The assessee is not required to prove the source of loans.

N.K.Agrawal, J.

1. This is a petition under Section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), by the Commissioner of Income-tax, seeking a direction to the Income-tax Appellate Tribunal, New Delhi (for short, "the Tribunal"), to refer the following question of law to this High Court for opinion :

"Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in deleting the addition of Rs. 2,66,360 on account of cash credits by holding that the assessee was not supposed to prove the source of loans because that could not be said to be within his special or exclusive knowledge ?"

The assessee derived income as a commission agent in coal. He sold wagons and coal rakes of the third parties and charged commission. Search and seizure operations at the business and residential premises of the assessee took place on June 13, 1985, under Section 132 of the Act. A return of income was filed by the assessee in the status of an individual on January 16, 1987. During the assessment proceedings for the assessment year 1986-87 (accounting year ending March 31, 1986), the Assessing Officer noticed the following cash credit entries in the books of the assessee :

1. Loan from Shri Ishwar Chand Rs. 67,364

2. Loan from Shri Prem Chand, Hindu undivided family Rs. 83,321

3. Loan from Shri Prem Chand, individual Rs. 75,435

4. Loan from Shri Rajinder Prashad Rs. 40,240

5. Total Rs.2,66,360

The Assessing Officer took the view that all the four credit entries were bogus and fictitious and represented the unaccounted income of the assessee. An addition of Rs. 2,66,360 was, therefore, made to the assessees income. The assessee went in appeal but did not get relief and, therefore, he filed a second appeal before the Tribunal where he succeeded. The Tribunal took the view that all the cash credits stood duly explained by sufficient evidence and, therefore, there was no justification for any addition for any of the cash credit entries. The entire addition was thus deleted.

2 From the facts emerging from the order of the Revenue authorities, as well as the order of the Tribunal, it appears that the cash credit entry, recorded in the books of the assessee in the name of Ishwar Chand, was disbelieved on the suspicion that the creditor, Shri Ishwar Chand, being the real brother of the assessees wife and also being an employee of the assessee, did not have the means to advance any loan to the assessee. The Assessing Officer took the view that the creditor, Ishwar Chand, was not doing any business and returns had been filed by him under the Act for the earlier three years so as to accommodate and help the assessee. The Tribunal, however, noticed that the confirmation letter had been duly filed and Ishwar Chand was also subsequently examined by the Commissioner of Income-tax during the appellate proceedings wherein Ishwar Chand confirmed the loan to the assessee. A sum of Rs. 37,000 had been advanced by Ishwar Chand to the assessee on March 14, 1986, and the second amount of Rs. 30,000 was given on March 19, 1986. Both the payments were made by account payee cheques. The money was returned by the assessee to Ishwar Chand with interest amounting to Rs. 2,399 on July 22, 1986, by account payee cheque. A copy of the bank account of Ishwar Chand was also filed. On these facts, the Tribunal rejected the finding of the Assessing Officer as well as the Commissioner of Income-tax that the credit entry was not genuine.

3. The cash credits, recorded in the books of the assessee in the names of Prem Chand, Hindu undivided family and Prem Chand, individual, were also treated to be bogus and fictitious for the same reason as in the case of Ishwar Chand. Here also, the creditor had filed returns of income for the earlier three years after the search and seizure operation had taken place at the business premises of the assessee and assessments were got completed for all those years. The Tribunal