Sabyasachi Mukharji, J. - (1.) The assessee, M/s. C. Kant & Co., is a partnership firm consisting of four partners. In the course of assessment proceedings, the ITO noticed cash credits in the assessee's books of account in the names of six parties totalling in all to Rs. 77,500. Enquired about the nature and source of these credits, the assessee explained that these were loans obtained from those parties and produced letters of confirmation in respect of this contention. The ITO found that the credits were not verifiable and that the letters of confirmation alone did not establish the genuineness of the loans. The ITO, further, observed that the capacity of the alleged creditors to advance the loans in question was not proved. Hence, he held the sum of Rs. 77,500 as the assessee's income from other sources and he also disallowed a sum of Rs. 1,996 claimed as interest on the said deposits. The assessee made an appeal before the AAC. The AAC, in view of Section 68 of the Act, upheld the ITO's order.
(2.) There was a further appeal to the Tribunal. Before the Tribunal, it was contended that Section 68 had no application to the case of commercial loans. The Tribunal was unable to accept the contention of the assessee and upheld the order of the ITO.
(3.) There was a reference application under Section 256(1) of the I.T. Act, 1961, and the Tribunal refused to refer the question proposed by the assessee. The assessee made an application to this court under Section 256(2) of the I.T. Act, 1961. At the appropriate time, when the reference application under Section 256(2) came up for hearing, Mr. Justice A. N. Sen (as the learned Chief Justice then was) along with Mr. Justice T. K. Basu was taking up income-tax matters and other reference applications. Their Lordships made the rule absolute and directed the Tribunal under Section 256(2) of the I.T. Act, 1961, to make a reference to this court on the following questions: "1. Whether there was evidence before the Appellate Tribunal to hold that the sum of Rs. 77,500 appearing in the books of account as loan obtained from six parties and the sum of Rs. 1,996, being the interest paid thereon, did not represent loan or interest as explained by the assessee firm ? 2. Whether the Appellate Tribunal was right in holding that, in the circumstances of the case, the assessee-firm was under obligation to prove the creditworthiness of the lenders ?";