1989 (5) TMI 18 - HC - Income Tax

Reference answered affirmatively; loans treated as collusive and fictitious, documentary evidence unreliable, revenue claim upheld

HC held the Tribunal's finding that the assessee discharged the initial onus and that the loans were genuine was vitiated by reliance on partly ... Cash Credits - Whether the conclusion and/or the findings of the Tribunal that the assessee had discharged the initial onus in proving the loans as genuine and that the loans in question are genuine, are vitiated in law being based on partly relevant and partly irrelevant material and/or inadmissible evidence and/or evidence contradictory and/or inconsistent with the material on record and/or the Tribunal have acted without any legal evidence and/or by rejecting improperly admissible evidence and whether such conclusion and/or findings are otherwise unreasonable and/or perverse ? - HELD THAT:- Mere production of the confirmation letters before the Income-tax Officer would not by itself prove that the loans have been obtained from those loan creditors or that they have credit-worthiness. The assesee tried to explain that the receipts and payments of the alleged hundi loans have been made by cheques. The Income-tax Officer has found that the parties accommodated by handing over the cash to the hundi bankers and account payee cheques were issued against the same by them. On the due date for the discharge of the hundis, the party issued account payee cheques. The transactions made by cheques, therefore, lost their usual importance and the genuineness of the loans cannot be accepted merely because cheques were exchanged between the parties the assessee had failed to prove the credit-worthiness of the alleged lenders and that those lenders actually had any funds of their own out of which loans could have been advanced to the assessee. The assessee relied on the confirmatory letters given by the payee bankers. All these show that details were furnished by the assessee. None of these are the certificate copies of the assessee's accounts in the books of the payee bankers. The only inference is that the assessee has managed to get the confirmatory letters from the payee just as it had managed to get the bogus hundis. There can be no other inference. The transactions as well as the hundis and confirmatory letters are collusive, fictitious and false. The Income-tax Officer has relied on the confession made by these creditors. These crucial facts were not considered by, the Tribunal at all. The Tribunal did not advert to all the relevant facts in coming to the conclusion that the loans were genuine. For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the Revenue. Issues Involved: Determination of genuineness of hundi loans, burden of proof on assessee, consideration of relevant evidence by Tribunal.Summary:In a reference u/s 256(2) of the Income-tax Act, 1961, for assessment years 1965-66 and 1966-67, the issue was whether the Tribunal's conclusion on the genuineness of loans was based on relevant evidence. The Income-tax Officer initially disallowed hundi loans, but the Appellate Assistant Commissioner accepted their genuineness based on cheque transactions. The Revenue appealed, arguing lack of clear findings. The Tribunal upheld the loans' genuineness, noting cheque transactions and lack of rebuttal evidence by the Department.The Revenue contended that the Tribunal wrongly shifted the burden of proof on them and failed to consider all relevant materials. The assessee failed to prove the identity, capacity, and genuineness of creditors, as required. The Tribunal erred in accepting cheque transactions as proof of genuineness without verifying the nature of transactions. The Income-tax Officer found the loans fictitious based on confessions and lack of credit-worthiness of lenders. The confirmatory letters were deemed collusive, and the Tribunal overlooked crucial facts in its decision.The High Court held that the assessee failed to discharge the primary onus of proving the loans' genuineness. Mere production of confirmation letters and cheque transactions was insufficient to establish the loans' legitimacy. The Tribunal's decision was deemed erroneous as it did not consider all relevant facts, leading to a finding in favor of the Revenue.Separate Judgment by BHAGABATI PROSAD BANERJEE J.:Justice Bhagabati Prosad Banerjee concurred with the decision in favor of the Revenue.