Unexplained credit in business books may be treated as business income when the alleged source is fictitious.

An unexplained credit entry in business books may be inferred to represent receipts from undisclosed business activities when the purported creditor is fictitious and the explanation is rejected by the tax authorities. In that situation, the amount can be treated as business income rather than as income from other sources, because the failed explanation does not displace the inference arising from the bookkeeping entry itself. The stated principle is that an unproved or fictitious credit in business accounts may properly be brought into computation as business receipt for tax purposes.

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Issues: Whether an amount credited in the assessee's business books, though explained as coming from an undisclosed source, could be treated as business income and brought into computation for excess profits tax, and not as income from other sources.

Analysis: The amount was entered in the firm's books, the alleged creditor was found to be fictitious, and the explanation for the credit was rejected by the income-tax authorities. In such circumstances, the amount could reasonably be inferred to have arisen from undisclosed business activities of the firm. The fact that the assessee claimed no other source of income and sought to characterise the receipt as income from other sources did not displace the inference that the credit represented business income. The relevant principle applied was that when an amount is credited in business books and its explanation fails, it is open to treat it as a business receipt.

Conclusion: The amount was rightly treated as business income from undisclosed activities, and the answer to the reference was against the assessee.

Ratio Decidendi: A credit entry in business accounts, if left unexplained or found to be fictitious, may be inferred to represent business receipts from undisclosed activities and taxed as business income.

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