COMMISSIONER OF INCOME TAX Vs. SHAH U M PROPRIETOR SHRENIK TRADING CO
HIGH COURT OF BOMBAY
COMMISSIONER OF INCOME TAX
U.M. SHAH, PROPRIETOR, SHRENIK TRADING CO.
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(1.) WHILE it is not the practice of this Court to give reasons when discharging a rule issued, we depart from that long standing practice because we have been recently directed by the Supreme Court to
give reasons, vide CIT vs. Daulatram Rawatmall (1970) 78 ITR 318 (SC) and Reform Flour Mills P.
Ltd. vs. CIT (1970) 78 ITR 322 (SC).
(2.) HAVING heard counsel for both the parties we are satisfied that in this case the rule ought to be discharged. The dispute relates to an amount of Rs. 2,77,500 which the ITO added back as the
income of the assessee from undisclosed sources. The details regarding this amount are mentioned
in paragraph 4 of the ITO's order. The assessee's case was that these are genuine transactions of
borrowings on hundies from various parties. The ITO has himself said that "complete details have
been furnished by the assessee in respect of loans from these bankers". The assessee had given
the names, addresses and the amounts borrowed from each and every one of the persons to make
up this amount of Rs. 2,77,500. The ITO, however, wished to have all the bankers before him for
examination and the assessee agreed that they should be summoned. They were summoned but
they did not appear but instead each one of them sent a letter confirming the loan advanced by
them to the assessee. The ITO was nonetheless not satisfied and held as follows :
"The most important point to be noted in the case of cash credits is that the assessee should prove to the satisfaction of the I. T. O. that the person concerned was in a position to have given the loan. And the only way in which the I. T. O. can have this satisfaction is to cross -examine the party. The I. T. O. is only obliging the assessee by issuing summons to the third party concerned. If, therefore, the summons is not served or if after the service of the summons the party does not turn up, it is for the assessee to produce the party himself so that the I. T. O. can examine and satisfy himself that the party was in a position to give the loans alleged to be taken from him."
Now in this view undoubtedly the ITO was in error. It is not for the party to have produced the
witnesses without a summons. The ITO did summon afresh the parties concerned. They received
the summons but did not appear. The assessee could not be blamed for all this.
This was the main ground of challenge to the ITO's order before the AAC in appeal and the AAC realised the error into which the ITO had fallen but circumvented it. He appreciated the argument
advanced as can be seen from the following passage :
"It was submitted that for enforcing attendance of the hundi brokers the appellant had no powers ; on the contrary the ITO had necessary powers to enforce the terms of summonses issued which he has failed to do."
(3.) NOW this submission was made on behalf of the assessee because the assessee desired that upon the evidence which he had led the decision of the ITO should be reversed and that it should
be held that the loans were genuine loans and could not be added back to the income of the
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