K P MOIDEENKUTTY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Cochin Bench (hereinafter called the Tribunal) has referred to this Court under S.256(1) of the Income Tax Act, 1961 -- for short, the Act -- the following question:

(2.) The assessee is an individual who was deriving income from property as well as by way of a share from partnership business, apart from his own separate business in timber and petrol agency. In the return filed by the assessee for the assessment year 1963-64, for which the accounting period was the year which ended on 31-3-1963, the assessee had put forward a claim for deduction of interest amounting to Rs. 60,749/- on the basis that he had effected certain borrowals from Marwadi hundi brokers. On an investigation conducted by him into the said claim of the assessee the Income Tax Officer found that the borrowals referred to by the assessee purported to be renewals of loans originally taken in January, 1961. The assessee was asked to produce evidence in proof of the genuineness of those transactions of borrowing. But he did not examine any of the parties connected with those transactions, nor even produce the discharged hundies. The Income Tax Officer further found that the assessee had withdrawn large amounts of cash from the funds allegedly borrowed and out of the total borrowal shown in the accounts amounting to Rs. 4,81,000/- the assessee had utilised for his own personal purposes Rs. 1,90,000/-. The borrowals alleged to have been made from the Marwadi hundi dealers aggregated to Rs. 1,05,000/- and the claim for deduction of interest payment in respect thereof amounting to Rs. 42,693/- was disallowed by the Income Tax Officer on the ground that the genuineness of the borrowings had not been proved. But, while disallowing the said claim for deduction of interest, the Income Tax Officer did not make any addition of the amounts covered by the alleged hundies as income from unexplained source.

(3.) The assessee carried the matter in appeal before the Appellate Assistant Commissioner contending that the disallowance of the claim for deduction of interest on the hundi transactions was illegal and unwarranted. The Appellate Assistant Commissioner on examining the case was of opinion that certain matters required further investigation. He found that the capital account showed a debit balance of Rs. 60,000/- which was not properly explained. At the same time it was seen that the total withdrawals amounted to Rs. 5,00,000/-, while the total deposit was approximately Rs. 4,00,000/-. The Appellate Assistant Commissioner therefore felt that there was some justification in the submission of the assessee that he was withdrawing and redepositing moneys depending on the needs of the business. Since this crucial aspect in the matter had not been gone into by the Income Tax Officer before he finalised the assessment disallowing the claim for deduction for the interest payment, the Appellate Assistant Commissioner set aside the assessment and directed the Income Tax Officer "to redo the assessment after taking into account all the aspects of this case." In as much as he was setting aside the entire assessment, the Appellate Authority declined to consider the further point agitated by the appellant before him concerning the addition of Rs. 10,000/- as gross profit.