Judgment

Quadri, J.-The Revenue is in appeal, by special leave, against the order of the Karnataka High Court dated August 4, 1980, in I.T.R.C. No. 180 of 1975, answering the following question, referred to it under Section 256(1) of the Income Tax Act, 1961, in the negative, that is, in favour of the assessee and against the Revenue.

“Whether on the facts and circumstances of the case the Tribunal was justified in law in upholding the assessment of the sum of Rs. 32,58,500/- as the income of the assessee for the assessment year 1960-61.”

2. A brief narration of the facts leading to reference of the said question to the High Court, may be necessary to appreciate the conten­tion urged before us. On December 5, 1961, an order of regular assess­ment of the respondent/assessee was passed for the assessment year 1960-61 for which the relevant accounting year ended on May 31, 1959. Subsequently it came to the notice of the Income Tax Officer that a sum of Rs. 32,58,500/- had been received by the assessee purporting to be loan advanced under agreement dated November 15, 1958 entered into between the assessee and Farsons & Whittemore. The assessee promoted M/s. Mandva National Paper Mills (fo