S.K Jha, J.:— This is a reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), in which a statement of the case has been submitted by the Income-tax Appellate Tribunal, Patna Bench (hereinafter referred to as “the Tribunal”), and the following questions have been referred to this court for opinion t

“1. Whether, from the facts and circumstances of the case, the appellant discharged the onus within the meaning of section 68 of the Act for the cash credits?

If the answer to the above question is in the affirmative, then,

2. On the facts and circumstances of the case, whether the Income-Appellate Tribunal was justified in law to maintain the addition of Rs. 15,000 as the assessee's income from undisclosed sources?”

2. The facts giving rise to this reference are short and simple. The assessee is a registered-firm and derives income from financing purchase of trucks and other vehicles. During the examination of its books of account, the Income-tax Officer found certain cash credits in the names of two persons, namely, Shree Zahir Hussain and Shree Ram Swarup Saw. In the name of Shree Zahir Hussain there were two credit entries, dated the 24th July, 1961, and the 27th October, 1961, for Rs. 5,000 and Rs. 7,000, respectively. The credit entry in the name of Shree Ram Swarup Saw was dated the 27th October, 1961, for a sum of Rs. 8,000. The Income-tax Officer issued summonses under section 131 of the Act to both the persons above-named, in whose favour the credit entries stood. Shree Zahir Hussain appeared before the Income-tax Officer and stated on oath that he invested the amount of Rs. 12,000 during the assessment year 1962-63 from out of his past income. Shree Ram Swarup Saw also appeared in person and stated on oath that he had also invested a sum of Rs. 8,000 out of his income of the past. It was further stated by both the creditors that they were income-tax assessees. The Income-tax Officer disbelieved the statements on oath of the aforesaid two creditors. The statement of Ram Swarup Saw was not accepted for the following reasons:

(i) No evidence had been furnished in regard to the contention that he had received money at the time of his marriage.

(ii) No evidence whatsoever had been produced that he was doing business since 1955. As a matter of fact, he had been assessed for the first time in the assessment year 1962-63 on a total income of Rs. 5,223 only.

(iii) No evidence had been produced to prove possession of the money by Ram Swarup Saw.

3. Again, Shree Zahir Hussain's statement on oath was disbelieved by the assessing officer on the ground that he had not produced his books of account and that from his assessment records it had been found that he did not produce any evidence to prove the existence of business, brokerage commission and odd jobs; nor was there any evidence of any saving by him. Having thus rejected the statements of the two creditors, the Income-tax Officer added a total sum of Rs. 20,000 to the assessable income of the assessee as being income from undisclosed sources within the meaning of section 68 of the Act. The assessee having preferred an appeal, the Appellate Assistant Commissioner held that, in the case of third parties where they came forward and admitted to have advanced loans to an assessee, the onus of proving that the said loans were non-genuine ones and actually emanated from the assessee shifted on the Income-tax Officer.. It was further held that the mere fact that no convincing explanation regarding sources out of which the loans were advanced by the third parties could be given would not make the said loans assessable in the hands of the assessee. The Income-tax Officer's order regarding addition of Rs. 20,000 to the assessee's income as from undisclosed sources was, therefore, knocked down. The revenue pursued a second appeal before the Tribunal. The Tribunal, on an interpretation of section 68 of the Act, held that the primary onus was on the assessee to prove the nature and source of the deposits which it did not discharge. The Tribunal went on to observe that, when the money was deposited by the two creditors above-named, they were not income-tax payers, and, therefore, the deposits stood in the books of the assessee as unexplained; and purporting to rely upon a Bench decision of the Calcutta High Court in Northern Bengal Jute Trading Co. Ltd. v. Commissioner of Income-tax [1968] 70 ITR 407 Cal., the Tribunal came to the conclusion that the mere admission by the depositors could not lead to the conclusion that they were in a position to advance the money to the assessee, and since the assessee could not prove that the depositors were in a position to make the deposits to the extent they stood in the books, the onus that lay on the assessee had not been discharged. All the same, the Tribunal also found that both the depositors were doing some business and subsequently they had filed returns showing some small income. In that view of the matter, the Tribunal thought it fair and reasonable to allow a sum of Rs. 5,000 as having been sufficiently explained by the assessee; but the remaining sum of Rs. 15,000 was added to the assessee's income as being secreted profits.

4. Mr. N.P Agrawala, learned counsel for the assessee, contended, and, in my view, rightly so, that the position under section 68 of the 1961 Act is in no way different from that with regard to cash credit entries prior to the 1961 Act; and although there was no specific statutory provision in the 1922 Act, the principles which governed cases arising under the 1922 Act would also govern cases falling under section 68 of the 1961 Act. Learned counsel further contended that there was absolutely no inconsistency in the various decisions of the various High Courts as also of the Supreme Court in so far as the question at issue is concerned. One line of cases lays down that, where an assessee shows that the entries regarding cash credits in third parties' accounts are genuine and the sums were, in fact, received from third parties as loans or deposits, the onus is discharged by the assessee. In that case it would be for the third parties to explain their sources of the money so advanced. In any event, such loans cannot be charged as the assessee's income, in the absence of any cogent material to indicate that they belonged to the assessee. The position in law, however, is different in so far as the degree of heaviness of the burden to prove varies where the credit entries in the assessee's books of account are in favour of, say, partners of the firm, of which the assessee is himself a member, in the assessee's own name in any different capacity, in the name of the assessee's wife or children, in the names of other near relatives of the assessee, in the names of employees of the assessee, or in the names of other such units as have got some financial interest common to the assessee. In my view, the law is too well-settled, and this I say not only on account of consensus of judicial opinion, but also for the additional reason that, stretching the doctrine of onus too far, in the case of entries in favour of third parties, who themselves come forth and admit that they had advanced the loans, the addition of such amounts as from undisclosed sources or secreted profits in the assessee's books of account, on rejection of such statements made by disinterested third parties, would lead to an absurd inconvenience, which the, statute does not envisage. Decisions are numerous; to wit, a Bench decision of this court in Radhakrishna Bihari Lal v. Commissioner of Income-tax, a Bench decision of the Nagpur High Court in Jainarayan Balabakas of Khamgaon v. Commissioner of Income-tax [1957] 31 ITR 271 Nag., a Bench decision of the Allahabad High Court in Ram Kishan Das Munnu Lal v. Commissioner of Income-tax [1961] 41 ITR 452 All. and a Bench decision of the Bombay High Court in Orient Trading Co. Ltd. v. Commissioner Of Income-Tax (Central), Calcutta. [1963] 49 ITR 723 Bom., may be referred to as authorities for the proposition that, if a credit entry stands in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of that entry and to show that it does not constitute a part of his income liable to tax. 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. Nor, for that matter, is there any such finding recorded either by the Income-tax Officer or the Appellate Assistant Commissioner. On the contrary, the Appellate Assistant Commissioner, whose appellate order in favour of the assessee forms part of the statement of the case, marked “B”, clearly points out that the findings recorded by the Income-tax Officer were no positive findings. The Appellate Assistant Commissioner, in my view, had rightly assessed the position in law by holding that, in order to rope in any amount as the income of the assessee from undisclosed sources, or as secreted profits, there must be some tangible materials.

5. Learned standing counsel appearing for the department vehemently relied upon the Bench decision of the Calcutta High Court in Northern Bengal Jute Trading Company's case, on which reliance was also placed by the Tribunal. As I have indicated earlier, no principle of law laid down in Northern Bengal Jute Trading Company's case runs counter to the principles as enunciated by the different High Courts in the decisions referred to above. As a matter of fact, the decision of the Bombay High Court in Orient Trading Company's case was referred to in that case, and it was on the distinction of the facts of the Bombay case and the Calcutta case that a different conclusion was arrived at by the Bench of the Calcutta High Court in the above mentioned case, as it has itself said at page 415 of the reports:

“There cannot be one general or universal proposition of law which could be the guiding yardstick in the matter. Each case has got to be decided on the facts and circumstances of that case. The surrounding circumstances to be considered must however be objective facts, evidence adduced before the taxing authorities, presumption of facts based on common human experience in life and reasonable conclusions. In holding a particular receipt as income from undisclosed source, the fate of the assessee cannot be decided by the revenue on the basis of surmises, suspicions or probabilities. Further, the High Court in deciding a reference can and should always intervene in the conclusions of the Tribunal, if it is satisfied that such conclusions were arrived at although there is no evidence or that the conclusions are perverse.”

6. Again, at page 416,

“It is true that, according to the assessee, the money belonged to the firm, and constituted parts of the firm's undisclosed income as admitted by them before the Investigation Commission and, therefore, their books of account would not reveal any entry showing the said amount; even then it should be remembered that when the cash credits are entered in the assessee's books of account in the name of their own employees, the onus would be much heavier than in the case of receipts credited in the name of independent third parties. The receipts or cash credits in the books of account of the assessee-firm are prima facie evidence in favour of holding them as assessee's income and the initial onus cannot be said to be discharged by mere production of a letter from a third party admitting such money as their money.”

7. It may be noticed from the facts of the Northern Bengal Jute Trading Company's case that the credit entries in question in that case were standing in the names of either employees of the assessee or an associate firm, Messrs. Surajmull Nagarmull. That being the position, it was held, on the facts of that case and the surrounding circumstances obtaining therein, that the initial onus had not been discharged by the assessee.

8. The last, but not the least, of all the situations favourable to the assessee, in which the Tribunal, by its appellate order, has placed it with regard to the source of income of the creditors, is by partly accepting the source to the extent of Rs. 5,000 and partly rejecting to the extent of Rs. 15,000. Having accepted the genuineness of the entries in the books of account; having accepted the explanation offered by the third parties with regard to their sources of money, in part at least, there was no material for the Tribunal to hold that the assessee had not discharged the onus, and the finding to that effect must be held to be without any evidence and hence wholly illegal, and conclusions drawn perverse.

9. For the foregoing reasons, I would answer the first question referred to us in the affirmative and hold that, on the facts and in the circumstances of the case, the assessee discharged the onus within the meaning of section 68 of the Act, for the cash credits. As a necessary corollary, the second question also must be answered in favour of the assessee and against the department and it must be held that the Tribunal was not justified in law to maintain the addition of Rs. 15,000 as the assessee's income from undisclosed sources. The assessee will be entitled to its costs. Hearing fee assessed at rupees one hundred only.

S.N.P Singh, C.J:— I agree.