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Section 68 of the Income-tax Act, 1961 - Cash credits - Cash credits in assessee-firm's books attributed to loans obtained from six parties - ITO rejected explanation as their genuineness and credit worthiness of lenders not proved and added the same, with interest thereon, to total income - Whether addition of cash credits and disallowance of interest thereon justified - Held, on facts, yes - Whether section 68 makes any distinction between commercial and non-commercial loans - Held, no Facts In the course of assessment proceedings, the ITO noticed cash credits aggregating Rs. 77,500 in the assessee-firm's account books in the names of six parties. It attributed to these loans obtained from the said parties and produced letters of confirmation. The ITO, however, added the same as its income from undisclosed sources and also disallowed the interest of Rs. 1,996 thereon on the grounds, inter alia, (i) that the credits were not varifiable and that the letters of confirmation alone did not establish the genuineness of the loans; and (ii) that the capacity of the alleged creditors to advance the loans was not proved. The AAC and the Tribunal sustained the ITO's order. The Tribunal also negatived assessee's contention that section 68 had no application in the case of commercial loans. On an application under section 256(2): Held Section 68 does not make any distinction between Commercial and non-commercial loans. In the case of cash credit entry, it is necessary for the assessee to prove not only the identity of the creditors but also to prove their capacity to advance money and genuineness of the transactions. In the instant case, the Tribunal had material on record to reach its conclusion on account of the assessee's failure to discharge its onus of proof. Hence, addition of impugned cash credit and disallowance of interest thereon was justified in computing the taxable income. Editor's note The assessee did not argue on merits on the plea that since the Chief Justice and another Judge were in seisin of the matter, the High Court, hearing the present income-tax reference, should release the matter as it had no jurisdiction. The High Court rejected the assessee's…

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