Unexplained credits and unproven finance charges failed where the assessee could not substantiate the source or borrowing liability.

Under section 68, credits reflected in a bank account were upheld as unexplained because the assessee gave conflicting, uncorroborated explanations and failed to prove the nature and source of the entries; facts especially within the assessee's knowledge had to be substantiated by reliable evidence. The related claims for interest and finance charges were also disallowed because the alleged borrowing liability was not confirmed and the figures were found to represent trading loss, not genuine finance cost. The appeal was therefore dismissed.

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Issues: (i) whether the addition made under section 68 on account of the credit balance reflected in the bank account was sustainable; (ii) whether the claim of interest and finance charges attributable to the alleged borrowings and securities transactions was allowable.

Issue (i): whether the addition made under section 68 on account of the credit balance reflected in the bank account was sustainable.

Analysis: The claimed transactions were shown in the books as purchase and sale of securities, but the assessee asserted that they were in substance unsecured loans linked to the securities scam. The relevant facts were held to be specially within the knowledge of the assessee. In the absence of conclusive confirmation from the bank or the broker, and in view of the conflicting and unsubstantiated explanation, the assessee failed to discharge the burden of proving the nature and source of the credits. Section 68 was applied together with the principle that facts especially within a party's knowledge must be proved by that party.

Conclusion: The addition under section 68 was upheld and the issue was decided against the assessee.

Issue (ii): whether the claim of interest and finance charges attributable to the alleged borrowings and securities transactions was allowable.

Analysis: The claimed interest payable to one creditor was not reflected in that creditor's account and was never confirmed by the alleged recipient. As regards finance charges, the figures represented loss arising from purchase and sale of units rather than expenditure on borrowed funds or debt. On the facts, the assessee did not establish a real borrowing liability or a genuine finance charge claim.

Conclusion: The disallowance of interest and finance charges was upheld and the issue was decided against the assessee.

Final Conclusion: The assessee failed to substantiate the credits and the related expenditure claims, so all appeals were dismissed.

Ratio Decidendi: Where the explanation for credits or related expenditure is based on facts specially within the assessee's knowledge, the assessee must substantiate the claim with reliable corroboration, and unsupported or contradictory explanations will not discharge the burden under section 68.

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