1990 (4) TMI 73 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee could be expected to prove the genuineness of hundi loans after about 20 years.
2. Whether the Income-tax Officer (ITO) properly accounted for the disclosures made by the assessee.
3. Whether the additions in respect of the unproved hundi loans were justified over and above the disclosures.

Issue-wise Detailed Analysis:

1. Expectation to Prove Genuineness of Hundi Loans after 20 Years:
The core issue was whether it was reasonable to expect the assessee to prove the genuineness of hundi loans after a significant delay of 20 years. The assessee argued that proving the genuineness of the loans was an impossible burden due to the passage of time. The IAC rejected this contention, stating that the assessee had accepted the challenge of proving the loans when the matter was sent back to the ITO. However, the Tribunal found that the Commissioner's directive was for the ITO to issue summons and allow cross-examination, not for the assessee to prove the loans. Therefore, the Tribunal concluded that there was no basis for expecting the assessee to prove the genuineness of the loans after such a long period.

2. Proper Accounting for Disclosures:
The Commissioner framed the question of whether the ITO had properly taken into account the disclosures made by the assessee. The Commissioner granted relief on this point, indicating that the ITO had not considered the disclosures appropriately. The Tribunal agreed with this finding, noting that the ITO's failure to account for the disclosures was a significant oversight.

3. Justification of Additions Over and Above Disclosures:
The Commissioner also addressed whether the additions for unproved hundi loans were justified over and above the disclosures. The ITO had issued summons to all hundiwalas, but many were returned with the remark "not known." The ITO insisted that the genuineness of the transactions could not be proved without the signatories' presence. The IAC noted that the assessee had failed to establish the genuineness of the loans even when the assessments were originally made within the time limits. However, the Tribunal found that the ITO's approach was flawed, as the assessee was denied the opportunity to cross-examine the lenders, and the ITO relied on statements made before another ITO without offering them to the assessee for comments. The Tribunal concluded that the ITOs had not followed proper procedures, leading to unjustified additions.

Conclusion:
The Tribunal held that the additions made by the ITO were not justified due to procedural errors and the unreasonable expectation placed on the assessee to prove the genuineness of the loans after 20 years. Consequently, the Tribunal deleted the addition of Rs. 6,17,500 and related interest and expenses, allowing the assessee's appeal.