distinction between the applicability of s. 69D and s. 68 in determining tax liability for borrowed amounts.
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