Undisclosed Income Burden of Proof: addition failed where exchanged notes were plausibly shown as part of cash balance

An addition for alleged undisclosed income from exchanged high denomination notes cannot stand unless the Department proves, on relevant material, that the cash represented suppressed income. The assessee's explanation that the notes formed part of its cash balance was found plausible, while the contrary inference rested on surmises and an incomplete examination of the cash book. In the absence of evidentiary foundation for treating only part of the notes as genuine cash balance, the addition was not sustainable and the issue was decided in favour of the assessee.

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Issues: Whether there was material to hold that the sum of Rs. 25,000, being the value of high denomination notes exchanged under the demonetisation ordinance, represented income of the assessee from undisclosed sources.

Analysis: The burden lay on the Department to establish that the encashed high denomination notes represented suppressed income. The assessee gave a plausible explanation that the notes formed part of its cash balance on the relevant date. The reasoning adopted below relied on surmises drawn from limited sales entries and did not examine the actual cash book material in a legally relevant manner. The conclusion that only a part of the notes could belong to the cash balance had no evidentiary foundation. In the absence of material supporting an inference of undisclosed income, the addition could not be sustained.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: An addition as income from undisclosed sources cannot be sustained unless the Department discharges the burden of proving it on relevant material, and a finding based merely on conjectures or surmises is not enough.

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