Cash credits as undisclosed income depend on reasonable inference from facts, not merely on a false explanation.

Where an assessee's explanation for a cash credit is rejected, the receipt does not automatically become taxable income; the inference of undisclosed income must still be reasonable on the available materials. On the facts, a smaller cash deposit was upheld as assessable income because the false explanation and business circumstances supported an inference of secret profits, while a larger deposit made on the first day of the accounting year was not taxable because there was no reasonable material to show how such profit had arisen. The reference was therefore answered partly for the Revenue and partly for the assessee.

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Issues: (i) Whether the cash deposit of Rs. 5,000 in the assessment year 1943-44 could reasonably be treated as the assessee's assessable income from an undisclosed source. (ii) Whether the cash deposit of Rs. 65,000 in the assessment year 1946-47 could reasonably be treated as the assessee's assessable income from an undisclosed source.

Issue (i): Whether the cash deposit of Rs. 5,000 in the assessment year 1943-44 could reasonably be treated as the assessee's assessable income from an undisclosed source.

Analysis: The assessee's explanation for the source of the amount was rejected as false. In the circumstances of the business carried on, and having regard to the finding that the explanation was not truthful, the inference that the amount represented secret profits of the relevant year was held to be a reasonable one on the materials available.

Conclusion: The amount of Rs. 5,000 was rightly treated as assessable income in favour of the Revenue.

Issue (ii): Whether the cash deposit of Rs. 65,000 in the assessment year 1946-47 could reasonably be treated as the assessee's assessable income from an undisclosed source.

Analysis: The deposit was made on the very first day of the accounting year. On the facts found, and in the absence of material showing how such a large profit could have arisen on that day, the Tribunal's inference that the amount represented income of that year was not supported by reasonable material. A false explanation by itself did not compel the conclusion that the whole amount was taxable income.

Conclusion: The amount of Rs. 65,000 was not rightly treated as assessable income and the inference against the assessee was unwarranted.

Final Conclusion: The reference was answered partly for the Revenue and partly for the assessee, with the smaller cash credit upheld as taxable and the larger cash credit held not to be taxable on the materials before the Tribunal.

Ratio Decidendi: Where an assessee's explanation for a cash credit is rejected, the receipt does not automatically become taxable income; the question remains one of fact to be decided on all available materials, and the inference of undisclosed income must be reasonable on those materials.

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