1981 (9) TMI 209 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147(a) of the IT Act.
2. Genuineness of hundi loans and the peak credit of Rs. 4,45,000.
3. Impact of the settlement petition filed by the assessee on the genuineness of hundi loans.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147(a) of the IT Act:
The Revenue contended that the Commissioner of Income Tax (Appeals) [Commr.(A)] was wrong in cancelling the Income Tax Officer's (ITO) assessment made under Section 147(a) of the Act. The ITO had reopened the assessment on the grounds that the firm had indulged in havala hundi transactions during the previous years, leading to undisclosed income. The reassessment proceedings were initiated based on the general statements from hundi bankers admitting to havala transactions. However, no specific evidence was provided that linked these admissions directly to the transactions with the assessee.

The Commr.(A) referred to several Supreme Court decisions, including ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), Chhugammal Rajpal V.S.P. Challiha (1971) 79 ITR 603 (SC), and ITO vs. Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC), to establish that the initiation of proceedings under Section 147(a) was not valid without specific evidence. The Commr.(A) concluded that the proceedings under Section 147(a) were not validly initiated, as the general statements from the hundi bankers did not specifically implicate the assessee.

2. Genuineness of Hundi Loans and the Peak Credit of Rs. 4,45,000:
The ITO treated the peak hundi loan credit of Rs. 4,45,000 as the assessee's undisclosed income, citing the failure of the assessee to prove the nature and source of cash credits. The ITO also disallowed interest of Rs. 26,720 related to hundi loans. The Commr.(A) noted that the original assessment had been completed with full disclosure of the names and addresses of the creditors, and no specific inquiries or examinations were conducted by the ITO regarding the hundi transactions in this case.

The Commr.(A) observed that the statements from the hundi bankers were of a general nature and did not specifically mention the assessee. Consequently, the Commr.(A) held that the ITO could not validly initiate proceedings under Section 147(a) based on these general statements.

3. Impact of the Settlement Petition Filed by the Assessee:
The Revenue argued that the settlement petition filed by the assessee indicated that the hundi loans were not genuine. The petition proposed a settlement to avoid protracted legal proceedings, stating that the managing partner, who had direct dealings with the bankers, had passed away. The petition stressed that the hundi loans were genuine but proposed a settlement due to the department's questioning of their genuineness and the difficulty in providing evidence after the managing partner's death.

The Commr.(A) found that the settlement petition did not contain any admission of bogus hundi loans. The petition was aimed at purchasing peace and avoiding litigation rather than admitting to the falsity of the transactions. The Tribunal agreed with the Commr.(A) that the settlement petition did not amount to an admission of bogus hundi loans and that the reopening of the assessment under Section 147(a) was invalid.

Conclusion:
The Tribunal upheld the Commr.(A)'s decision, concluding that the reopening of the assessment under Section 147(a) was not validly initiated. The general statements from the hundi bankers did not specifically implicate the assessee, and the settlement petition did not constitute an admission of bogus hundi loans. Consequently, the Revenue's appeal was dismissed.