The burden of proof rests on the assessee to explain the nature and source of cash credits, and the mere fact of an earlier unexplained credit being added to the assessee's income does not relieve the assessee from providing a satisfactory explanation for subsequent cash credits.

V. Balakrishna Eradi, J.

1. The Income-tax Appellate Tribunal, Cochin Bench has referred to this court the following question of law under section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the Act):

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in restoring the order of the Income-tax Officer with regard to the addition of Rs. 11,000 as income from undisclosed sources by holding that there was no burden on the department to establish that the intangible addition of Rs. 11,000 for the assessment year 1966 -67 was not available for subsequent credit?"

2. The assessee, an individual, was engaged in the business of operating passenger bus services and he had derived income from the said business during the relevant accounting period, namely the Malayalam year 1140 which ended on 16th August 1968. While completing his assessment for the year 1968-69 the Income-tax Officer noticed in the assessee's books certain cash credits amounting to Rs. 19,000 which, according to the assessee, represented sums borrowed from six persons mentioned in the accounts. Those parties were summoned by the Income-tax Officer and after considering the statements given by such of them who appeared before him, a long with the other materials available on record, the Income-tax Officer came to the conclusion that those parties were financially incapable of advancing such loans and that the explanation given by the assessee regarding the source of the credits could not be accepted as true. He therefore assessed the credits aggregating to Rs. 19,000 as income from other sources in the hands of the assessee for the year in question.

3. The assessee took up the matter in appeal before the Appellate Assistant Commissioner of Income-tax, Ernakulam. The Appellate Assistant Commissioner confirmed the finding of the Income-tax Officer that none of the parties shown as creditors in the assessee's books was in a position to make the advances and that the assessee had failed to prove the genuineness of the credits. Before the Appellate Assistant Commissioner the assessee put forward a new contention that in view of the fact that in the assessment made against him for 1966-67 an unexplained credit for Rs. 11,000 had been brought to tax treating it as his income from other sources, the said amount should be regarded as available with him during 1140 M.E. and set off against the cash credit figure of Rs. 19,000 in case the explanation furnished by the assessee that the cash credits represented genuine borrowings was found to be unacceptable. This plea appealed to the Appellate Assistant Commissioner as valid and tenable. He accordingly held that the aforesaid amount of Rs. 11,000 should be set off against the unexplained cash credits of Rs. 19.000 and directed that only Rs. 8,000 be added as the assessee's income from other sources in making the assessment for the year 1969-70.

4. Against the said order of the Appellate Assistant Commissioner the department filed an appeal before the Tribunal. The Tribunal agreed with the Income-tax Officer that the assessee had failed to discharge the burden that lay on him of proving the nature and source of the credits in question. The Tribunal held that merely on account of the fact that in making the assessment for an earlier year some amount had been added as undisclosed income derived by the assessee from other sources, the law does not cast any burden on the department to establish that the said amount was not available with the assessee during a subsequent accounting period and that even in such cases it is the duty of the assessee to explain the source of every credit noticed in his accounts for such subsequent period. In the opinion of the Tribunal, if the credits in question had really come out of the additions made in the earlier year, such an explanation would have been given by the assessee in the first instance itself before the Income-tax Officer and since