1974 (12) TMI 28 - HC - Income Tax

Summary

Issues Involved:
1. Whether the appellant discharged the onus within the meaning of section 68 of the Income-tax Act, 1961, for the cash credits.
2. Whether the Income-tax Appellate Tribunal was justified in law to maintain the addition of Rs. 15,000 as the assessee's income from undisclosed sources.

Summary:

Issue 1: Onus of Proof u/s 68 of the Income-tax Act, 1961
The assessee, a registered firm, had certain cash credits in its books of account in the names of Shree Zahir Hussain and Shree Ram Swarup Saw. The Income-tax Officer (ITO) issued summonses u/s 131 of the Act to both individuals. Both appeared and stated on oath that the amounts were from their past income. The ITO disbelieved their statements due to lack of evidence regarding their sources of income and added Rs. 20,000 to the assessee's income as undisclosed sources u/s 68. The Appellate Assistant Commissioner (AAC) overturned this addition, stating that the onus shifted to the ITO once third parties admitted to the loans. The Tribunal, however, held that the primary onus was on the assessee to prove the nature and source of the deposits, which it failed to do, and added Rs. 15,000 to the assessee's income, allowing Rs. 5,000 as explained.

Issue 2: Justification of Addition of Rs. 15,000 as Income from Undisclosed Sources
The High Court held that the principles governing cash credit entries under the 1922 Act also apply to the 1961 Act. It emphasized that if the identity of the third party is established and they admit to the loans, the burden shifts to the department to disprove the assessee's claim. The Court found that the ITO's rejection of the creditors' explanations did not automatically imply the entries were fictitious. The Tribunal's partial acceptance of the creditors' explanations (Rs. 5,000) and partial rejection (Rs. 15,000) was deemed without evidence and perverse. The Court concluded that the assessee had discharged the onus u/s 68, and the Tribunal was not justified in maintaining the addition of Rs. 15,000 as income from undisclosed sources.

Conclusion:
The High Court answered the first question in the affirmative, holding that the assessee discharged the onus within the meaning of section 68 of the Act for the cash credits. Consequently, it also held that the Tribunal was not justified in maintaining the addition of Rs. 15,000 as the assessee's income from undisclosed sources. The assessee was entitled to costs, with a hearing fee assessed at rupees one hundred.