Madras H.C : Whether the Tribunal’s conclusions that the AAC was justified in deleting the additions ill respect of hundi credits and the interest claimed thereon is justified on the facts of the case, particularly when the assessee had not taken steps to produce the bankers either at the original assessment stage or at the reassessment stage ?

Counsel Appeared

Rajan, for the Revenue : Chitra Venkataraman, for the Assessee

SRINIVASAN, J.:

The only question that is referred to this Court for consideration is as follows : ” Whether the Tribunal’s conclusions that the AAC was justified in deleting the additions ill respect of hundi credits and the interest claimed thereon is justified on the facts of the case, particularly when the assessee had not taken steps to produce the bankers either at the original assessment stage or at the reassessment stage ? “

2. The assessee which is a partnership firm is carrying on business in the purchase and sale of piece goods, both in wholesale and retail, with its head office at Madurai. In the course of assessment proceedings for the asst. yrs. 1963-64, 1964-65 and 1965-66, the ITO found some credit entries in the books of the assessee in the names of Multani bankers at Madras. The assessee explained that such entries represented loans taken by the firm from those bankers for the purpose of the business. In support of the claim of the assessee, the discharged hundis and vouchers showing payment of interest were produced by the assessee. The ITO observed that most of the bankers had accepted that they had not lent moneys but had only lent their names and on that footing refused to accept the case of the assessee and included those amounts under the head ” Other sources “.

On appeal, the AAC held that the ITO ought to have examined the bankers if he intended to use the statements given by them as against the assessee. In that view, he set aside the assessments and remitted the matter for fresh consideration with a direction to the ITO to examine the Multani bankers.

After the remand, the ITO called upon the assessee to examine the broker who, according to the assessee, arranged for the loans from the bankers. The assessee had requested the ITO repeatedly to summon the bankers and examine them. The assessee had also given the name and address of the broker. It is stated that when the ITO tried to examine the broker through the 4th ITO, City Circle III, Madras, he came to know that the broker was not available at the address given. The ITO proceeded to make the assessment and in the assessment order, he repeated verbatim the original order of assessment excepting for the preamble portion.

Aggrieved by the same, the assessee preferred an appeal to the AAC. The appellate authority found that its direction to the ITO to examine the bankers was not obeyed and the fresh assessment made after remand was vitiated as the ITO had taken into account the statements made by the bankers without giving an opportunity to the assessee to cross-examine them. In that view, he directed deletion of the amounts in question. The view of the appellate authority was affirmed on further appeal by the Tribunal.

The Department wanted a reference to this Court on the question already set out and the Tribunal was directed to forward a statement of the case referring the said question. It is contended by learned counsel for the Revenue that the assessee had not discharged its initial burden of proving that there were loans incurred. It is argued that unless the assessee discharged its burden, it was not necessary for the ITO to have examined the Multani bankers. It is also urged that the rules of the Evidence Act would not strictly apply to the proceedings before the ITO.

Reliance is placed by learned counsel for the Revenue on the decision of the Supreme Court in C. Vasantlal and Co. vs. CIT (1962) 45 ITR 206. Learned counsel also draws our attention to certain passages in Sampath Iyengar’s Law of Income Tax, Volume III, at pages 2468 and 2469.

We think that neither the ruling of the Supreme Court mentioned above nor the passages found in the text book relied on by learned counsel will apply to the facts of the case. It is already seen that the assessee had for its part produced the discharged hundis and also vouchers showing payment of interest. That is sufficient for the assessee to discharge its initial burden. It was for the ITO to have examined the bankers when he wanted to rely on the statements obtained from them. He ought to have given an opportunity to the assessee to cross-examine them before taking into account the contents of those statements.

In this case, the appellate authority had given a specific direction to the ITO to examine the bankers before making use of their statements. Without complying with that direction, the ITO cannot make a reassessment on the same basis as it was done on the prior occasion. The Tribunal has pointed out that the order of reassessment is only a verbatim reproduction of the original order of assessment, word for word, except for the preamble portion. The Tribunal has come to the conclusion that there is no evidence to show that the credit entries in the books of account of the assessee are false, The conclusion of the Tribunal is based on the facts and circumstances of the case. That conclusion cannot be said to be unreasonable or perverse. Really, a question of fact has been answered by the Tribunal on the basis of evidence available on record.

In the result, we agree with the Tribunal that the appellate authority has rightly deleted the additions made by the ITO.

The question referred to us is answered in the affirmative and against the Revenue. The Revenue will pay the costs of the assessee.

[Citation : 171 ITR 373]