PRABHAVATI S SHAH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference in compliance with the directions of this Court under S. 256(2) of the IT Act, 1961, the Tribunal was referred the following questions of law to this Court for opinion:

(2.) THE assessee is an individual. This reference pertains to the assessment of her income under the IT Act, 1961 ("Act") for the asst. year 1971 72, the relevant previous year being previous year ended on 30th Oct., 1970. In the course of proceedings for assessment for the above assessment year, the ITO noticed that the assessee had taken two loans, one of Rs. 1,00,000 from one M/s. K. Commercial Company and the other of Rs. 40,000 from Shri Champaklal Dalpatrai. He called upon the assessee to produce confirmation letters in respect thereof from the concerned creditors. The assessee did not produce the same. Thereupon, the ITO, on his own accord, tried to make necessary enquiries. In the case of M/s K. Commercial Company, he failed to do so because the summons issued by him could not be served as the said company was not found to be in existence. In respect of loan from Champaklal Dalpatrai, he found that the assessee had failed to identify the creditors. The ITO, therefore, concluded that the two amounts alleged to have been borrowed by the assessee from the above creditors were bogus. Hence, he added the amount of the above loans, together with interest thereon, to the total income of the assessee as income from undisclosed sources. The addition made amounted to Rs. 1,43,520. Against the order of the ITO, the assessee appealed to the AAC. Before the AAC, it was submitted by the assessee that the ITO was not justified in treating the loans and interest paid thereon as not genuine. It was contended that the assessee had taken the loan from M/s K. Commercial Company by cheque and that being so, the ITO should have considered that fact and should have made enquiries with the bank. In respect of the loan from Champaklal Dalpatrai, it was contended that the said amount was received by the assessee by cheque and repayment thereof was also made by cheque. In support of this contention, the assessee produced before the AAC photostat copies of the cheques as also certificate from the bank to show that the sum of Rs. 40,000 was received from Champaklal Dalpatrai. A copy of the account of the assessee with the said bank was also produced. The AAC, however, did not permit the assessee to produce the above additional evidence in view of r. 46A of the IT Rules, 1962 ("Rules") as, according to him, the case of the assessee did not fall within the scope of any of the exceptions provided in sub r. (1) thereof. He, therefore, did not take into consideration the evidence produced by the assessee in regard to the loan of Rs. 40,000 and upheld the addition of the said amount. This order of the AAC was also upheld by the Tribunal. Dealing with the order of the AAC refusing to allow the assessee to produce further evidence in support of the loan of Rs. 40,000, the Tribunal observed as follows:

(3.) ON a conjoint reading of S. 250 of the Act and r. 46A of the Rules, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the AAC under sub s. (4) of S. 250 of the Act. The purpose of r. 46A appears to be to ensure that evidence is primarily led before the ITO.