Third-party cash credit in books cannot be taxed as assessee's income without evidence rebutting the depositor's ownership.

A credit entry in regular books standing in the name of a third party is prima facie attributable to that person, and the assessee is not required to prove the source of the third party's funds merely because of the relationship with the depositor. Section 106 of the Evidence Act was held inapplicable on these facts, since the department had to produce material showing that the apparent third-party deposit was not genuine or really belonged to the assessee. An unrelated similar deposit by another partner's wife had no probative value. The reference was answered in favour of the assessee.

---

---

Issues: Whether a cash credit standing in the name of the assessee's wife in the firm's books could be treated as the assessee's undisclosed income merely because the assessee did not prove the source from which the wife obtained the money, and whether the Tribunal could draw an adverse inference from a similar deposit made by another partner's wife on the same day.

Analysis: A credit entry in the regular books of account standing in the name of a third party is prima facie evidence that the entry belongs to that person. The mere relationship of the depositor to the assessee does not, without specific proof, place the source of the depositor's funds within the assessee's special knowledge so as to attract Section 106 of the Indian Evidence Act. Once the assessee produces the books and a declaration by the depositor asserting ownership of the money, the burden does not remain on the assessee to prove how the third party acquired the funds. If the department seeks to tax the amount as the assessee's income, it must adduce material showing that the apparent third-party deposit was not genuine or did not belong to the depositor. The Tribunal also relied on an unrelated similar deposit by another partner's wife, but that circumstance had no probative value in determining the ownership of the disputed deposit.

Conclusion: The issue was decided in favour of the assessee. The Tribunal was not justified in treating the amount standing in the wife's name as the assessee's undisclosed income, and the reference was answered in the negative.

Ratio Decidendi: Where a genuine credit entry stands in the name of a third party in regular books of account, the entry is prima facie attributable to that third party, and the revenue must bring material to show that it ly belongs to the assessee before taxing it as the assessee's income.

---