Third-party cash credits require proof of creditor identity, lending capacity, and genuine transaction; ignored evidence can defeat genuineness.

Where a taxpayer relies on a third-party cash credit as a loan, the taxpayer must prove the creditor's existence, capacity to lend, and prima facie genuineness of the transaction; tax authorities may still test the surrounding circumstances and reach an independent view on genuineness. On the facts discussed, adverse material, the creditor's apparent name-lending activity, unexplained discrepancies in the date of advance, and the failure to produce account books despite opportunity showed that the Tribunal had ignored relevant evidence. The conclusion that the loan and interest were genuine was therefore unsustainable, and the matter was decided in favour of the Revenue.

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Issues: Whether the Tribunal erred in holding that the cash credits represented genuine loans from a third party and not the assessee's income from undisclosed sources.

Analysis: In a case involving a credit entry from a third party, the initial burden lies on the assessee to establish the existence of the creditor, the creditor's capacity to advance the money, and the prima facie genuineness of the transaction. That burden does not end the enquiry, for the tax authorities may examine surrounding materials and draw an independent conclusion on genuineness. On the facts, the creditor's business was found to be largely one of name-lending, relevant adverse material and admissions in other cases were not properly considered, the discrepancy in the date of advance was not satisfactorily explained, and the creditor's account books were not produced despite repeated opportunity. The Tribunal, in treating the loan as genuine, ignored material findings and relevant evidence from the assessment record.

Conclusion: The finding that the loan and interest were genuine was unsustainable, and the questions were answered in favour of the Revenue.

Ratio Decidendi: Where the assessee relies on a third-party cash credit, the assessee must prove the creditor's existence, capacity to lend, and the genuineness of the transaction, and the finding of genuineness can be overturned if material evidence bearing on creditworthiness and surrounding circumstances is ignored.

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