Interpretation of Income-tax Act Section 69D on hundis clarified by Tribunal's Third Member

The case involved the applicability of Section 69D of the Income-tax Act, 1961 to borrowings on hundis and whether instruments written in English on Government hundi stamp papers are considered hundis under Section 69D. The Tribunal, through its Third Member, resolved the dispute by upholding the Commissioner (Appeals)'s decision to delete the addition made by the Income Tax Officer, following the Tribunal's earlier decision in the assessee's own case. The Third Member emphasized the importance of maintaining consistency in decisions on identical issues and ruled in favor of the assessee, disposing of the appeal accordingly.

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Issues Involved:
1. Applicability of Section 69D of the Income-tax Act, 1961 to borrowings on hundis.
2. Whether instruments written in English on Government hundi stamp papers are considered hundis under Section 69D.

Issue-wise Detailed Analysis:

1. Applicability of Section 69D of the Income-tax Act, 1961 to borrowings on hundis:

The revenue's contention was that the Income Tax Officer (ITO) correctly added Rs. 57,375 under Section 69D of the Income-tax Act, 1961, as the borrowings and repayments were not made through account payee cheques. The Commissioner (Appeals) deleted this addition, following the Tribunal's earlier decision in the assessee's own case for the assessment year 1978-79. The Tribunal's decision was not accepted by the department, and they sought to keep the matter alive. The Accountant Member upheld the Commissioner (Appeals)'s order, dismissing the revenue's appeal by following the Tribunal's earlier order. Conversely, the Judicial Member disagreed, arguing that the revenue's appeal should be allowed, as the instruments were written in English and thus should be considered hundis under Section 69D.

2. Whether instruments written in English on Government hundi stamp papers are considered hundis under Section 69D:

The Judicial Member argued that English is recognized as one of the Indian languages under the Constitution of India and as an official language of the Government of India. Therefore, instruments written in English on Government hundi stamp papers should be considered hundis for the purpose of Section 69D. The Judicial Member also noted that the Bombay Benches of the Tribunal had taken a different view, which he found more rational and reasonable. He concluded that the decision of the Bombay Tribunal should be followed, as it aligns with the constitutional provisions, and set aside the Commissioner (Appeals)'s order, restoring the ITO's addition.

Third Member's Decision:

The Third Member, Senior Vice President, was brought in to resolve the difference of opinion between the Accountant Member and the Judicial Member. The Third Member noted that the assessment related to the assessment year 1979-80, and the assessee, a partnership firm, had borrowed Rs. 57,375 on hundis, with none of the borrowals or repayments made through account payee cheques. The ITO added the entire sum as income under Section 69D, which was deleted by the Commissioner (Appeals) following the Tribunal's earlier decision in the assessee's own case. The Third Member emphasized that the Tribunal should follow its earlier view on identical issues to maintain the faith of litigants in the administration of justice. He disagreed with the Judicial Member's view that the matter should not be referred to a Special Bench and found no basis for ignoring the Tribunal's earlier decision. The Third Member agreed with the Accountant Member's view, holding that the Commissioner (Appeals) was correct in deleting the addition by following the Tribunal's earlier order in the assessee's own case.

Conclusion:

The matter was resolved in favor of the assessee, with the Third Member agreeing with the Accountant Member that the Commissioner (Appeals) was right in deleting the addition following the Tribunal's earlier decision. The appeal was disposed of in accordance with the majority view.

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