KEMOX CORPORATION,MUMBAI vs. DCIT-CC-3, THANE, THANE

The present appeal has been filed by the assessee challenging the impugned order 13.12.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / CIT(A) Mumbai, for the A.Y 2013-14. The assessee has raised the following grounds of appeal:

On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in upholding the addition of interest on the alleged cash loans u/s 69C of the Act for the part period despite the fact that the Assessing Officer made the addition without issuing any show cause notice in this regard.

We have heard the counsels for both the parties and perused the material placed on record, judgement cited before us and the orders passed by the revenue authorities.

From the records, we noticed that search and seizure operation u/s 132 of the act was carried out on Dodhia Group of cases including the assessee on 27/11/2019. During the search action, as per AO, hundi papers 4 Kemox Corporation, Mumbai. belonging to the assessee were seized from the premises of Divyesh R Dhanani and it was found that the assessee had taken hundi loan from two persons. Accordingly, after recording the reasons to believe that income for the year under consideration has escaped assessment, the AO issued notice u/s 148 of the act and in response thereof, assessee filed its return of income. However, while completing the assessment an addition of Rs.2,00,000/- was made u/s 69D of the act by observing that assessee had taken cash loan and Hundi was prepared for the same amounting to Rs.2 lakhs during the year under consideration.

After having heard both the parties at length and evaluating the seized document at page No. 61 of bundle no 4, which was considered as Hundi by the Ld.AO is scanned as under:

On scrutinizing the same, we are of the view that the primary requirement for invoking the deeming provision of section 69D of the Act is that the document must be Hundi and it is only thereafter that the deeming provision comes into play as explained in the cases of CIT Vs Dexan pharmaceuticals Private Limited, 1995 214 ITR, 576(AP), & Ravi B Jaising Vs. ACIT in ITA no 4592/MUM/2017

In our consider view, the document in question is not a Hundi because it represented a bilateral transaction and it was also not on the Hundi paper. In the absence of those vital ingredients, the document could not be described as a Hundi and therefore, the presumption u/s 69D of the Act would not be available to the revenue. In this regard we placed reliance upon the decision of Hon’ble Delhi High Court in the case of CIT Vs. Ram Niwas [2008] 170 taxman 5 (Delhi).

While examining the facts of the present case on the touchstone of the contention of the assessee, we note that the Hon’ble Andhra Pradesh High Court in the case of Dexan pharmaceuticals Private Limited, (Supra) and coordinate bench of ITAT in the case of Ravi B jaising Vs ACIT in has noted that “A bill of 7 Kemox Corporation, Mumbai. exchange in the vernacular language is generally called as Hundi. Hundies are negotiable instruments written in an oriental language, they are sometimes bills of exchange and at other times promissory notes and are subject to local usage and are uneffected by the provisions of the Indian negotiable instrument act”.

The Hon’ble High Court has further concluded as under: We feel that one of the reasons for bringing s, 69D of the Act on the statute book is to cover the Hundi transaction in view of the wording of s. I of the Negotiable Instruments Act. Now considering the present transactions as pointed out already, we find that apart from the fact that the contents of the documents are in English and not in oriental language, the transactions are not between three parties at all. The transactions aforesaid are all bilateral. The drawer himself is the drawee in all the transactions under question. Though it may not he wholly accurate to say that all the instruments which are not drawn in vernacular cannot he Hundis, there is no doubt whatsoever that the absence of oriental language in the document coupled with the fact that the transaction is only bilateral and not tripartite is conclusive to show that the instrument though titled as Hundi was not really a Hundi transaction The transactions are very much on the lines of promissory note where it is a bilateral transaction. It is not the form but the substance of the document and the true transaction which is really to be seen. A plain reading of s. 69D of the Act shows that it can be brought into service only when the loan transaction is of Hundi loan. It may also be pointed out incidentally that the documents under consideration have waived the notice of dishonour in advance and no grace period is granted. This is also indicative of the transaction being not a Hundi transaction.

After examining the facts of the present case on the touchstone of the above Hon’ble High Court’s decision, we find that in the present case also the instrument as placed on record in the paper book and also scanned in the above portion of this order are in English language and are all bilateral and not tripartite. In the facts and circumstances of the case, as per the precedent as above, it cannot be treated as Hundi. Hence, the disallowance made u/s 69D of the Act is unsustainable. Accordingly, we set aside the order of CIT(E) and decide the issue in favour of the assessee.

In the result, the appeal filed by the assessee stands allowed.