TMI Blog2008 (12) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts and in the circumstances of the case and in law the learned CIT(A) was not justified in sustaining the addition of Rs. 2,00,000 made by AO treating it as income by invoking s. 69D of the Act. Since it is an undisputed position that the borrowing, though not admitted by the assessee, as per records was said to have been done on the basis of promissory notes, therefore, the provisions of s. 69D are not attracted to the borrowings raised by executing such promissory notes. The addition be quashed. 2. On the facts and in the circumstances of the case and in law and in view of ground No. 1 above addition sustained by learned CIT(A) of Rs. 69,500 treating it as interest and brokerage under s. 69C is not justified. The same be deleted. 3. On the facts and in the circumstances of the case and in law the provisions of s. 153C are not attracted to the facts of this case. The assessment being bad in law be quashed. 4. On the facts and in the circumstances of the case and in law the assessee denies its liability to pay interest under s. 234A of Rs. 8,622, under s. 234B of Rs. 50,055. The levy of interest be deleted." ITA No. 1148/Pn/2008 (for asst. yr. 2001-02): "1. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mewhat interconnected issues, all the four appeals are being disposed of by way of this consolidated order. 3. The relevant material facts are like this. A search and seizure operation under s. 132 was carried out in the case of one S.H. Soni on 29th July 2003. During the course of this search, some books of accounts and documents are said to have been seized which related to money-lending operations of the said S.H. Soni. According to the AO, "some of such (seized) documents were blank promissory notes signed by the borrowers, blank undated cheques duly signed by the borrowers with amounts borrowed mentioned". The AO was of the view that modus operandi of S.H. Soni was that "the loans were advanced in cash normally for 90 days after deducting the interest amount (varying from 1.5 per cent to 2 per cent per month) and brokerage amount" and "at the time of borrowing, the borrowers hand over blank cheque of the full amount borrowed and promissory note and another promissory note is also obtained to ensure interest payment on due dates by the borrowers which is recorded on the back of it". It was in this backdrop and on the basis of documents seized from S.H. Soni, the AO noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be given in advance. These documents did not bear the name of the advancer as such arrangement used to be done by the broker. Therefore, these documents though signed, were blank. You will appreciate that the documents seized and related to firm are also unnamed. Once again, I confirm that the documents signed were in respect of the amount to be borrowed by account payee cheques only. No cash loan has been taken or demanded. (b) As regards the list of the borrowers and lenders concerned, though the name of the firm is appearing in the list, these documents do not pertain to the firm. As such, I am unable to comment on it. I, as a partner of the firm or other partner, do not know the persons whose names are appearing after the names of the firm in the said list. (cl Under the circumstances and considering the facts, the amounts in question should not be considered as income. 15. The contentions of the assessee have been considered. However, the same are not acceptable for the reasons as under: (a) It goes beyond doubt that the assessee had accepted money from the above-mentioned persons through broker, Shri Soni. The cash book seized during the course of search operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- 48,000 ------------------------------------------------------------------- 2002-03 2,00,000 12 months 36,000 6,000 42,000 1,00,000 12 months 21,000 3,000 24,000 2,00,000 1 month 3,000 500 3,500 ------- 69,500 ------------------------------------------------------------------- 2003-04 2,00,000 12 months 36,000 6,000 42,000 1,00,000 12 months 21,000 3,000 24,000 2,00,000 12 months 36,000 6,000 42,000 ------- 1,08,000 ------------------------------------------------------------------- 2004-05 2,00,000 3 months 9,000 1,500 10,500 1,00,000 3 months 5,250 750 6,000 2,00,000 3 months 9,000 1,500 10,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances of the present case because the appellant's case is held to be distinguishable on facts." 8. The CIT(A) then proceeded to confirm the actions of the AO by observing as follows: "5.2 The following are the essential features in the present case: (i) The subject document is written on a Hundi paper in vernacular language; (ii) The subject document contains the name of the bank and amount of money and corresponding cheque for the same amount has been found, which is duly signed by the assessee. (iii) The subject document which is the basis for making addition under s. 69D was found and seized during the course of search under s. 132(1) in the premises of Shri Shriram Soni Group. As per the newly inserted provisions of law as contained in s. 292C, the presumption regarding the correctness of content of such seized material is available in any proceeding under the Act. On facts of case, it is absolutely clear that the appellant has failed to rebut the presumption regarding the correctness of the seized material which shows taking of loan by the appellant. From the conspectus of the material on record, taking into account the settled legal position in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unaccounted in case of books of accounts of the appellant. If the twin test of looking into the surrounding circumstances and applying the test of human probabilities as enunciated by the Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) are applied to the facts of the present case, it is absolutely clear that appellant was engaged in borrowing unaccounted money in cash to be utilized outside the books of accounts. The expenditure in respect of such loan by way of interest and brokerage also remains unaccounted as the source of the same has not been explained by the appellant. Taking into account these aspects of the matter and also considering the totality of facts and circumstances of the case, it is held that the action of learned AO in making addition under s. 69C of the IT Act, 1961 on account of unexplained expenditure in the form of interest and brokerage on borrowings is fully justified on facts and in accordance with law. Accordingly, the additions made by the AO on account of interest and brokerage are upheld in all assessment years under appeal." 9. Aggrieved by the stand of the CIT(A) as well, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow such a differentiation affects the legal principles laid down in those judicial precedents. Take for example, the decision of this Tribunal in the case of Asstt. CIT vs. Bissheshwarlal Mannalal Sons which was co-authored by one of us. In the said case, the Tribunal had, inter alia, concluded as follows: "It is not in dispute at all that the borrowing from the local moneylender was inherently a bilateral transaction; whatever money was borrowed by the assessee at the tea estate office was repaid to the moneylender, at another location by the assessee firm itself, by way of a crossed account payee cheque. As held by Hon'ble Andhra Pradesh High Court in Dexan Pharmaceuticals (P) Ltd.'s case, there are always three parties to a Hundi transaction and, therefore, it is clear that a bilateral transaction is to be treated as outside the ambit of Hundi transaction. A Hundi, as held by the Hon'ble Madras High Court in a large number of cases, must possess essential characteristics of the bills of exchange and not promissory notes; even the CBDT Circular No. 221 [1977 CTR (Jour) 260], referred to earlier, clarifies that a Hundi is an indigenous form of bill of exchange which is usually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l proposition set out in the preceding para, and which was stated in Bissheshwarlal Mannalal Sons. As for the findings that the borrowing should be treated as a borrowing on Hundi because it is made out in Hindi and is on a Hundi paper. we are of the view that merely because a promissory note is made out in a vernacular language and is on a general format, it would not attain characteristics of a bill of exchange which is sine qua non for being treated as a Hundi. 14. We, therefore, hold that the borrowings in question, even if that be so, are not covered by the inherently limited scope of s. 69D which covers only borrowings on Hundis and, for that reason, the CIT(A) indeed erred in upholding the impugned additions under s. 69D. 15. The next issue then is the payment of interest, which is added as an unexplained expenditure under s. 69C of the Act. 16. The basis of this addition is inferences drawn by the authorities below, and the expenditure is not evidenced by any cogent proof. We have noted that learned CIT(A) has relied upon landmark judgment of Hon'ble Supreme Court in Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) and proceeded to tax the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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