1982 (2) TMI 37 - HC - Income Tax

Unexplained cash credits in third party's name deemed assessee's undisclosed income; lone confirmation letter and GR number insufficient

HC upheld the Tribunal's finding that unexplained cash credits shown in the name of a third party were rightly treated as the assessee's income from ... Cash Credits - Income From Undisclosed Sources - burden of proof - Whether, 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, - HELD THAT:- 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. The Patna High Court in Radhakrishna Behari Lal v. CIT [1954 (2) TMI 18 - PATNA HIGH COURT]. 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 s. 34 of the 1922 Act. We have already referred in this connection to the decision of the Supreme Court in Kale Khan Mohammed Hanij v. CIT [1963 (2) TMI 33 - SUPREME COURT] and of our court in Chaturbhuj & Co, v. CIT [1958 (12) TMI 43 - ALLAHABAD HIGH COURT]. In our opinion, on the facts found by the Tribunal the disputed amount was rightly treated as the assessee's income from undisclosed sources. We, therefore, answer the question referred to us in the affirmative, against the assessee and in favour of the Department. Issues involved: Assessment of undisclosed income from hundi loans, application of sections 68 and 69 of the Income Tax Act, burden of proof on the assessee to explain cash credits, rejection of explanation by the Income Tax Officer, relevance of confirmation letters from creditors, comparison with previous court decisions.Assessment of undisclosed income from hundi loans: The assessee, a registered firm engaged in brick manufacturing, had taken hundi loans during the relevant period. The Income Tax Officer (ITO) treated the aggregate amount of these loans as the assessee's income from undisclosed sources, leading to a dispute. The Appellate Tribunal upheld the addition of a specific loan amount from one creditor, M/s. Jethanand Madan Das, due to insufficient evidence provided by the assessee.Application of sections 68 and 69 of the Income Tax Act: The Tribunal considered the application of section 68, which deals with unexplained cash credits in the books of the assessee. The burden of proof lies on the assessee to explain the nature and source of such credits. The Tribunal emphasized that a mere confirmation letter from a creditor is not sufficient to prove the genuineness of a loan. The Tribunal's decision was based on the material on record and not influenced by irrelevant considerations.Burden of proof on the assessee: The court highlighted that the initial onus is on the assessee to offer a satisfactory explanation for cash credits in their books. The explanation must establish the genuineness of the credit entry by proving the identity and creditworthiness of the creditor. In this case, the confirmation letter provided by the assessee was deemed insufficient to discharge this burden, leading to the addition of the disputed amount as undisclosed income.Rejection of explanation by the Income Tax Officer: The ITO had relied on confessions made by creditors disowning the loans, which raised doubts about the genuineness of the transactions. The Tribunal's decision was based on the lack of substantial evidence to support the assessee's claims regarding the hundi loans, emphasizing the need for concrete proof beyond mere confirmation letters.Relevance of confirmation letters from creditors: The court emphasized that a confirmation letter alone cannot serve as conclusive evidence to prove the genuineness of a loan transaction. The assessee failed to provide additional evidence or substantiate the transactions adequately, leading to the rejection of their explanation and the addition of the disputed amount as undisclosed income.Comparison with previous court decisions: The court referred to previous decisions to establish the burden of proof on the assessee regarding cash credits in their books. The court differentiated cases where credits appear in the assessee's name versus those in a third party's name, emphasizing the need for the assessee to prove the genuineness of such entries. The Tribunal's decision aligns with established legal principles regarding the burden of proof in cases of undisclosed income.Conclusion: The court upheld the Tribunal's decision to treat the disputed amount as the assessee's income from undisclosed sources, emphasizing the assessee's failure to provide satisfactory evidence to explain the cash credits. The decision was based on the principles of sections 68 and 69 of the Income Tax Act, highlighting the importance of substantiating transactions beyond mere confirmation letters.