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2008] 304 ITR 239 [2010] 189 TAXMAN 206 (ALL.) HIGH COURT OF ALLAHABAD Banarsi Prasad v. Commissioner of Income-tax* SUSHIL HARKAULI AND SUDHIR AGARWAL, JJ. IT REFERENCE NO. 111 OF 1998 FEBRUARY 29, 2008 Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1987-88 - Whether when cash credits were received by assessee from close relatives like his non-earning wife and minor son, explanation to be furnished under section 68 in order to qualify as 'satisfactory' would require him to disclose source of depositors for establishing 'capacity' of creditor - Held, yes FACTS During the relevant assessment year, the assessee had certain entries in his books of account showing receipts from his wife and minor son. Since he was not able to explain the source of income in the hands of his wife and son, the Assessing Officer made additions under section 68. On second appeal, the Tribunal upheld the addition holding that in the case of cash credits in the assessee's books in the names of close relatives, the burden of proof on the assessee under section 68 required him to establish the nature and source of the amount. On reference: HELD The first part of section 68 requires the assessee to explain the sum found credited in the books of the assessee about the nature and source thereof. This part only requires the assessee to disclose the source from which the money has been received by the assessee. This does not require him to disclose the source of that source, i.e., the source from which the donor or investor has received the money invested. [Para 7] The second part of section 68 consists of offering an explanation which is 'satisfactory' in the opinion of the ITO. What explanation would be considered 'satisfactory' and how much of details should be furnished to make the explanation 'satisfactory' normally depends upon the facts. [Para 8] In view of the facts when the assessee failed to furnish the information about the source from which his wife and minor son obtained money for investing with him, the mere explanation regarding the source of the receipts or credits in the account books of the assessee, viz., that he received the money from his wife and…

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