Fenil's Library

More often than not, schemes promising huge returns are Ponzi traps

Vivek Kaul. Mumbai

"Boy, I got vision, and the rest of the world wears bifocals." — Paul Newman, as Butch Cassidy, in the all-time classic western Butch Cassidy and the Sundance Kid

I walked out of the airport and into the rain. She was there, waiting.

"Did you miss me?" she asked as I got closer.

"Must you know?" I replied.

"Ah, let it be. You know, I wanted to talk to you about an investment I wanted to make," she said.

"What investment?"

"This friend of mine wants me to invest in an investment scheme that promises to double my money in six months. Isn't that exciting? A 100% guaranteed return in a year."

"But where will they invest your money to be able to give you that kind of return?"

"Oh, let them invest where they please. All I am bothered about is my 100% return."

"I wish life were as simple, my dear. Let me tell you a story."

"A story? Go ahead."

"Double your money in 90 days! That's what Charles Ponzi, an Italian immigrant to the US, promised investors way back in 1919. In August 1919, in the process of issuing an export magazine, Ponzi spotted a huge arbitrage opportunity. He made an offer to a person in Spain, requesting him to subscribe to an export magazine he planned to launch. The subscriber sent Ponzi an international postal reply coupon, which could be exchanged at the local post office, for American stamps, needed to dispatch the magazine to Spain. In Spain, the coupon cost the equivalent of one cent in American currency. But when he exchanged the coupon in America, Ponzi got six cents worth of stamps. Sensing the arbitrage opportunity, he decided to float an investment scheme."

"But what's this got to with my investment," she interrupted.

"Have patience. Ponzi's scheme promised to double investors' money in 90 days. Money started pouring in. Once the money had been collected, Ponzi planned to convert American dollars into foreign currency, buy international postal reply coupons from various countries, convert them into American stamps and sell them for a huge profit. The idea was brilliant. But Ponzi had not taken into account the difficulties involved in dealing with various postal organisations around the world, along with other problems involved in transferring and converting currency. Nevertheless, the investors got attracted to the huge returns the scheme promised. At its peak, the scheme had 40,000 investors who had together invested around $15 million in it. Meanwhile, Ponzi had started living an extravagant life, blowing up the money investors brought in. On July 26, 1920, the Boston Post ran a story questioning the legitimacy of the scheme. Within a few hours, angry depositors lined up at Ponzi's door, demanding their money back. Ponzi asked his staff to settle their obligations. The anger subsided, but not for long. On August 10, 1920, the scheme collapsed. The auditors, the newspapers and the banks declared that Ponzi was definitely bankrupt. It was revealed that only two stamps had been actually purchased. Money brought in by the new investors was being used to pay off old investors. Since then, this form of financial fraud came to be generically known as a Ponzi scheme."

"So?" she asked.

"Let us say I start a scheme promising to double money in six months. I can invest that money somewhere and hope it gives me enough returns in six months so I can redeem the amount I had promised the investors. But, generating 100% returns in six months is not easy and wasn't the idea in the first place. Taken in by the huge returns I am offering, people who invest in the scheme initially will go out there and tell other investors about it, so more investors will start investing in it. Six months later, when I need to pay off the initial lot of investors, enough new money would have come into the scheme to allow me to pay off the initial investors. And so the scheme keeps running."

"That's a dangerous game to play."

"So it is. It is important to note that in a Ponzi scheme no new wealth is created. Wealth gained by participants entering the scheme earlier is the wealth lost by those coming in later. Such a scheme can keep running only till the money entering the scheme is more than the money leaving the scheme. The moment the flow reverses, the scamster might vanish with whatever money he has left. Thus, the most vulnerable investors are those who come at the end."

"Are you saying my friend wants me to invest in a Ponzi scheme?"

"Without doubt. There is no other way to generate 100% returns in six months. If you have been reading the newspapers, there has been a spate of exposures of Ponzi schemes of late. Ashok Jadeja, a scamster, was caught for defrauding investors of around Rs 1,600-2,000 crore. If news reports are to be believed, he claimed he could triple investments in 15 days. In another case, in Delhi, Ranbir Singh Kharab, a former MLA, and one Subash Aggarwal, siphoned off Rs 3,200 crore from around 10,000 investors. "

"But how do these fraudsters pull it off?"

"Well, the most important part of a Ponzi scheme is assuring investors that their investment is safe. Early investors become the most important part of the scheme and meeting initial obligations is very important. Ironically, in many cases, it is the investors' own money that is being returned to them. Let us say someone invests Rs 100 in a scheme that promises a return of Rs 20 in 2 months. Now, even with no new money coming in, the scamster can keep returning the investor Rs 20 of his own money every two months, and keep the scheme running for ten months in the hope that the investor will go and tell others about the scheme and get them to invest in it."
"I must be a fool to have considered investing in such a scheme. But how come such schemes keep surfacing time and again?"

"The attraction of easy wealth is hard to beat. Ponzi Schemes offer huge returns in a short period of time vis-a-vis other investment options available in the market at that point of time. With good advertising and stories of previous investors who made a killing by investing in the scheme, investors get caught in the euphoria that is generated and hand over their hard earned money to such schemes going against their common sense. Greed also results when investors see people they know make money through the Ponzi scheme. As economist Charles Kindleberger famously wrote, "There is nothing so disturbing to one's well being and judgment as to see a friend get rich.""

(The example is hypothetical)

The regulator could have done better for sure

Sandeep Shanbhag

Most equity mutual funds charge retail investors an entry load of 2.25% on their investments. This entry load is mandatorily payable irrespective of an investor's mode of entry. The total amount collected as load for each scheme, as per Sebi stipulations, has to be maintained in a separate account by AMCs and can be utilised to meet selling and distribution expenses. As per industry practice, the load is normally utilised for paying the agent/ distributor's commission.

Now, in an effort to bring about transparency in payment of commission to mutual fund distributors, Sebi has decided that there will be no entry load for the schemes, existing or new, of a mutual fund. The upfront commission to distributors shall be paid by the investor to the distributor directly. Moreover, the distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors

Sebi has over the years done an excellent job of regulating the mutual fund industry and making it adopt international best practices as far as possible. The waiver of load is a similar welcome step that will no doubt benefit the small but informed investor.

However, when I try and look beyond the obvious, I find certain creases should have been ironed out before implementing this move, which essentially facilitates a small minority to access a cheaper product that a vast majority has little knowledge of. While providing the informed investor with choice is a desirable objective, protection of the uninformed investor's interest is critical.

Also, is it appropriate that the load waiver is made applicable to mutual funds in isolation? There are other investment products, which for all practical purposes are mutual funds, only not called so.

Take the unit linked insurance plans (Ulips) of insurance companies. These are nothing but mutual funds that charge far higher loads (from 15% to 75%). Of course, the charges come down over the tenure of the investment, but the point is that those charges clearly exist. Moreover, of late, the way Ulips are advertised and promoted, it is difficult for an uninformed investor to differentiate and tell apart a mutual fund from an Ulip. Then there are structured products issued by portfolio managers and large broking houses, which too are nothing but mutual funds that offer substantially higher fees to distributors.

In such an environment, where products with similar functions co-exist, albeit with vastly dissimilar incentive structures, there is bound to be wholesale shepherding and forced migration of uninformed investors to such products. In other words, there is a clear and present danger that the mutual fund industry will end up subsidising competing investment products.

This is not to say that the load should not be waived. Only that it should be done across the board, not selectively.

Admittedly, this is easier said than done since the regulators of both industries (Sebi and Insurance Regulatory Development Authority, respectively) differ. However, if any practice is deemed desirable, it should be so notwithstanding the industry concerned. Efforts must be made by the respective regulators to impose best practices in respect of their products uniformly.

Secondly, the three affected parties basically are mutual funds (AMCs), distributors and investors, both informed and uninformed. Though the immediate interests of each of these constituents may differ, they do indeed have a common objective — that of growth and development of the mutual fund industry. The more the industry grows, the better the technology and skilled manpower that AMCs can afford, thereby engendering more competition and better returns to investors both uninformed and informed. However, if the pipe is made narrower only at the beginning, other (quasi) mutual funds will take over the market to the detriment of the uniformed investor.

The Sebi press release keeps it short and sweet by mentioning that the commission should be paid by the investor to the distributor directly. Is this practical? It is only in a perfect world that the uninformed investor will pay separately for the advice and service he is getting. More often than not, the uniformed investor is uninformed of the fact that he is uninformed. A fee structure open to negotiation will lead to fee shopping, with distributors indulging in blatant rebating just to get additional business and the associated trail commission.

That said, I cannot emphasise enough that it doesn't mean a knowledgeable investor is forced to pay someone for services he doesn't need. For such persons, the system of bypassing the distributor and investing directly is already in place. The only submission is that imputing the investor with the responsibility of compensating the distributor will confuse and corrupt the market place. In other words, prima facie, though the immediate effect of this move seems to affect only the distributors, over time it will hurt the mutual fund industry as a whole. Consequently, at the end of the day, it is the small investor who will be left disadvantaged — that's ironical, considering it is for his benefit that this entire fuss started in the first place.

As a consumer, I too look forward to cheaper financial products. However, I hope the authorities come to a decision after careful consideration of issues such as those laid out in this column. For, as an informed investor, I don't want to end up saving two but paying twenty.

The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com

Govt seems hell bent on making the process more complicated

Sandeep Shanbhag

The July 31 deadline for filing taxes is drawing closer.

As readers would be aware, the old tax return form, SARAL, has been scrapped since last year and replaced with the new ITR series. There are eight forms in all, each applicable to a particular category of taxpayer (see table) and are classified as ITR series 1 to 8.

Simultaneously, e-filing of tax returns is now available for all categories of taxpayers, though it is mandatory only in the case of corporate taxpayers and firms which are liable to tax audit under Section 44 AB of the Income Tax Act (ITA). More on this later in this column.

On the new forms, the CBDT has spelt out clearly vide Circular no. 03/ 2009, dated May 21, 2009 that the tax return should not be accompanied by any attachment/ annexure. Thus, taxpayers should not enclose any statement along with the return such as the computation of income or tax, Form 16, copies of balance sheet, profit and loss account, TDS/ TCS certificates, proof of payment of advance tax or self-assessment tax, etc.

However, take care to maintain these documents on file as the same will have to be produced before the assessing officer upon a demand by him.

Though similar instructions were issued last year, taxpayers found there were several instances where the tax department staff and officials insisted on annexures being attached to the forms, especially Form 16 and TDS certificates. Therefore, this year, in case there is a refusal to accept returns without annexures, taxpayers can point out to the erring official the relevant provision of the above mentioned circular that clearly states that accepting a tax return with annexures is against the expressed policy of the government and is not in consonance with legal provisions.
Those who are computer savvy as also reasonably familiar with the tax provisions may opt for the simplicity of e-filing. This way, you can actually file your tax return without having to get up from your chair. Detailed information is available on www.incometaxindiaefiling.gov.in. The basic process may be summarised as follows:


l First, select the appropriate Return form (see table)

l Download the Return Preparation Software available on the site. This is nothing but a simple Microsoft Excel Utility

l Fill your return offline and generate an XML file

l Register and create a user ID/ password. In all cases, the taxpayer’s PAN is the user ID

l Login and click on the relevant form on the left panel and select “Submit Return”

l Select the XML file from your computer and click on “Upload” button

l Upon successful upload, acknowledgement details would be displayed. Click on “Print” to generate a printout of acknowledgement/ ITR-V Form

l In case the return is digitally signed, upon generation of the acknowledgement, the return filing process gets completed. You may keep a print of the acknowledgement for your record

l In case the return is not digitally signed, upon successful uploading of e-Return, the ITR-V Form would be generated, which needs to be printed by taxpayers. This is an acknowledgement cum verification form. Duly filled, this form should be mailed to “Income Tax Department - CPC, Post Box No - 1, Electronic City Post Office Banaglore - 560100, Karnataka” within 30 days of filing electronically.

Taxpayers may note that the above process is a major departure from last year where ITR-V was to be submitted with the local income-tax office within 15 days of filing electronically.

Several issues arise due to this newly instituted procedure.

First and foremost, if Form ITR-V is furnished after the 30-day period, it will be taken as if the return was never filed and the entire process will have to be repeated again.

Now, take a case where a taxpayer mails the form in time, but there is a delay at the postal department’s end. The assessee will be penalised for filing the return late for no fault of his.

Secondly, a stamped copy of ITR-V, which served as proof of having filed tax return, will not be available. Copies of tax returns are needed for many purposes, from applying for a visa to taking a home loan. Now, in the absence of a stamped acknowledgement from the tax department, it is not clear how the taxpayer can prove to someone outside the department of having duly filed the tax return.

It is because of such issues that electronic filing has not taken off in a way it should have. Yet, as if these weren’t enough, there is yet another issue this year —- with respect to claiming credit for TDS only by way of the system of Unique Transaction Number (UTN) on which there is much debate and controversy currently.
We shall take up that topic next week.

To sign off, how about marvelling at the irony that in a country where less than 3% of the population pays taxes, rather than lay out a red carpet for this minority, the government has been making the process becomes more complicated every year?

The writer is director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com.

Currency swap with multiple nations is a good bet, but will take time working

Vivek Kaul. Mumbai

The Indian stretchable time was at work again. The Woodpecker Airlines flight I was supposed to board was late by an hour.

“Let’s have some coffee,” I said.

“Not a bad idea,” she said, leading me to the nearest coffee shop.

“Good coffee,” I said after taking my first sip and looked to her for a confirmation.

“Good as usual,” she said. “Now tell me what China is doing to bring down its dependence on the US dollar.”

“Oh, a number of things,” deciding to plunge headlong into a discussion so waiting for the flight became more bearable. “First, it has been buying metals like copper, aluminum, nickel, titanium and zinc. It has also been buying iron ore in huge quantities from Brazil since the beginning of this year with the intention of building a store house of real physical assets instead of having a major portion of the foreign exchange reserves invested in financial securities issued by the US government. It has also been buying gold. Since 2003, China has increased its holding of gold by 73% to 1,054 metric tonnes, valued at around $31.3 billion, which makes it the fifth-largest holder of gold in the world. Still, all these investments make up a very small part of the nearly $2 trillion foreign exchange reserves China has. A bigger game is being played somewhere else,” I explained.

“And what is that game?”

“China is trying to enter into currency-swap agreements with countries like Argentina, Brazil, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. It has signed agreements worth $95 billion in the last four months.”

“What’s a currency swap agreement?”

“Let me give you an example. China recently overtook US as Brazil’s major trading partner. Up till now, they have been carrying out trade in US dollars, which means that if China buys something from Brazil, it pays Brazil in dollars and vice versa. The Brazilian President, Luiz Inacio Lula da Silva, better known as Lula, said in an interview recently, “Between Brazil and China, we need to establish a trade that is paid for in our own currencies. We don’t need dollars. Why do two important countries like China and Brazil have to use the dollar as a reference, instead of our own currencies? It’s crazy that the dollar is the reference, and that you give a single country the power to print that currency. We need to give greater value to the Chinese and Brazilian currencies.” If Lula and China have their way, China will pay Brazil in yuans when it buys something from Brazil and Brazil will pay China in real (the Brazilian currency) when it buys something from China.”

“And how will that help?” she asked, taking a noisy sip.

“It will take the US dollar out of the equation for China to some extent. Right now, when China exports goods and services, it gets paid in US dollars. Vice versa, when it imports goods and services, it needs to pay in dollars. If China can expand this currency swap system, it no longer needs to be dependent only on the US dollar for international trade. It will accumulate a lesser amount of dollars in the days to come by getting paid for exports in currencies other than the dollar as well. Also, China is a big importer of commodities these days and it can pay for those using its own currency, the yuan. And as China imports more in the days to come, countries around the world will start accumulating yuan, and that improves the chances of yuan becoming an international reserve currency like the US dollar currently is.”

“Interesting.”

“I’m not done yet. Nouriel Roubini, one of the few economists who correctly predicted the current financial crisis, recently wrote, “Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time… China has already flexed its muscle by setting up currency swaps with several countries.””

“So are you saying the yuan will displace the US dollar as the international reserve currency soon?” she asked.

“I am not saying that. All I am saying is China is trying to make yuan the international reserve currency.”

“Well, what’s the problem with yuan becoming the international reserve currency?”

“That’s because I have only explained the positive side of things. See, for a currency to become an international reserve currency, it needs to be extremely liquid.”

“Liquid?”

“Yes. When we say a certain asset is liquid, we mean it can be bought or sold at any point of time. That would mean there are buyers for the asset at all points. Take the China and Brazil currency swap plan. China accumulates reais (plural for real), when it sells goods and services to Brazil. It should be in a position to exchange the Reais it has accumulated to yuan at any point of time. But, currently, the Brazilian real is bought and sold only for a few hours every day, and these few hours are not at a point when the Chinese currency markets are open. So, currently, in order to change real into yuan, first reais will have to converted into dollars and dollars in turn will have to be converted into yuan. That’s a major weakness of the currency swap arrangement now, and it will take some time improving,” I said, emptying my cup.
“Oh, okay. Let’s go now. You need to check in now.”

k_vivek@dnaindia.net
(The example is hypothetical)

References: Brazil and China: Moves Towards a New Economic order?, Rachel Ziemba, www.rgemonitor.com, May 18, 2009; China Seeks to Dethrone the Dollar, Transforming the Yuan into the Dominant Global Currency, Keith, Keith Fitz-Gerald, May 27,2009; China and Brazil to Ditch U.S. Dollar? Hardly, Marc Chandler,www.seekingalpha.com, May 20, 2009.

Earnings yield helps identify mid-term turning points in the markets

Devendra Nevgi

With the local stock markets rallying more than 65% from the bottom seen in March 2009, the "valuation debate" is back in vogue.

Though absolute valuations are always debated, relative valuations are hardly discussed. We shall discuss relative valuations here.

But first some basics.

A traditional method used to value stocks for years now is the price to earnings (P/E) ratio. It is the multiple of the earnings the stocks or markets in general are valued at. The key question here is — how many times the earnings is the market willing to pay to buy a certain stock?

The P/E ratio may be based on historical or estimated earnings. Earnings can be estimated with minimum assumptions (such as GDP growth rate), historical data and growth rate. The current P/E ratio is then compared with its own historical averages to value the individual stock or markets.

Similarly, bonds (government) are valued based on their yield to maturity (YTM). That's the expected return if the bonds are held to maturity and the governments don't default. For instance, the most traded bond in Indian markets is the 10 year (long term) benchmark 'government bond'. Bonds are valued taking into account various macroeconomic factors such as GDP growth rate, inflation, currency, liquidity, central bank stance, supply and demand, etc. Historical averages of YTM on such bonds are used to value the yields on current bonds vis-a-vis the prevailing economic cycle.

Though the stocks and bonds have been historically valued independently, many a times investors don't realise that there is a strong link between the valuations of the two asset classes since in the long run, the macro economic factors influencing both the asset classes are very similar. For instance, cost of funds (interest rates) influences the earnings of companies and government bond yields set the tone for interest rates in India. Or GDP growth rate is a crucial input for valuing stocks as well as bonds. The interest rates are also used for discounting future earnings of companies in the now famous valuation technique, discounted cash flows (DCF).

Traditionally, stocks and bonds have always been valued on a standalone basis. But the link between stocks and bonds that we just discussed can be effectively used for "relative asset class valuation," viz, over or under valuation of stocks relative to bonds or vice versa.

We all know what dividend yield is; it is dividend received divided by the price of a stock.

If we presume that all the earnings of the company are distributed to shareholders as dividends, the dividend yield can also be termed as the 'earnings yield', which is nothing but the inverse of P/E ratio. For instance, if the P/E ratio is 20, the earnings yield is 5% (1/20).

Since future earnings are always uncertain, the earnings yield also carries some risk of not being realised. Since it is risky, the earnings yield has to be higher than the 10 year government bond yield, which is almost assured on maturity. The excess of the expected earnings yield over the 10 year government bond yield is nothing but the equity risk premium, or the extra returns to compensate the investors for the extra risk undertaken.

The difference in the earnings yield and the bond yields often gives a perspective of relative asset valuation, making either of the stocks or bonds relatively cheaper or expensive. Such relative valuation can be effectively used as additional input to value stocks.

Higher the difference in the earnings yield and the bond yields, cheaper is the relative valuation of stocks and vice versa, since the investors are getting compensated more for higher risks taken for stocks.

So, higher the difference, cheaper the stocks, assuming everything else remains the same.

In the Indian stock market context, historically (last 10 years) whenever the difference between earnings yield and bond yield (henceforth EYBY) has peaked at around 2-2.50% or higher, the Sensex has bottomed out and delivered good returns from there. And usually, whenever EYBY is low or negative at around minus 5% or lower, the Sensex has peaked and returned negative.

For instance, when the Sensex bottomed in March 2009 at around 8200, EYBY was at the higher end of the band at 2.1%. When the Sensex peaked at around 20500 in January 2008, EYBY was almost at minus 4.50%, closer to minus 5%.

This tool can be effectively used as an incremental or additional input, along with fundamental research, before buying/ selling in the markets. Historically, the tool has been useful in identifying the mid-term "turning points" in the markets. The data points for the same are easily available on the internet for retail investors to take advantage of.

A caveat: Liquidity (internal & external) can distort the indicator and the tool has to be used in tandem with other fundamental research.

The writer is a qualified chartered account

Govt brought back thetax through the backdoor in 2005

Sandeep Shanbhag

Did I tell you about this terrific book I have been reading? It’s got all the essential ingredients a potboiler needs to have —- drama, intrigue and suspense. The plots and sub-plots are so intricately woven by the author that each page will leave you guessing. I wont give away more, but I fully recommend reading The Income Tax Act, 1961.

This week, we are going to examine one of the sub-plots of this thriller, which deals with gift tax.

Actually, gift tax had been discontinued from October 1, 1998 to March 2005.

From April, 2005, Sec. 56(2)(v) was introduced, which basically resuscitated the earlier gift tax by way of a backdoor entry as income tax. In other words, gift tax was brought back by way of an income tax on the recipient.

Now, as per the law, if a sum of money over Rs 50,000 is received by an individual or an HUF without consideration, the aggregate value of such sum will be taxable as the receiver’s income. There are seven exceptions:

Gifts received:

a) from any relative; or

b) on the occasion of the marriage of the individual; or

c) under a will or by way of inheritance; or

d) in contemplation of death of the payer; or

e) from any local authority.

f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in Sec. 10(23); or

g) from any charitable trust or institution.

In fact, points ‘e’, ‘f’ and ‘g’ above were added in 2006 as an afterthought when it was found that as per a strict reading of the law, any scholarship, donations, medical grants, etc would be taxable since these were essentially sums of money received by an individual without consideration.

What about interest-free loans? What if you were to take an interest-free loan from a non-relative - say a close friend who would like to help you out but does not want to make it into a commercial transaction by charging interest. The absence of interest would make the transaction look prima facie as a gift given by a non-relative and hence taxable as per the above law.

Well, one Chandrakant Shah faced precisely such a situation. He had borrowed over Rs 50 lakh from close associates for buying a flat. Since the loan was interest-free, the assessing officer treated the transaction as a sum received without consideration and taxed it. Shah then approached the commissioner (appeals) but to no avail. Not someone who easily gives up, Shah then knocked on the doors of ITAT Mumbai.

Shah’s counsel reportedly argued that an interest-free loan could not be taxed under Section 56 (2)(v) as the repayment of the loan itself was the consideration between two parties. By referring to a decision of the Court of Appeal of State of California, the counsel maintained that it was inessential that an interest component should exist to make a transaction of extending money a loan transaction.

The Tribunal bench concurred with Shah and stated that the law needs to be followed in letter as well as spirit. Both aspects needed to be considered. The loans had been shown by Shah in the balance sheet submitted along with the return of income as loans and the lenders had also confirmed the same as such. Thus, it was a clearly a case of loan transactions and not a case of gift as held by the assessing officer.

The bench further went on to rule that a loan transaction should be examined in the light of the provisions of section 68 and not under provisions of section 56(2)(v). Sec. 68 basically states that where a certain sum is found to be credited in the books of the taxpayer and the taxpayer can offer no explanation about the nature and the source ther.