Promissory note treatment excluded section 69D relief where the instruments lacked the essential characteristics of a hundi.

Borrowings evidenced by instruments containing an unconditional promise to repay with interest were treated as promissory notes and not hundis, so section 69D of the Income-tax Act, 1961 did not apply. Both appellate authorities found that the instruments lacked the essential characteristics of a hundi, and the genuineness of the loans was not material to the reference. On that basis, the addition made under section 69D was rightly deleted and the question referred was answered against the Revenue.

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Issues: Whether borrowings recorded on the instruments in question were hundi loans so as to attract section 69D of the Income-tax Act, 1961, or merely promissory notes outside its scope.

Analysis: The instruments were found by both the appellate authorities to contain an unconditional promise to repay with interest and to lack the essential characteristics of a hundi. Where the document is in substance a promissory note and not a hundi, section 69D does not apply. The genuineness of the loans was not material to the reference.

Conclusion: Section 69D of the Income-tax Act, 1961 was not applicable, and the addition made on that basis was rightly deleted. The question referred was answered in the affirmative and against the Revenue.

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