Cash credit in a third party's name must be proved with reliable evidence or treated as undisclosed income.

An assessee claiming that a cash credit standing in a third party's name is not its income must prove the genuineness of the credit with credible and reliable evidence; a bare explanation, however possible in the abstract, is insufficient. The Calcutta HC noted that the explanation was unsupported by evidence of the alleged transactions, lacked receipts and corroborative accounts, and was inconsistent on the issue of cheque encashment. The burden of explanation remained on the assessee, and the failure to discharge it justified treating the amount as undisclosed income of the assessee.

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Issues: Whether the assessee had satisfactorily explained the cash credit standing in the name of a third party so as to prevent it from being treated as the assessee's income; and whether the Tribunal was justified in drawing an inference that the amount represented undisclosed profits.

Analysis: In a reference under section 66(2) of the Income-tax Act, 1922, the Court held that a mere explanation by the assessee is not enough unless it is credible and supported by reliable material. The assessee bears the burden of explaining a cash credit, even where it stands in the name of a third party, and that burden is not displaced merely because the explanation is possible in the abstract. On the facts, the explanation was found to be inherently weak: there was no satisfactory evidence of the alleged wool transactions, no receipt for the alleged deposit, no supporting accounts from the alleged depositor, and the evidence as to encashment of cheques was inconsistent with the claim made.

Conclusion: The assessee failed to discharge the burden of proving the genuineness of the cash credit, and the Tribunal was justified in treating the amount as taxable income of the assessee.

Ratio Decidendi: Where an assessee claims that a cash credit belongs to a third party, the assessee must establish the genuineness of the credit by reliable evidence; if the explanation is unsupported or inherently improbable, the revenue may treat the amount as the assessee's undisclosed income.

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