I gave the lenders' names, addresses and PAN and filed their confirmations, but I cannot produce them and the summonses came back unserved. Can the loans still be added under section 68?
Not on these facts. The Supreme Court declined to disturb the Tribunal's finding that the assessee had discharged its burden. The assessee had given the names and addresses of the creditors, the Revenue knew they were income-tax assessees and had their index numbers on its own files, and beyond issuing summonses under section 131 at the assessee's request the Revenue did nothing - it never examined the creditors' sources to see whether they were creditworthy, and made no effort to pursue them. In those circumstances the assessee could do no more, and the Tribunal's conclusion was neither unreasonable, perverse nor without evidence.
Decided by the Supreme Court (Supreme Court of India - Sabyasachi Mukharji and R.S. Pathak JJ; judgment by Sabyasachi Mukharji J) on 1986-03-19, reported as (1986) 159 ITR 78; 1986 AIR 1849; 1986 SCR (1) 979; 1986 Supp SCC 110; (1986) 25 Taxman 80; 1986 SCALE (1) 446; 1986 SCC (Tax) 479; (1986) 62 Cut LT 129. It bears on section 68, section 131, section 256(2), section 271(1)(c) of the Income Tax Act 1961, in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters.
This is the case cited whenever an addition rests on the assessee's failure to produce a creditor. It does not hold that section 68 is displaced by filing confirmations; it holds that once the assessee has furnished identity and the material within his reach, the enquiry passes to the Revenue, which has powers the assessee has not, and that an addition cannot be built on the officer's general knowledge of a hundi racket. It is also the standard authority on the limits of a reference or appeal on such a finding: where there is some evidence on which the Tribunal could reach its conclusion, no question of law arises, and the High Court cannot call for a case merely because it might have decided differently on a re-appreciation of the evidence. The Court adds the important qualification from Sreelekha Banerjee, that unconvincing evidence may be rejected but the department cannot convert good proof into no proof by unreasonably rejecting a good explanation.
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The assessee was a private limited company keeping accounts by the calendar year. For the year ended 31 December 1961, assessment year 1962-63, the Income-tax Officer did not accept cash credits of Rs 1,50,000 shown as loans on hundis from three individual creditors of Calcutta. The company produced letters of confirmation, the discharged hundis and the creditors' particulars; their general index numbers were with the department. It said it had tried in its own way to produce the parties, failed, and asked the officer to summon them under section 131. The notices came back endorsed left. The company then asked for further time to trace the lenders. The officer found inconsistencies in the confirmation letters, said they did not inspire confidence, observed that the wide prevalence of the hundi racket was well known and that most so-called hundiwallas are name-lenders rather than genuine bankers, treated the whole Rs 1,50,000 as unproved and added it. The Assistant Appellate Commissioner dismissed the appeal, and on the basis of the assessment the Inspecting Assistant Commissioner imposed a penalty of Rs 50,000 under section 271(1)(c). The Tribunal allowed both appeals. It held that a failure to produce the alleged creditors does not by itself justify the inference that the amounts were the assessee's undisclosed income, and noted that the creditors were themselves assessees who had told their own officers that they lent their names without advancing money - but that the present assessee's name did not appear in the list of persons they had accommodated. The Tribunal refused a reference and the Orissa High Court, on 31 October 1973, refused to direct one under section 256(2). The Revenue appealed by special leave.
The appeals were dismissed with costs. The High Court was right to refuse to call for a statement of the case, because no question of law arose. The assessee had given the names and addresses of the alleged creditors; the Revenue knew they were income-tax assessees and had their index numbers on its files; and apart from issuing section 131 notices at the assessee's own request the Revenue did not pursue the matter, never examining the creditors' sources of income to see whether they were creditworthy or capable of advancing the loans, and making no effort to pursue them. In those circumstances the assessee could do no further. The Tribunal's conclusion that the assessee had discharged the burden on it could not be said to be unreasonable, perverse or based on no evidence, and where a conclusion rests on some evidence on which it could be reached, no question of law arises. The penalty question was common ground to depend on the quantum question and fell with it.
The Court began with what section 68 does. It was new in the 1961 Act, with no counterpart in the 1922 Act, and gives statutory recognition to the principle that cash credits which are not satisfactorily explained may be assessed as income. Its practical effect is on the year of assessment: an unexplained credit is taxed as income of the previous year in whose books it appears, even where the undisclosed income was not from the regular business for which the books are kept, and it may be assessed as business profits or as income from other sources. That disposes of the timing problem that had arisen under the 1922 Act with a large credit appearing on the first day of an accounting year. But the section does not answer how far the assessee must go to discharge the burden, and for that the Court went to its own earlier decisions. Lalchand Bhagat Ambica Ram, on encashed high denomination notes, holds that a fact-finding body must not base findings on suspicion, conjecture or surmise, nor act on no evidence or on a mixture of evidence and inadmissible material - and there too the alleged hundi racket was only a suspicion of the Revenue. Homi Jehangir Gheesta holds that rejection of the explanation does not by itself establish the receipt as income, though where the circumstances of rejection make that the only proper inference the assessing authority may draw it, that inference being one of fact; and in deciding whether a question of law arises the Tribunal's order is to be read as a whole rather than examined sentence by sentence through a microscope for a peg on which to hang an issue of law. Sreelekha Banerjee supplies the balance: the assessee must, if asked, establish the source and show the receipt is not income, and the department need prove nothing at that stage and may reject unconvincing evidence - but it cannot act unreasonably in rejecting an explanation that shows the receipt is not income, and cannot by unreasonably rejecting a good explanation convert good proof into no proof. Daulatram Rawatmull settles the reference point under section 66(2) of the 1922 Act, in pari materia with section 256(2): the High Court cannot call for a case where there is some evidence supporting the Tribunal's finding, even if on a re-appreciation it might have differed. Applying all this to the facts, the decisive feature was the asymmetry of what each side did with the material available to it.
The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof.
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Handle my notice → Ask a CA on WhatsAppNot on these facts. The Supreme Court declined to disturb the Tribunal's finding that the assessee had discharged its burden. The assessee had given the names and addresses of the creditors, the Revenue knew they were income-tax assessees and had their index numbers on its own files, and beyond issuing summonses under section 131 at the assessee's request the Revenue did nothing - it never examined the creditors' sources to see whether they were creditworthy, and made no effort to pursue them. In those circumstances the assessee could do no more, and the Tribunal's conclusion was neither unreasonable, perverse nor without evidence. This was decided by the Supreme Court (Supreme Court of India - Sabyasachi Mukharji and R.S. Pathak JJ; judgment by Sabyasachi Mukharji J) and bears on section 68, section 131, section 256(2), section 271(1)(c) of the Income Tax Act 1961. It is reported as (1986) 159 ITR 78; 1986 AIR 1849; 1986 SCR (1) 979; 1986 Supp SCC 110; (1986) 25 Taxman 80; 1986 SCALE (1) 446; 1986 SCC (Tax) 479; (1986) 62 Cut LT 129. This is the case cited whenever an addition rests on the assessee's failure to produce a creditor. It does not hold that section 68 is displaced by filing confirmations; it holds that once the assessee has furnished identity and the material within his reach, the enquiry passes to the Revenue, which has powers the assessee has not, and that an addition cannot be built on the officer's general knowledge of a hundi racket. It is also the standard authority on the limits of a reference or appeal on such a finding: where there is some evidence on which the Tribunal could reach its conclusion, no question of law arises, and the High Court cannot call for a case merely because it might have decided differently on a re-appreciation of the evidence. The Court adds the important qualification from Sreelekha Banerjee, that unconvincing evidence may be rejected but the department cannot convert good proof into no proof by unreasonably rejecting a good explanation. If it applies to you, the first step is this: File everything within your reach at the assessment stage - names, addresses, PAN or index numbers, confirmations, the instruments, and the bank trail - and put on record in writing what you did to produce the creditor and what happened.
The assessee was a private limited company keeping accounts by the calendar year. For the year ended 31 December 1961, assessment year 1962-63, the Income-tax Officer did not accept cash credits of Rs 1,50,000 shown as loans on hundis from three individual creditors of Calcutta. The company produced letters of confirmation, the discharged hundis and the creditors' particulars; their general index numbers were with the department. It said it had tried in its own way to produce the parties, failed, and asked the officer to summon them under section 131. The notices came back endorsed left. The company then asked for further time to trace the lenders. The officer found inconsistencies in the confirmation letters, said they did not inspire confidence, observed that the wide prevalence of the hundi racket was well known and that most so-called hundiwallas are name-lenders rather than genuine bankers, treated the whole Rs 1,50,000 as unproved and added it. The Assistant Appellate Commissioner dismissed the appeal, and on the basis of the assessment the Inspecting Assistant Commissioner imposed a penalty of Rs 50,000 under section 271(1)(c). The Tribunal allowed both appeals. It held that a failure to produce the alleged creditors does not by itself justify the inference that the amounts were the assessee's undisclosed income, and noted that the creditors were themselves assessees who had told their own officers that they lent their names without advancing money - but that the present assessee's name did not appear in the list of persons they had accommodated. The Tribunal refused a reference and the Orissa High Court, on 31 October 1973, refused to direct one under section 256(2). The Revenue appealed by special leave. The matter was decided on 1986-03-19 by the Supreme Court (Supreme Court of India - Sabyasachi Mukharji and R.S. Pathak JJ; judgment by Sabyasachi Mukharji J). On those facts the Supreme Court held as follows. The appeals were dismissed with costs. The High Court was right to refuse to call for a statement of the case, because no question of law arose. The assessee had given the names and addresses of the alleged creditors; the Revenue knew they were income-tax assessees and had their index numbers on its files; and apart from issuing section 131 notices at the assessee's own request the Revenue did not pursue the matter, never examining the creditors' sources of income to see whether they were creditworthy or capable of advancing the loans, and making no effort to pursue them. In those circumstances the assessee could do no further. The Tribunal's conclusion that the assessee had discharged the burden on it could not be said to be unreasonable, perverse or based on no evidence, and where a conclusion rests on some evidence on which it could be reached, no question of law arises. The penalty question was common ground to depend on the quantum question and fell with it.
The Court began with what section 68 does. It was new in the 1961 Act, with no counterpart in the 1922 Act, and gives statutory recognition to the principle that cash credits which are not satisfactorily explained may be assessed as income. Its practical effect is on the year of assessment: an unexplained credit is taxed as income of the previous year in whose books it appears, even where the undisclosed income was not from the regular business for which the books are kept, and it may be assessed as business profits or as income from other sources. That disposes of the timing problem that had arisen under the 1922 Act with a large credit appearing on the first day of an accounting year. But the section does not answer how far the assessee must go to discharge the burden, and for that the Court went to its own earlier decisions. Lalchand Bhagat Ambica Ram, on encashed high denomination notes, holds that a fact-finding body must not base findings on suspicion, conjecture or surmise, nor act on no evidence or on a mixture of evidence and inadmissible material - and there too the alleged hundi racket was only a suspicion of the Revenue. Homi Jehangir Gheesta holds that rejection of the explanation does not by itself establish the receipt as income, though where the circumstances of rejection make that the only proper inference the assessing authority may draw it, that inference being one of fact; and in deciding whether a question of law arises the Tribunal's order is to be read as a whole rather than examined sentence by sentence through a microscope for a peg on which to hang an issue of law. Sreelekha Banerjee supplies the balance: the assessee must, if asked, establish the source and show the receipt is not income, and the department need prove nothing at that stage and may reject unconvincing evidence - but it cannot act unreasonably in rejecting an explanation that shows the receipt is not income, and cannot by unreasonably rejecting a good explanation convert good proof into no proof. Daulatram Rawatmull settles the reference point under section 66(2) of the 1922 Act, in pari materia with section 256(2): the High Court cannot call for a case where there is some evidence supporting the Tribunal's finding, even if on a re-appreciation it might have differed. Applying all this to the facts, the decisive feature was the asymmetry of what each side did with the material available to it. In the words reproduced by the source cited on this page: "The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof."
It was decided by the Supreme Court on 1986-03-19 and is reported as (1986) 159 ITR 78; 1986 AIR 1849; 1986 SCR (1) 979; 1986 Supp SCC 110; (1986) 25 Taxman 80; 1986 SCALE (1) 446; 1986 SCC (Tax) 479; (1986) 62 Cut LT 129. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 68, section 131, section 256(2), section 271(1)(c), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with costs. The High Court was right to refuse to call for a statement of the case, because no question of law arose. The assessee had given the names and addresses of the alleged creditors; the Revenue knew they were income-tax assessees and had their index numbers on its files; and apart from issuing section 131 notices at the assessee's own request the Revenue did not pursue the matter, never examining the creditors' sources of income to see whether they were creditworthy or capable of advancing the loans, and making no effort to pursue them. In those circumstances the assessee could do no further. The Tribunal's conclusion that the assessee had discharged the burden on it could not be said to be unreasonable, perverse or based on no evidence, and where a conclusion rests on some evidence on which it could be reached, no question of law arises. The penalty question was common ground to depend on the quantum question and fell with it. It arises in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters, on section 68, section 131, section 256(2), section 271(1)(c) of the Income Tax Act 1961, and was decided by Supreme Court of India - Sabyasachi Mukharji and R.S. Pathak JJ; judgment by Sabyasachi Mukharji J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Ask the officer in writing to summon the creditor under section 131 and to examine his assessment record, and record that request; the Court leaned heavily on what the Revenue did not do after the summonses failed. Address creditworthiness, not just identity. The Court noted the Revenue never examined whether the lenders could advance these sums, and that cuts both ways. On appeal, argue that the Tribunal's finding rests on some evidence and so raises no question of law; do not invite a re-appreciation of the evidence, which is not open. Check the current section 68 before relying on the outcome. It now carries provisos on explaining the source of the source in defined cases, which this judgment does not address.
Still good law. I read the full judgment to its dismissal of the appeals. I checked no later authority in this session. The reasoning is about the discharge of a burden on particular facts and the limits of interference with a fact-finding body, and it is applied in that way rather than as a rule that confirmations always suffice. The present text of section 68 must also be read, because it now contains provisos requiring, in defined situations, an explanation of the source of the source, and this judgment says nothing about them. Where the sum credited consists of a loan or borrowing, or any such amount by whatever name called, the assessee's explanation is deemed unsatisfactory unless the person in whose name the credit is recorded also offers an explanation about the nature and source of the sum and the Assessing Officer finds that explanation satisfactory; those words were brought in by the Finance Act, 2022 with effect from 1 April 2023. A corresponding proviso for share application money, share capital or share premium credited in the books of a company in which the public are not substantially interested, requiring the resident in whose name the credit stands to explain the nature and source of the sum, was inserted by the Finance Act, 2012 with effect from 1 April 2013; neither proviso applies where the person concerned is a venture capital fund or venture capital company referred to in section 10(23FB). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is internally inconsistent about the accounting period: its own narrative says the company kept accounts by the calendar year and that the year ended 31 December 1961, while the headnote on the harvested page says the year ended 31 March 1961. This record follows the judgment. The Court did not lay down what an assessee must do in general to discharge the burden under section 68; it held only that on these facts, and given what the Revenue had not done, the Tribunal's conclusion was not open to challenge as a question of law - so the case is weaker authority than it is often made out to be. The quoted passage from Sreelekha Banerjee is the Court's own restatement of that decision. The harvested page carries an editorial headnote, which is not used here, and I did not check any later authority. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with costs. The High Court was right to refuse to call for a statement of the case, because no question of law arose. The assessee had given the names and addresses of the alleged creditors; the Revenue knew they were income-tax assessees and had their index numbers on its files; and apart from issuing section 131 notices at the assessee's own request the Revenue did not pursue the matter, never examining the creditors' sources of income to see whether they were creditworthy or capable of advancing the loans, and making no effort to pursue them. In those circumstances the assessee could do no further. The Tribunal's conclusion that the assessee had discharged the burden on it could not be said to be unreasonable, perverse or based on no evidence, and where a conclusion rests on some evidence on which it could be reached, no question of law arises. The penalty question was common ground to depend on the quantum question and fell with it.
TaxSphere, “CIT v Orissa Corporation (P) Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-orissa-corporation-creditors-who-cannot-be-produced/ (validity last checked 2026-08-29)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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The officer refused me cross-examination of the person whose statement he used. Does that alone get the addition deleted?
My income was estimated at a higher profit rate after my books were rejected, so my return fell well short of the assessment. Does that by itself mean penalty for concealment?
I have given the Assessing Officer PAN, bank statements and ROC records for every share applicant — does Lovely Exports mean the addition under section 68 must go?
My company received share application money. Can the Assessing Officer use section 68 on it at all, or is share capital simply a capital receipt he cannot touch?
