Reassessment for escaped income permits taxation of other unexplained credits, with the assessee bearing the burden of source proof.

Valid reassessment for escaped income under section 34 allowed the Income-tax Officer to examine and tax other unexplained items found in the books, not merely the item that triggered reopening. The assessee bore the burden of proving the source of cash credits, and failure to support the explanation with reliable evidence justified treating the credits as income from undisclosed sources; that inference was treated as a finding of fact. On the evidence, sale proceeds of gold and deposits made in third-party names were also correctly added as undisclosed income, and prior assessment on a percentage basis did not bar such further additions.

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Issues: (i) whether reassessment under section 34 could be sustained and whether, once reopened, the Income-tax Officer could bring to tax items other than those which originally formed the basis for reopening; (ii) whether the burden of proving the source of cash credits lay on the assessee and whether, on failure of satisfactory proof, the credits could be treated as income from undisclosed sources; (iii) whether amounts representing sale proceeds of gold and deposits in third-party names could be added as income over and above income assessed on a percentage basis.

Issue (i): whether reassessment under section 34 could be sustained and whether, once reopened, the Income-tax Officer could bring to tax items other than those which originally formed the basis for reopening.

Analysis: The reopening was treated as a proper case of escaped assessment rather than a mere change of opinion. Production of account books did not fasten knowledge of their contents on the Department, and the earlier assessment did not prevent discovery of items that had been overlooked. Once the assessment was validly reopened under section 34, the Income-tax Officer was not confined to the precise information that led to the sanction for reopening and could examine other cash credits found in the books.

Conclusion: The reopening was valid, and the Income-tax Officer could assess other escaped items discovered during the reassessment.

Issue (ii): whether the burden of proving the source of cash credits lay on the assessee and whether, on failure of satisfactory proof, the credits could be treated as income from undisclosed sources.

Analysis: The assessee was held to be in the better position to explain the source of the credits. If no reliable evidence was produced, or if the explanation was not substantiated by vouchers, witness testimony, or other convincing material, the Department was entitled to reject it. In that event, the unexplained credits could be treated as income from undisclosed sources. The conclusion that such credits belonged to the assessee was treated as a finding based on the evidence on record, not a pure question of law.

Conclusion: The burden lay on the assessee, and failure to prove the source justified treating the credits as income from undisclosed sources; the Tribunal's inference was one of fact.

Issue (iii): whether amounts representing sale proceeds of gold and deposits in third-party names could be added as income over and above income assessed on a percentage basis.

Analysis: The sale of gold was accepted as unexplained on the evidence, and the surrounding circumstances supported the inference that the proceeds came from undisclosed sources. The fact that the assessee had already been assessed on a percentage basis did not prevent further addition of secreted profits or income from a separate hidden source. As regards deposits in third-party names, the evidence concerning the existence and financial capacity of the named persons was unsatisfactory, and the Department was justified in treating the sums as the assessee's own income.

Conclusion: The gold proceeds and the third-party deposits were correctly added as income from undisclosed sources despite the percentage assessment.

Final Conclusion: The references were answered against the assessee, with the additions made in reassessment upheld and the unexplained credits treated as taxable income from undisclosed sources.

Ratio Decidendi: Where reassessment is validly initiated for escaped income, the assessing authority may bring to tax other unexplained items found in the books, and unexplained cash credits may be treated as the assessee's income when the assessee fails to prove their source; the resulting inference is one of fact.

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