Burden to prove non-income character of cash receipts governs high denomination note encashment and reassessment.

An assessee who receives money during the accounting year must first explain its source and show that it is not income; that burden applies equally in reassessment and original assessment. In high denomination note encashment matters, the initial burden may be discharged if a genuine cash balance is proved and surrounding circumstances reasonably support the explanation. Where the explanation is unsupported by books, a proper cash account, or other material showing how the cash was maintained, the department may reject it and treat the receipt as income from an undisclosed source. The text states that the assessee's explanation for the encashed amount was not satisfactorily established.

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Issues: Whether, in reassessment proceedings concerning encashment of high denomination notes, the assessee bore the initial burden of proving that the money was not income and that the explanation of cash balance in hand was satisfactorily established.

Analysis: The governing principle applied was that where an amount is received during the accounting year, the assessee must, in the first instance, explain its source and show that it does not have the character of income. In cases involving high denomination notes, if the assessee proves the existence of a genuine cash balance and surrounding circumstances make it reasonable that the notes could have been held as part of that balance, the initial burden may be discharged. But if the explanation is unconvincing, unsupported by books or surrounding circumstances, or weakened by the absence of a proper central account and other material showing how the cash was maintained, the department is entitled to reject it and treat the amount as income from an undisclosed source. The proceedings under section 34 do not create a different rule of burden once reassessment is validly commenced.

Conclusion: The assessee did not satisfactorily prove that the Rs. 51,000 encashed in high denomination notes formed part of the cash balance, and the addition as income from an undisclosed source was justified. The special burden argument based on section 34 failed.

Ratio Decidendi: In reassessment or original assessment alike, an assessee who receives money during the accounting year must first prove the non-income character and source of the receipt; if the explanation is not reasonably established, the department may infer taxable income from an undisclosed source.

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