Law:

Section:

Section 68 of the Income-tax Act, 1961 - Cash credit - Burden of proof - Assessment years 1965-66 and 1966-67 - Whether it is necessary for assessee to prove prima facie identity of his creditors, capacity of such creditors to advance money and lastly genuineness of transactions - Held, yes - Whether mere production of confirmation letters before ITO would prove that loans have been obtained from those loan creditors or that they have creditworthiness - Held, no FACTS In course of assessment proceedings for the assessment years 1965-66 and 1966-67, the ITO noticed hundi loans in the assessee's books. On being called upon by the ITO to prove the genuineness of the said loans the assessee produced confirmatory letters and discharged hundis. He also filed copies of accounts to show that receipts and payments were made by cheques. The ITO, however, called upon the assessee to produce the parties but the assessee did not do that. The ITO issued notices under section 131 to the hundi creditors but the same were received back unserved. Even those on whom notices could be served did not appear in response to the said notices. The ITO held that all those parties being bogus hundiwallas, the said loans were not genuine. The ITO, accordingly, added certain sums to the assessee's income as income from undisclosed sources. On appeal, the AAC, as well as the Tribunal, accepted the genuineness of the hundi loans. On reference : HELD The assessee failed to discharge the primary onus which lay on it to prove the nature and source of the credits. It was necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly, the genuineness of the transaction; only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts, the onus shifts on to the department. It is not enough to establish the identity of the creditors. Mere production of confirmation letters before the ITO would not by itself prove that the loans have been obtained from those loan creditors or they have credit worthiness. In the absence of the books of account…

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