Rejection of explanation by the AO regarding explanation given by the assesse on Cash credits U/s.68:

In Sona Electric Co. v. Commissioner of Income-tax, the Court held that the section makes it clear that the entry can be rejected if the explanation offered by the assessee can be rejected by the ITO on cogent grounds. When such grounds are themselves based on no evidence, the question of presumption does not arise. However, it was not open to the Assessing Officer to merely surmise that it would not be probable for the assessee to keep the amount unutilised for a period of two years. The AO ought to have given an opportunity to the assessee to substantiate his assertion.ult of Rejection of Assessee’s Explanation: In K.S. Kannan Kunhi v. Commissioner of Income-tax it was held that it is not the law that, when once the explanation is rejected, it automatically follows that the receipts are income. Whether an explanation is acceptable, and if not, whether it should be inferred that the receipts constitute income, are different aspects of the same question. Both these aspects are interrelated, and the question whether such receipts constitute income or not has to be decided on a consideration of all the relevant facts and circumstances of the case. It is quite legitimate in the case of an assessee who is known to be carrying on several activities of an income-earning character or who can reasonably be found to be involved in such activities, to draw the inference that the amounts found with him constitute income from undisclosed sources, in the absence of satisfactory explanation regarding their source. Such an inference should not be readily made in the case of a person, who has no known business or other source of income, or who cannot even be reasonably suspected as engaged in any income-earning activities. In the latter case, there must be more substantial reasons to reject the assessee’s explanation, and draw the inference that the amounts found with him constitute income.

Presumptions
In S.N.Ganguly v.Commr.of Income-tax the Court held that there is no presumption in law that the amount standing in the name of the wife belongs to the husband. Unless there are some materials before the Income-tax Department to suggest that the amount standing in the name of wife really belonged to the assessee, there would be no justification on the part of the Income-tax authorities to tax this amount. The principle to be applied is that in the absence of evidence to the contrary, the money standing in the name of the wife must be presumed to belong to her, and an assessee cannot be taxed in respect of the amount standing in the name of the wife. The onus of proof in such a case will be not on the assessee but on the Income-tax Department to show by at least some material that the amount standing in the name of the wife does not belong to the wife but belongs to the assessee.

In Commissioner of Income-tax v. P. Darolia and Sons the Court held that it is a well-established principle that in respect of an amount of cash received during the accounting year the burden of proof is upon the assessee to show positively the source and nature of the receipt, and in the absence of an adequate explanation the Revenue authorities are entitled to draw the inference that the receipts are of an income nature and liable to be taxed. But there is no presumption in such a case that the cash receipt is income of the same business for which the assessee has kept regular business of account. The question is really a question of fact, to be decided upon the material furnished in each particular case. The cash receipt may be income either from the same business carried on by the assessee or from a different business.

In Lakshmichand Baijnath v. The Commissioner of Income-tax, West Bengal it was held that if there is no source of income other that business for which the assessee has maintained books which disclose cash credits, the presumption is that the cash credits represent income from the same business. Thus, in Commissioner of Income-tax v. Margaret’s Hope Tea Co. Ltd. the cash credits appearing in the books of the assessee whose main activity was the cultivation, manufacture and sale of tea, was held to be treated as income of the assessee from its tea business.

In A.S. Swan Pillai v. CIT it was held that there is no presumption in favour of any illegality of a transaction. In fact, the presumption is the other way about. There must be evidence to show that the assessee did sell goods in excess of the legally fixed rates.

In Tolaram Daga v. CIT the court held that unchallenged account books are prima facie proof of the correctness of the entries made therein. Further, there is no presumption that the husband has the knowledge about the source of an income standing in the name of his wife.

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