CIT v Nandlal Gandalal

Facts

• Cash credits appeared in the books of Nandlal Gandalal without satisfactory explanation of source
• The assessee claimed the amounts were loans or deposits from third parties
• The AO rejected the explanations as unsatisfactory (confirmations inadequate, creditors not produced)
• The amount was assessed as income from undisclosed sources

Issues

1. On whom lies the burden of proving unexplained cash credits
2. What standard of proof discharges the assessee's burden regarding credits in books

Held

• The burden is initially on the assessee to prove the identity of the creditor, genuineness of the transaction, and capacity of the creditor to lend
• If the assessee fails to discharge this burden satisfactorily, the credit may be treated as the assessee's income from undisclosed sources
• The AO was justified in rejecting the explanations and assessing the amount as income

Ratio Decidendi

An unexplained credit in books creates a presumption that it represents concealed income. The assessee, being the person with knowledge of their own affairs, bears the initial burden. Three conditions must be proved: (1) identity of the creditor, (2) genuineness of the transaction, (3) creditworthiness of the creditor. Failure on any count permits the addition.