1997 (2) TMI 187 - AT - Income Tax

Summary

Issues Involved:
1. Whether the addition of Rs. 1,00,000 as income from undisclosed sources was legally sustainable.
2. Whether the assessee discharged the onus of proof placed under section 69 of the Income-tax Act.
3. Whether adequate opportunity of hearing and leading evidence was provided to the assessee.

Detailed Analysis:

1. Whether the addition of Rs. 1,00,000 as income from undisclosed sources was legally sustainable:

The assessee, an individual, received a draft of Rs. 1,00,000 from M/s. K.P. Rai, a firm in Hyderabad, and deposited it in his bank account. The amount was subsequently credited to his capital account in the firm M/s. Lalchand Gajanan. The Assessing Officer (AO) initially added this amount as income from undisclosed sources under section 68 of the Income-tax Act, citing the failure of the assessee to prove the genuineness of the credit.

Upon appeal, the CIT(A) confirmed the addition but under section 69, stating that the transaction was not genuine and the creditor lacked the capacity to advance the loan. The Tribunal's Judicial Member agreed, emphasizing that the assessee failed to produce the creditor for cross-examination, and the creditor's financial status did not support the loan. However, the Accountant Member disagreed, noting that the Department failed to prove the amount as income from undisclosed sources and criticized the AO for not issuing a commission to examine the creditor at Hyderabad.

The Third Member, agreeing with the Accountant Member, concluded that the addition was not legally sustainable. The assessee had provided sufficient evidence, including an affidavit and balance-sheet of M/s. K.P. Rai, and the Department did not adequately refute this evidence.

2. Whether the assessee discharged the onus of proof placed under section 69 of the Income-tax Act:

The assessee provided an affidavit from Shri K. Prahlad Rai, confirming the loan, and a balance-sheet of M/s. K.P. Rai showing the amount. The AO's enquiries revealed discrepancies, such as the non-existence of the firm under the given GIR number. However, the Accountant Member highlighted that the return of income for the assessment year 1982-83 was filed, and the business was closed thereafter, which could explain the GIR number issue. The Third Member noted that the Department did not dispute the receipt of the money by draft and that the creditor had confirmed the loan in responses to a questionnaire.

The Third Member concluded that the assessee had discharged the onus of proof, as he had established the identity of the creditor, the transaction was recorded in the books, and the creditor had confirmed the loan. The Department's case rested on suspicion rather than hard evidence.

3. Whether adequate opportunity of hearing and leading evidence was provided to the assessee:

The AO fixed the case multiple times and even visited Hyderabad to record the creditor's statement. However, the creditor did not appear, and the assessee later requested a commission to examine the creditor at Hyderabad due to the distance. The AO rejected this request and completed the assessment.

The Accountant Member opined that the AO should have accepted the request for a commission, especially when there was still time to complete the assessment. The Third Member agreed, stating that the denial of the request for a commission meant the assessee was not given adequate opportunity to present his case fully.

Conclusion:

The Tribunal, by majority decision, concluded that the addition of Rs. 1,00,000 was not legally sustainable, the assessee had discharged the onus of proof under section 69, and adequate opportunity of hearing and leading evidence was not provided. The appeal was allowed, and the addition was deleted.