Unexplained cash deposits need independent evidence of a separate source before being added beyond estimated business income.

Rejection of an assessee's explanation for a cash deposit does not, by itself, justify treating the amount as income from a separate undisclosed source. Where the business income has already been estimated after rejection of the books, the authorities need independent material showing another source of income before making a further addition. In the absence of evidence that the assessee carried on any business other than the disclosed one, an unexplained deposit cannot be added separately over and above the estimated business income. The decision therefore rejects any presumption that unexplained money necessarily arose from a source outside the known business.

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Issues: Whether, after rejection of the assessee's books and estimation of business income, an unexplained cash deposit could be separately added to the assessed income as income from some other source.

Analysis: The accounting year fell under the Income-tax Act, 1922. The business income had already been estimated under the proviso to Section 13 and Section 23(3). The only material against the assessee was that the explanation for the cash deposit was rejected. Rejection of the explanation could justify treating the amount as income, but it did not by itself establish that the amount came from a source other than the disclosed business. An income may be from business or from another source, and where the source is wholly unknown, the authorities cannot arbitrarily presume the adverse alternative in the absence of independent material showing a separate source. The authorities had no material to show that the assessee carried on any business other than the disclosed one, and therefore the deposit could not be added over and above the estimated business income. The distinction drawn in some authorities between unexplained income and income from an undisclosed source was not accepted to the extent it treated mere absence of explanation as proof of a source outside the known business.

Conclusion: The cash deposit could not be treated as income from a source other than the business, and it could not be added separately to the estimated business income; the answer to the referred question was in the negative, in favour of the assessee.

Ratio Decidendi: Rejection of an assessee's explanation for a cash credit or deposit may justify treating the amount as income, but it does not, without independent material, permit an inference that the income arose from a source other than the assessee's known business.

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