Transferable bond maturity proceeds cannot be taxed as unexplained income when earlier investment and gift transfer are proved.

Maturity proceeds of transferable Resurgent India Bonds were not treated as unexplained income where the assessee showed that the bonds had been purchased earlier by a non-resident Indian in foreign currency and transferred by gift through bank correspondence. The Court noted that the relevant investment occurred in an earlier year, while only the maturity receipt arose in the assessment year in question, so the assessee had proved the nature and source of the credit for that year. It further held that inability to trace the donor at the stated address did not, by itself, disprove the donor's existence or the genuineness of the transfer.

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Issues: Whether the maturity proceeds of Resurgent India Bonds received in the assessment year 2004-05 could be treated as income from other sources under sections 68 and 69 of the Income-tax Act, 1961, despite the assessee's claim that the bonds were originally purchased by a non-resident Indian and later transferred to her by gift.

Analysis: The bonds were shown to have been purchased in foreign currency by the named non-resident Indian, were transferable by their terms, and the bank correspondence confirmed transfer by way of gift to the assessee. The Court found that the relevant investment in the bonds was made in the earlier year, while in the year under consideration only the maturity proceeds were received. For that assessment year, therefore, the assessee had established the nature and source of the deposit. The Court also held that the inability to trace the donor at the address mentioned did not by itself negate his existence or the genuineness of the transfer, and that the authorities were not justified in treating the maturity amount as unexplained income of the assessee for the year in question.

Conclusion: The addition of the maturity proceeds as income from other sources was not sustainable, and the assessee succeeded.

Final Conclusion: The impugned revision order was set aside, and the assessee's writ petition was allowed because the maturity amount of the bonds could not be taxed as unexplained income in the assessment year 2004-05.

Ratio Decidendi: Where the assessee establishes that the credited amount represents maturity proceeds of transferable bonds purchased in an earlier year and the source and nature of the receipt are proved for the relevant assessment year, the amount cannot be taxed as unexplained income merely because the donor is not traceable at a later stage.

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