Law:

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Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year - 1967-68 - Whether, under section 68, assessee has to prove that third party was in a position to lend sums in question and that he did, in fact, so lend to assessee in order to satisfy Income-tax Officer that credits shown in account books were genuine - Held, yes - Whether, therefore, where assessee could not prove source from which lender got money, revenue authorities were justified in making addition under section 68 - Held, yes FACTS While making assessment of the assessee-firm, the ITO noticed two cash credits of Rs. 5,500 and Rs. 5,100 in the names of M and P respectively. The ITO asked the assessee-firm to explain the source of these credits. It was explained by the assessee that he had no independent source of income and was wholly dependent on the partners of the firm who were her brother's sons. M was reported to be having some property yielding income of about Rs. 1,000 annually and she had no other source of income. The ITO was not satisfied with that explanation and held that from the income of Rs. 1,000 per annum, she could not be expected to save anything. He, accordingly, included the sum of Rs. 10,600 in the income of the applicant-firm as income from undisclosed sources. The AAC confirmed the addition. The Tribunal upheld, the addition in respect of P but in respect of M, it held that the probabilities of some saving in the hands of the lady could not be ruled out of the source which was extant. Thus, the addition was reduced to Rs 3,500. The Tribunal rejected the reference application filed by the assessee under section 256(1). On reference application under section 256(2): HELD The AAC had noticed that the representative of the assessee-firm had agreed before the ITO that there was no evidence available with the ladies in support of the cash credits shown in their names and the ITO was not satisfied that these credits really belonged to the two ladies. That was an inference drawn from the facts on the record and the finding arrived at was a pure finding of fact. No question of law could be said to arise out of the decision of that matter by the Tribunal. The language…

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