1. M/s. Nanak Chandra Laxman Das, Allahabad, a registered firm, hereinafter referred to as 'the assessee' carried on business in the manufacture and sale of bricks. For the assessment year 1963-64, the relevant accounting period being October 26, 1961 to October 31, 1962, the assessee disclosed a net profit of Rs. 27,030 on sales and cartage receipts amounting to Rs. 2,23,399. The ITO did not accept the disclosed profit and, applying a net profit rate of 17 1/2 per cent. on the total receipts, estimated it at Rs. 2,30,000. Ultimately, the Appellate Tribunal sustained the net profit at Rs. 34,500.
2. The ITO further found that during the relevant previous years the assessee had taken some hundi loans. One such creditor was M/s. Jethanand Madan Das, r/o-4/1, Madan Street, Calcutta, and a loan of Rs. 17,000 was shown to have been taken from him on September 5, 1962. On the same date there was a loan of Rs. 25,000 taken from M/s. Amar Mal Mool Chandra, whose residence was the same as that of M/s. Jethan and Madan Das and there was a third loan of Rs. 20,000 taken on the same date from M/s. Govind Das Nichal Das of Calcutta. The assessee filed a confirmation letter from these creditors but, despite opportunities given, did not produce them before the ITO. Accordingly, the ITO treated the aggregate amount of these loans which came to Rs. 62,000 as the assessee's income from undisclosed sources.
3. Aggrieved, the assessee filed an appeal. The AAC set aside the assessment order and directed the ITO to make it afresh after allowing the assessee an opportunity to cross-examine these parties and also to produce such evidence as it may like. It may be noted that the ITO had relied upon some confessions made by these creditors in which they had disowned the advance of such loans.
4. The assessee was not satisfied with the remand order passed by the AAC and went in second appeal before the Income-tax Appellate Tribunal. The Tribunal, vide its order dated February 26, 1973, called for a remand report from the ITO. The ITO complied with that order and submitted his report. Thereafter, when the appeal came up for hearing before the Tribunal the parties agreed that the Tribunal would not be required to see what more could have been done by the ITO or the assessee. In the Tribunal's own words: 'what we have to see is what has been done or what has been brought on record and what is our impression from the material on record'. With that end in view the Tribunal proceeded to reappraise the material brought on record. The Appellate Tribunal was also of the opinion that the onus to prove the nature and source of credit was upon the assessee and that the filing of a mere confirmation letter would not amount to a sufficient discharge of the burden placed upon the assessee under Section 69 of the I.T. Act. The assessee has to prove not only the identity of the creditor but has further to prove that the creditor had the capacity to advance the loan. The Tribunal then found that the identity of the creditors could not be disputed because they were all assessees on record and also had made statements before the Department. As for their capacity to advance the loans, the Tribunal accepted the genuineness of the loan taken from M/s. Govind Ram Nichal Das, but in regard to the other two did not accept the genuineness of the same. As for the alleged loan from M/s. Jethanand Madan Das the only evidence on record was the confirmation letter of the party, which, in the opinion of the Tribunal, was not sufficient to discharge the burden which lay on the assessee. Accordingly, the addition of that amount was confirmed.
5. At the instance of the assessee and as directed by this court, the Appellate Tribunal drew up a statement of the case and referred the following question for the opinion of this court:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the assessee's explanation for the credit entries standing in favour of M/s. Jethanand Madan Das and, in particular, whether the finding of the Tribunal is vitiated on account of irrelevant consideration and misappreciation of law ?'
6. So far as the question as to whether or not the Tribunal was influenced by any irrelevant consideration is concerned, nothing could be pointed out to us in support of it. As noted above, in first appeal, the AAC had accepted the assessee's contention that proper opportunity had not been given to it to produce its evidence before the ITO. The AAC accordingly remanded the case with certain directions to the ITO to make the assessment afresh. The assessee was even then not satisfied and took up the matter in appeal before the Appellate Tribunal. The Appellate Tribunal set aside the order of the AAC and called for a remand report from the ITO. After the remand report was received the assessee and the Department both agreed before the Tribunal that it was not required to see what more could have been done by the ITO or the assessee. The Tribunal was left to decide the matter on the basis of the material on record. The Tribunal, thereafter, decided the question of the genuineness of this loan on the basis of that material and we agree that a mere confirmation letter from the alleged creditor could not have been treated as sufficient evidence to prove the genuineness of the loan. The Tribunal was not swayed by any irrelevant consideration in arriving at this finding.
7. Now, coming to misappreciation of law, it was submitted before us on behalf of the assessee that the Tribunal erred in considering the case under Section 69 of the Act because it was Section 68 which was applicable and the onus lay on the Department to prove that the credits appearing in the books of the assessee were not genuine. We find no merit in this contention. It is correct that Section 68 would be applicable to the facts of the case because certain sums were found credited in the books of the assessee maintained for the relevant previous year. The question arises as to what is the nature of onus of proof under this provision. This section reads :
'68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.'
8. There was no provision in the 1922 Act corresponding to this section. The section, however, gives a statutory recognition to the principle that cash credits which are not satisfactorily explained may be assessed as income. It would be seen that where any sum is found credited in the books of an assessee, the assessee is required to offer an explanation about the nature and source thereof. If the explanation offered by him is not considered as satisfactory by the ITO, the sum so credited can be treated as the assessee's income from undisclosed sources. It is not necessary for the ITO to locate the exact source of the credits. We may refer to a decision of the Supreme Court in Kale Khan Mohammad Hanif v. CIT : 50ITR1(SC) , where it has been laid down that the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee's account or in the account of a third party. Irrespective of the fact that a credit entry is in the name of the assessee or is in the name of a third party, the burden lies upon the assessee to explain the credit entry. It is correct that in certain circumstances the onus might shift to the ITO. For instance, if the assessee succeeds in showing that entries regarding cash credits in a third party's account are genuine and the sums were in fact received from the third party as loans or deposits, he had discharged the onus and in such a case it will be for the third party to explain the source of the moneys and that cannot be charged as the assessee's income in the absence of any material to indicate that they belong to the assessee.
9. Our attention was invited by the learned counsel for the assessee to a decision of this court in Chaturbhuj & Co. v. C1T : 36ITR386(All) . We do not think that that decision in any way appreciably helps the assessee. What has been laid down therein is that where moneys appearing in the books of account of the assessee as belonging to another person, is sought to be taxed as the income of the assessee, the assessee may be required to give an explanation in respect of the entry in the accounts, but the mere rejection of the explanation given by him, without a finding that the explanation was unsatisfactory or unreasonable or false, did not provide any material for an inference or finding that the money belonged to the assessee and not to the person to whom it purported to belong according to the entry in the books of account.
10. It would appear that the initial onus is on the assessee to offer an explanation and that explanation has to be to the satisfaction of the IT.O. If the explanation is not found satisfactory or reasonable, the ITO can treat such money as the assessee's income from undisclosed sources. The assessee has to prove that the credit entry is genuine and that fact can be proved by establishing from some plausible evidence the identity of the creditor and his creditworthiness. In the instant case the only material on record in regard to the impugned transaction was the so-called confirmation letter from the creditor. That alone could not have served the purpose. The same was the position in regard to the furnishing of the G.R. number of the creditor. Apart from this, the assessee itself foreclosed any further enquiry in the matter by agreeing to the decision of this question on the basis of the material already on the record. The finding of the Appellate Tribunal in this behalf is a pure finding of fact.
11. Reliance was also placed on behalf of the assessee on a decision of the Assam High Court in Nabadwip Chandra Roy v. CIT . In that case a distinction was drawn on the question of the burden of proof in regard to a credit entry appearing in the assessee's own name and the one appearing in the name of a third party. As for the credit entry appearing in the assessee's own name, the view taken was that the burden lay on the assessee to prove the source and nature of a particular receipt and that the receipt is not in the nature of an income. However, in cases where the amount is shown to have been deposited by a third party, it was held that prima facie it cannot be regarded as a receipt by the assessee, much less a taxable income, and in that event it is for the Department, if they want to tax it as income of the assessee, to show by some materials that the amount standing in the name of the third party does not belong to that third party but belongs to the assessee. That was a decision rendered on its own facts. The receipt under consideration appeared in the books of the assessee in his own name and it was in the nature of bonus receipt in respect of which the assessee had claimed exemption as being casual and of non-recurring nature. So, the question of burden of proof in regard to a credit entry appearing in the name of a third party was not directly involved in that case. However, even this decision will not help the assessee because here what had provoked the ITO to doubt the genuineness of the entry was the confessional statement made by the creditor himself. It is another thing that the Tribunal did not place any reliance on that statement, and very rightly so, because the assessee had not been given an opportunity to cross-examine the person. None the less, there was some background for disputing the genuineness of the entry on the part of the ITO and that being so, the assessee was required to satisfy him that the entry was genuine.
12. The last case, on which reliance was placed, is the decision of the Prima High Court in Radhakrishm Behari Lal v. CIT : 26ITR344(Patna) . We do not think that that decision improves the case of the assessee in any appreciable manner. That court also took the view that if a cash credit stands in the assessee's name in his books the burden of proof is upon him to show that the item of receipt is not of an income nature but in regard to a sum shown in the name of a third party the position is different. In such a case the onus of proof is not upon the assessee to show the source or nature of the amount of cash credit. The onus shifts on to the Department to show by some material that the amount standing in the name of the third party does not belong to him but belongs to the assessee. We find that that decision was rendered on the facts of that case and it was a proceeding taken under Section 34 of the 1922 Act. We have already referred in this connection to the decision of the Supreme Court in Kale Khan Mohammad Hanif v. CIT : 50ITR1(SC) and of our court in Chaturbhuj & Co. v. CIT : 36ITR386(All) . In our opinion, on the facts found by the Tribunal the disputed amount was rightly treated as the assessee's income from undisclosed sources.
13. We, therefore, answer the question referred to us in the affirmative, against the assessee and in favour of the Department. The Department is entitled to costs which are assessed at Rs. 250.