The assessee is not required to prove the source of funds advanced by cash creditors. Once the assessee proves the identity, capacity, and genuineness of the transactions with the creditors, the onus of proof shifts to the Assessing Officer to prove that the money actually belonged to the assessee.

1. - This appeal under section 260A of the Income-tax Act, 1961 (for short, "the IT Act") has been preferred by the appellant-Revenue against the order of the Income-tax Appellate Tribunal (for short, "the ITAT") dated August 6, 2010, passed in I. T. A. No. 349/JP-2009 by which the Income-tax Appellate Tribunal has dismissed the appeal filed by the appellant-Revenue against the order of the Commissioner of Income-tax (Appeals), Ajmer (for short, the "the CIT(A))". The relevant assessment year is the assessment year 2006-07.

2. The brief facts, as emerging on the fact of record, are that the respondent-assessee is carrying on the business of finance and earns income by way of interest and during the course of work of financing and money-lending, had raised loans from certain parties and as per the Assessing Officer (for short, "the AO") most of the parties are relatives of the respondent-assessee and they are said to be unsecured loans. It has been claimed by the Assessing Officer that in most of the cases, though the amount was received by account payee cheque and most of the creditors are assessed to the Income-tax Act and had even provided their permanent account number but on the desire of the Assessing Officer of producing the said parties, it transpired that none of the parties were able to prove the source of amount advanced to the respondent-assessee. It is further claimed by the Assessing Officer that immediately before the amount was advanced to the respondent-assessee by account payee cheque, cash was deposited in their respective bank accounts and thereafter the cheque could be cleared and the total amount is Rs. 17,27,250 in the name of the following creditors :

3. Accordingly, a show-cause notice was issued to the respondent-assessee as to why the addition may not be made under section 68 of the aforesaid amount.

4. The respondent-assessee submitted that all the cash creditors are assessed to the Income-tax Act, they are people of means, they have their own bank accounts and they had their sources of income through which they deposited the money and advanced money by account payee cheque and permanent account number had also been provided. It was further submitted that the identity, capacity and genuineness of the transaction stands proved by the respondent-assessee and he is not required to prove source of the amount which had been deposited by the creditors in their respective bank accounts. However, they stood to the testimony in the cross-examination and primary facts were proved and, therefore, no adverse interference be drawn, however, the Assessing Officer was not satisfied and made addition of Rs. 17,27,250 under section 68 as income from undisclosed sources.

5. An appeal was preferred by the respondent-assessee before the Commissioner of Income-tax (Appeals). Detailed submissions appears to have been filed and the Commissioner of Income-tax (Appeals) agreed with the submission of the respondent-assessee and, accordingly, held that source of cash creditors is not required to be proved by the assessee once the identity, capacity and genuineness stands proved and, therefore, he deleted the addition.

6. The appellant-Revenue challenged the matter in further appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal also, after considering the submissions, held that the onus, which lay on the respondent-assessee, was discharged and the Income-