Cash credit scrutiny under section 68 remains open despite creditor disclosure under the Finance (No. 2) Act, 1965.

A disclosure made by a creditor under section 24(2) of the Finance (No. 2) Act, 1965 did not by itself explain cash credits appearing in another assessee's books. The statutory fiction created by section 24(3) was confined to the declarant and could not be extended to a third party's assessment. The Assessing Officer therefore remained entitled to examine the genuineness and source of the credit under section 68 of the Income-tax Act, 1961, and to treat the amount as unexplained if the assessee failed to offer a satisfactory explanation.

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Issues: Whether cash credits standing in the assessee's books could be treated as satisfactorily explained merely because the creditor had made a disclosure under section 24(2) of the Finance (No. 2) Act, 1965, and whether such disclosure barred inquiry under section 68 of the Income-tax Act, 1961.

Analysis: The reference was answered in the light of the Supreme Court's ruling that the legal fiction created by section 24(3) of the Finance (No. 2) Act, 1965 was confined to the declarant and could not be extended to the assessment of another person. That scheme did not prevent the Assessing Officer from examining the genuineness and source of a credit appearing in the assessee's books, and if the explanation was not satisfactory, section 68 of the Income-tax Act, 1961 remained applicable notwithstanding the prior disclosure by the creditor.

Conclusion: The assessee could not rely on the creditor's disclosure to discharge the burden of explaining the cash credit, and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A disclosure under the Finance (No. 2) Act, 1965 does not immunise a cash credit in another assessee's books from scrutiny under section 68 of the Income-tax Act, 1961, because the statutory fiction is limited to the declarant.

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