Rejected explanation alone cannot make a bank credit taxable income without supporting circumstances or rebuttal material.

Mere rejection of an assessee's explanation for a bank credit does not, by itself, justify treating the amount as income from undisclosed sources. Where the assessee shows a prima facie source for the funds and the surrounding circumstances do not reasonably support an inference of taxable receipt, the credit cannot be assessed as income only because the explanation is not fully detailed. If the Department produces no rebutting material, the explanation cannot be discarded as arbitrary. On the stated facts, the credit of Rs. 8,500 in the wife's bank account was not sustainable as undisclosed income.

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Issues: Whether the Appellate Tribunal could reasonably hold that the sum of Rs. 8,500 credited in the assessee's wife's bank account was income from undisclosed sources merely because the assessee's explanation was rejected.

Analysis: The assessee had established that he withdrew substantial sums from his business and gave them to his wife for household expenses, and the disputed credit was found in her bank account. Rejection of the explanation, by itself, did not automatically establish that the amount was the assessee's income. An inference of revenue receipt could be drawn only where the surrounding circumstances reasonably supported it, and the Tribunal's rejection rested on an assumption that did not negate the prima facie case made out by the assessee. Since the Department had no material to rebut that case, the explanation could not be discarded as arbitrary and the amount could not be treated as income merely because the manner of savings was not further explained.

Conclusion: The finding that Rs. 8,500 was income from undisclosed sources was not sustainable; the answer to the reference was in the negative, in favour of the assessee.

Final Conclusion: Mere rejection of an assessee's explanation for a credit entry does not, without supporting circumstances, justify treating the amount as taxable income from undisclosed sources.

Ratio Decidendi: An unexplained or rejected explanation for a cash credit can support an inference of taxable income only when the surrounding facts reasonably justify that inference; where the assessee has made out a prima facie case and the Department adduce no rebutting material, the credit cannot be assessed as income merely on rejection of the explanation.

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