Sen, J.:— This reference has been initiated by Messrs. Shankar Industries, Calcutta, the assessee, at whose instance this court, under section 256(2) of the Income-tax Act, 1961, has directed the Tribunal to draw up a statement of case and refer the following question:
“Whether, on the facts and in the circumstances of the case, the decision of the Tribunal that the sum of Rs. 3,10,000 (Rupees three lakhs and ten thousand only) is: the income of the assessee from undisclosed sources is based on any material?”
2. The facts found and/or admitted are, inter alia, that in the assessment year 1963–64, the previous year being the samvat year 2019, ending on the 1st April, 1963, a number of cash credits were noticed in the books of account of the assessee in the names of various parties, including those of Sureka Jute Co., Ram Kumar Chatoria, and Chouthmull Raghulall. In pursuance of a summons issued by the Income-tax Officer, one Vidyanand Sureka appeared before the Income-tax Officer on the 11th December, 1967, on behalf of Sureka Jute Co. He claimed to be the proprietor of the concern and stated that his books had been seized by the income-tax department on the 17th November, 1965. It was ascertained from departmental records that the said Vidyanand Sureka had made a confession on the 9th September, 1966, to the effect that his loan transactions were not genuine and that he was only a name-lender. It was also noted that in the books of account of Sureka Jute Co., the sources of payments made by third parties were not ascertainable as the entire debit side of the cash book was kept blank and no dates were given.
No one appeared on behalf of Ram Kumar Chotaria in spite of summons issued. On examination of the income-tax file of the said party it was found that the firm had been closed after the death of the proprietor, Ram Kumar Chotaria, and in the assessment year in question it had not filed profit and loss account or balance-sheet and that its assessment had been completed under section 144 of the Income-tax Act, 1961. The previous assessment of the firm for the assessment year 1962–63 had also been completed under section 144 and the income assessed was only Rs. 2,000. It was also found that a similar loan of Rs. 65,000 alleged to have been advanced by Ram Kumar Chotaria to another concern had been held to be spurious.
3. No confirmation letter was furnished on behalf of Chouthmull Raghulall and no one appeared for the firm before the Income-tax Officer. On the facts, as aforesaid, the Income-tax Officer held that the source of the credit of Rs. 1,80,000 appearing in the name of Sureka Jute Co. was not proved. He also held that Ram Kumar Chotaria was not in a position to advance Rs. 65,000 as loan to the assessee. He brought the amounts alleged to have been advanced by Sureka Jute Co., Ram Kumar Chotaria and Chouthmull Raghulall, amongst others, to tax as the assessee's income from undisclosed sources.
4. Being aggrieved by the assessment, the assessee appealed to the Appellate Assistant Commissioner, who confirmed the additions of Rs. 1,80,000 and Rs. 65,000, being the credits in the names of Sureka Jute Co. and Ram Kumar Chotaria. He, however, directed that Chouthmull Raghulall should be examined by the Income-tax Officer. Pursuant to such directions one Nidikaran Anchalia appeared before the Income-tax Officer and claimed to be the karta of Chouthmull Raghulall, a Hindu undivided family. In his deposition given before the Income-tax Officer on the 23rd June, 1969, the said Nidikaran Anchalia stated that the said Hindu undivided family had advanced the said sum of Rs. 65,000 to the assessee. He, however, admitted that the opening cash balance of the family in the accounting year as on the 12th April, 1962, was only Rs. 37,100, but the same was augmented by loans from other parties, namely, Rs. 30,000 from one Mulchand Golabchand and Rs. 20,000 from Sheomi Devi on the 13th April, 1962, and the amount of Rs. 65,000 was advanced out of the augmented cash balance. The Appellate Assistant Commissioner concluded that the source of the loan to the family was not proved and held that this party did not have sufficient cash to advance the loan of Rs. 65,000 to the assessee. The Appellate Assistant Commissioner upheld the addition made by the Income-tax Officer in respect of this item also.
5. From the order of the Appellate Assistant Commissioner a further appeal was preferred by the assessee to the Income-tax Appellate Tribunal. It was contended on behalf of the assessee in the appeal that the assessee had, discharged its burden with regard to each of the said credits. It was contended further that Sureka Jute Co. had furnished confirmatory letter and had also admitted the fact of the advancement of the loan to the assessee. A general confession before the income-tax department, it was submitted, could not be used against the assessee. It was further submitted that it was beyond the power of the assessee to prove the source of the amounts in the hands of its creditors. Vidyanand Sureka in fact had made a voluntary disclosure before the Commissioner of Income-tax in his letter dated 28th November, 1967, that he had an income of Rs. 1,29,920.
6. The Tribunal, after considering the facts and circumstances, held that the assessee had not discharged its burden with regard to the credit in the name of Sureka Jute Co. The Tribunal took note of the fact that Vidyanand Sureka had initially confessed that his loan transactions were not genuine. When he appeared before the Income-tax Officer for the first time in the assessment proceedings of the assessee, he made a non-committal statement and did not categorically accept the fact that the advances had been actually made by him. His books of account seized by the income-tax department did not show the source of his advances and no entries appeared on the debit side. The Tribunal accordingly upheld the additions made by the Income-tax Officer.
7. As to Ram Kumar Chotaria, it was contended on behalf of the assessee that the confimatory letter filed by the party was sufficient for the assessee to discharge its primary burden. It was also submitted that the Appellate Assistant Commissioner had not found that this party was not creditworthy, but he merely relied on the order of the Income-tax Officer. The Tribunal held that the evidence collected by the Income-tax Officer was sufficient to displace the case of the assessee. Such evidence were, inter alia, that Ram Kumar Chotaria who was dead at the relevant time did not appear before the Income-tax Officer. The party had been assessed at the material time to a paltty sum of Rs. 2,000 and even in such assessment his profit and loss account or balance-sheets were not produced. The addition of Rs. 65,000 advanced by this party was also sustained by the Tribunal.
8. On the credit in the name of Chouthmull Raghulall, the assessee con-tended that the creditor had appeared before the Income-tax Officer pursuant to the directions of the Appellate Assistant Commissioner and had admitted the advance. The Tribunal found that this party had not filed any confirmatory letter and its books of account were produced at a much later stage which detracted from their evidentiary value. The Tribunal concluded that the party did not have sufficient cash to advance the amount and the sources of loans taken by him were not proved. On these grounds, the addition of Rs. 65,000 shown as credit from this party was confirmed.
9. Mr. Pronab Pal, learned counsel for the assessee, has strenuously contended before us that on scanning the entire facts and circumstances it is clearly established that there was no material before the Tribunal on which the addition could have been sustained. He submitted that in the case of each of the creditors what the Tribunal expected the assessee to prove was the source from which the money was accumulated in the hands of the creditors. This, according to Mr. Pal, was patently erroneous. In each case, the creditor concerned appeared before the authorities and admitted the factum of loans or advances and had also produced their books of account. Their income-tax assessment files were available. The primary burden on the assessee to explain the cash credits in its books of account was, therefore, duly discharged and, thereafter, it was for the revenue to disprove the genuineness of the loans. In support of his contentions Mr. Pal cited several decisions as follows:
(a) Sreelekha Banerjee v. Commissioner of Income-tax, [1963] 49 ITR (SC) 112. In this case, additions were made to the income of the assessee following the encashment of high denomination notes. The question before the Supreme Court was whether there was any material on record on which the Tribunal could come to the conclusion that the nature of the source from which the assessee derived the said high denomination notes remained unexplained. In answering the question, the Supreme Court observed as follows (at page 120):
“It seems to us that the correct approach to questions of this kind is this. If there is an entry in the account books of the assessee which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The department is not at this stage required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessee. There is thus, prima facie, evidence against the assessee which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words ‘an undisclosed source’ show that the disclosure must come from the assessee and not from the department. In cases of high denomination notes, where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum in high denomination notes, the assessee prima facie discharges his initial burden when he proves the balance and that it might reasonably have been kept in high denomination notes. Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof.”
(b) Orient Trading Co. Ltd. v. Commissioner Of Income-Tax (Central), Calcutta., [1963] 49 ITR 723 (Bom). In this case, one of the questions referred to the Bombay High Court was whether there was any material before the Tribunal to hold that a sum standing in the books of the assessee to the credit of a third party belonged to the assessee. The Bombay High Court discussed the nature and significance of cash credits in such cases and observed as follows (at page 734):
“When cash credits appear in the accounts of an assessee, whether in his own name or in the name of third parties, the Income-tax Officer is entitled to satisfy himself as to the true nature and source of the amounts entered therein, and if after investigation or inquiry he is satisfied that there is no satisfactory explanation as to the said entries, he would be entitled to regard them as representing the undisclosed income of the assessee. When these credit entries stand in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of these entries and to show that they do not constitute a part of his business income liable to tax. When, however, entries stand not in the assessee's own name, but in the name of third parties, there has been some divergence of opinion expressed as to the question of the burden of proof. In Radhakrishna Behari Lal v. Commissioner of Income-tax, [1954] 26 ITR 344, the Patna High Court held that though when the cash credits stood in the assessee's name the burden of proof was upon him to show that the receipts were not of an income nature, the position was different in regard to sums which were shown in the assessee's books in the names of third parties. In the latter kind of cases the onus of proof was not upon the assessee to show the sources or nature of the amount of the cash credit, but the onus shifted on to the department to show by some material that the amount standing in the name of the third party did not belong to him but belonged to the assessee In the absence of a satisfactory explanation, it is open to the department to infer that the moneys belonged to the assessee and represented his suppressed income…… It seems to us that where the entry stands in the name of the assessee's wife or children, or in the name of any other near relation or an employee of the assessee, the burden will lie on the assessee, though the entry is not in his own name, to explain satisfactorily the nature and source of that entry. Where the entry stands not in the name of any such person having a close relation or connection with the assessee, but in the name of an independent party, the burden will still lie upon him to establish the identity of the said party, and to satisfy the Income-tax Officer that the entry is real and not fictitious. When, however, in a case where the entry stands in the name of the third party, the assessee satisfies the Income-tax Officer as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on him can be said to have been discharged by him. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the department has to be in possession of sufficient and adequate material.”
(c) Sarogi Credit Corporation v. Commissioner Of Income-Tax, Bihar., [1976] 103 ITR 344 (Pat). In this case, the controversy before the Patna High Court was whether the assessee had discharged his onus in respect of cash credits found in his books of account within the meaning of section 68 of the Income-tax Act, 1961. After considering the decisions of other High Courts it observed as follows (page 349):
“If the credit entry stands in the names of the assessee's wife and children, or in the name of any other near relation, or an employee of the assessee, the burden lies on the assessee, though the entry is not in his own name, to explain satisfactorily the nature and source of that entry. But, if the entry stands not in the name of any such person having a close relation or connection with the assessee, but in the name of an independent party, the burden will still lie upon him to establish the identity of that party and to satisfy the Income-tax Officer that the entry is real and not fictitious. Once the identity of the third party is established before the Income-tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money and how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors, as in the instant case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case could not be accepted and as to why it must be held that the entry, though purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And, in order to arrive at such a conclusion, even the department has to be in possession of sufficient and adequate materials. As I have already indicated above, the Income-tax Officer's rejection not of the explanation of the assessee, but of the explanation regarding the source of income of the depositors, cannot by itself lead to any inference regarding the non-genuine or fictitious character of the entries in the assessee's books of account.”
(d) Income-tax Officer v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC). In this case, an assessment was reopened on two grounds. One of the grounds was that a person who was shown as one of the creditors later confessed that he was doing only name-lending. The Supreme Court held that there was nothing to show that the above confession related to any loan made to the assessee and not to some one else and there was no indication as to when that confession was made and if it related to the relevant period which was the subject-matter of the assessment. Such a confession constituted no ground for reopening the assessment.
10. Mr. Suhas Sen, learned counsel for the revenue, has contended on the other hand that the law is well settled on this point and has been properly applied in the facts and circumstances of the instant case. He cited a decision of this court in the case of Sriram Jhabarmull (Kalimpong) Ltd. v. Commissioner Of Income-Tax, [1967] 64 ITR 314 (Cal). The facts in this case were that in the assessment year in question a sum of Rs. 70,000 was found credited in the assessee's books of account in the name of a Tibetan. The assessee explained this credit as having been deposited by the Tibetan who was illiterate and did not conduct his business through banks. The Income-tax Officer did not accept the assessee's explanation as to the genuineness of the deposit. On appeal, the Tibetan concerned appeared before the Appellate Assistant” Commissioner and gave evidence. The Appellate Assistant Commissioner found his evidence unsatisfactory and dismissed the assessee's appeal. The Tribunal also dismissed the further appeal of the assessee. On a reference, one of the questions agitated before this court was whether in the facts and circumstances of the case the said deposit could be treated as the income of the assessee. This court rejected the contentions of the assessee and observed as follows (page 316):
“It is not correct to say that as soon as the initial burden of proof on the part of the assessee is discharged, the Income-tax Officer is not entitled to reject the assessee's explanation without some other positive evidence falsifying the assessee's case. It cannot be true that any possible explanation which an assessee puts forth for clarifying the source and nature of a cash receipt must have to be accepted by the income-tax department nor can it be lawfully urged that the Income-tax Officer can arbitrarily reject the assessee's explanation. A dogmatic assertion on the part of either the assessee or the revenue authorities cannot determine the issue. Objectively it must be found out that the assessee's explanation suffers from inherent infirmity or is inconsistent with more reliable evidence adduced by the department, before the assessee's explanation is rejected.”
11. Mr. Sen also cited an unreported decision of this court in Income-tax Reference No. 20 of 1967 intituled Knitting Machineries Syndicate (India) Private Ltd. v. Commissioner of Income-tax, dated the 6th September, 1972. The facts in this case were that in the books of the assessee credits appeared in the name of one R.L Agarwala, a brother-in-law of a director of the assessee on a loan account. The Income-tax Officer examined the alleged creditor, rejected his explanation and added the amount to the assessee's income. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The Tribunal, on further appeal, found that the alleged creditor did not have the means to advance the amount of loan. It was contended on behalf of the assessee that he has discharged his onus in proving a credit in the name of a third party by producing the creditor and by producing his assessment orders and it was not necessary for him to do anything more. This contention was not accepted by the Tribunal. On a reference, this court considered a number of decisions of the other High Courts and observed as follows:
“We find that by a series of decisions of different High Courts as well as of the Supreme Court it has been consistently laid down that when an assessee claims that he has borrowed money from a third party the initial onus lies on the assessee to establish, (a) the existence of the third party; (b) the ability of the third party to advance moneys; and (c) that prima facie the loan is a genuine one. The assessee by proving these facts discharges the onus upon him. But that does not prevent the authority concerned to probe further into the matter and investigate the case on materials available to the authority to come to an independent and unbiased finding as to the genuineness of the transaction. It is true that the tax authority is not entitled to reject the assessee's case summarily or arbitrarily or without sufficient reason. It is true that the authority's duty is to examine all the materials carefully and objectively. But if it is found that the authority concerned after careful consideration of all relevant materials has come to the conclusion that the assessee's case of a loan from a third party cannot be accepted it is not open to this court to disturb the finding in a reference under section 66(1).”
12. On the question, as framed, our enquiry is confined and limited to ascertain whether there was any material before the Tribunal to sustain the additions. The question is not before us whether on the basis of the available evidence the conclusion of the Tribunal was perverse or unreasonable. Nor is it the question before us whether the Tribunal failed to consider or appreciate material evidence and proceeded on the basis of irrelevant and extraneous matters.
13. In the case of each of the alleged creditors it appears to us that there was some material before the Tribunal to reject the case of the assessee. In the case of Sureka Jute Company such materials were, (a) initial confession of Sureka that his transaction was not genuine; (b) his non-committal statement before the Income-tax Officer in the proceedings for assessment in the instant case; and (c) the unsatisfactory nature of his books of account as noted by the Tribunal.
14. In the case of Ram Kumar Chotaria relevant evidence is that at the material time his assessable income was negligible and that his profit and loss accounts and balance-sheets were not available.
15. So far as Chouthmull Raghulall is concerned, it is brought out in evidence that initial cash balance available with the firm was not sufficient to justify the loan advanced. It is also found that this creditor did not file any letter of confirmation at the initial stage and produced his books of account much later.
16. We would like to observe that the law on this point is now well settled. It is necessary for the assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes proof of the identity of his creditor, the capacity of such creditor to advance the money and, lastly, the genuineness of the transaction. These things must be proved prima facie by the assessee and only after the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts on the department. In the instant case, it seems that the assessee established only the identity of the creditor and nothing more. For the reasons as stated above and in view of the question as framed the contentions of the revenue must succeed. We answer the question referred in the affirmative and in favour of the revenue.
17. There will be no order as to costs.
Banerji, J.:— I agree.