1987 (8) TMI 137 - AT - Income Tax

Tribunal remands hundi classification case for fresh examination

The Tribunal set aside the AAC's order and remanded the matter for a fresh examination to determine whether the document was a hundi. If confirmed as a ... Amount Borrowed Or Repaid On Hundi Issues Involved:1. Application of Section 69D of the Income-tax Act, 1961.2. Nature of the document (hundi or promissory note).3. Genuineness of the loan transaction.4. Treatment of the loan amount as income.Issue-wise Detailed Analysis:1. Application of Section 69D of the Income-tax Act, 1961:The primary issue in this case was whether Section 69D of the Income-tax Act, 1961, applied to the assessee's borrowing of Rs. 20,000. Section 69D states that any amount borrowed on a hundi, or repaid, otherwise than through an account payee cheque, shall be deemed to be the income of the person borrowing or repaying the amount for the previous year in which it was borrowed or repaid. The Tribunal examined the language of Section 69D and concluded that it is a deeming provision that does not consider the genuineness of the loan. The section aims to discourage cash transactions against hundis, which were often misused by tax evaders. The Tribunal noted that unlike Section 40A(3), which has exceptions under Rule 6DD, Section 69D does not provide any exceptions, making it mandatory to treat such borrowings as income if they are not through an account payee cheque.2. Nature of the Document (Hundi or Promissory Note):The nature of the document against which the loan was taken was crucial to determine the applicability of Section 69D. The Income-tax Officer (ITO) concluded that the document was a hundi, not a promissory note, after a detailed examination. The Appellate Assistant Commissioner (AAC) did not examine this aspect thoroughly and relied on precedents that were factually different. The Tribunal emphasized that the AAC should have examined whether the document was indeed a hundi. The Third Member also agreed that the first step was to ascertain the nature of the document, as the application of Section 69D hinges on it being a hundi.3. Genuineness of the Loan Transaction:The assessee argued that the transaction was genuine and cited previous judgments to support this claim. However, the Tribunal clarified that the genuineness of the transaction is irrelevant under Section 69D. Even if the loan is genuine, if it is taken against a hundi and not through an account payee cheque, it must be deemed as income. The Tribunal distinguished the present case from the cited cases, noting that the facts and documents involved were different.4. Treatment of the Loan Amount as Income:The ITO treated the loan amount as income under Section 69D because it was borrowed against a hundi in cash. The AAC deleted this addition, but the Tribunal found this to be incorrect without a proper examination of the document's nature. The Third Member highlighted that the document's nature must be determined first. If it is a hundi, then Section 69D applies, and the amount should be treated as income. The Third Member disagreed with the Judicial Member's view that a document in favor of a non-existent person is a nullity and cannot be treated as a hundi. The Third Member concluded that the AAC's order should be set aside, and the matter should be re-examined to determine the document's nature.Conclusion:The Tribunal set aside the AAC's order and remanded the matter for a fresh examination of the document to determine whether it was a hundi. If it is found to be a hundi, Section 69D would apply, and the loan amount would be deemed as income. The Third Member's opinion aligned with the Accountant Member's view, emphasizing the need to ascertain the document's nature before applying Section 69D. The case was referred back to the AAC for a detailed examination and a speaking order on the nature of the document.