Burden of proof on unexplained cash credits and bad debts in income-tax turns chiefly on findings of fact.

In income-tax proceedings, a cash credit explanation rejected on the evidence was treated as a finding of fact, not a question of law. Where the source and character of a credit are specially within the assessee's knowledge, the burden of proving that the receipt is not income lies on the assessee, and the Revenue need not first prove the taxable source once the explanation fails. A claim for bad-debt deduction also depended on proof that the debt became irrecoverable in the relevant accounting year; that issue was likewise factual, and the disallowance was upheld.

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Issues: (i) Whether the Tribunal's refusal to accept the assessee's explanation for the cash credit of Rs. 7,829 gave rise to a question of law. (ii) Whether the Revenue was bound to prove positively the taxable source of the cash credit once the assessee's explanation was rejected. (iii) Whether the claim for deduction of Rs. 6,360 as a bad debt disclosed a question of law on the footing that the debt had become irrecoverable in the relevant accounting year.

Issue (i): Whether the Tribunal's refusal to accept the assessee's explanation for the cash credit of Rs. 7,829 gave rise to a question of law.

Analysis: The explanation for the cash credit was examined on the material already on record, including the assessee's own statements and the absence of supporting account books from the old money-lending business. The Tribunal's reasons showed that the explanation was rejected on evidentiary grounds, not on any erroneous principle of law. The conclusion was supported by material and turned on appreciation of facts.

Conclusion: No question of law arose; the finding was one of fact and stood against the assessee.

Issue (ii): Whether the Revenue was bound to prove positively the taxable source of the cash credit once the assessee's explanation was rejected.

Analysis: The governing principle applied was that the source and nature of the credit were specially within the assessee's knowledge, and the burden of proving that the receipt was not income lay on the assessee. If the assessee failed to establish the true source, the Income-tax Officer could draw an inference that the receipt was of an income nature. The earlier view relied on for the assessee was treated as not controlling, and the contrary line of authority was followed.

Conclusion: The burden lay on the assessee, not on the Revenue; the contention was rejected.

Issue (iii): Whether the claim for deduction of Rs. 6,360 as a bad debt disclosed a question of law on the footing that the debt had become irrecoverable in the relevant accounting year.

Analysis: The Court applied the rule that whether a debt has become bad, and when it became bad, is primarily a question of fact. The assessee had to show not merely that the amount was written off, but that it became irrecoverable during the year of account. The evidence relied on did not justify such an inference, and the Tribunal's conclusion was not vitiated by its observations on limitation.

Conclusion: No question of law arose; the disallowance of the bad debt stood against the assessee.

Final Conclusion: The application failed in entirety, as both disputed items were held to raise no referable question of law and the Tribunal's refusal to state the case was upheld.

Ratio Decidendi: In income-tax proceedings, where the assessee alone is in a position to explain the source and character of a credit, the burden of proof lies on the assessee, and findings rejecting the explanation or denying bad-debt deduction are ordinarily findings of fact unless they disclose an error of law.

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