Law:

Section:

Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment years 1963-64 and 1964-65 - Cash credits in names of various persons and khata-peta loans were treated as assessee's income from undisclosed sources - Interest credited on items, so added, was also disallowed - Tribunal noted, inter alia, that, assessee had furnished confirmatory letters from directors and transactions were by cheques and deleted additions - Whether findings of Tribunal that cash credits and loans were genuine was based on evidence and, therefore, deletion of such items from computation of assessee's total income was justified - Held, yes - Whether interest paid on such items was also deductible in computing income of assessee - Held, yes FACTS The ITO found a number of cash credits standing in the names of various persons. He also found khata-peta loans received from D and P. Confirmation letters of the lenders were produced. The ITO issued summons under section 131 to the lenders at the addresses given by the assessee, but they were returned unserved with the remark "not known". The assessee could not furnish the latest whereabouts of the creditors except one B who was produced on behalf of firm D but he could not produce the books of account or any other evidence in support of the loan. The ITO, accordingly, held that neither the cash credit loans nor the khata-peta loans had been explained and that the amounts represented the concealed income of the assessee from undisclosed sources and, taking into consideration the peak amount of the cash credits made addition to the assessee's income. Similarly, the khata-peta loans were also added back. On appeal the AAC deleted both the additions. On Revenue's appeal, the Tribunal noted the following facts: (a ) in the assessment proceedings the assessee had furnished confirmatory letters from the creditors, (b) the transactions were by cheques, (c) the ITO did not investigate the accounts on which the cheques were drawn, (d) the assessee was not confronted with the confessions of the persons on which the revenue relied on the basis of these facts. The Tribunal upheld the order of the AAC in respect of the cash credits resulting from…

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