Cash credit explanation cannot be rejected on arbitrary grounds when identifiable sources reasonably account for the receipt.

A prima facie reasonable explanation for a cash credit cannot be rejected on arbitrary or irrelevant grounds when the assessee discloses identifiable sources from which the receipt could arise. The law does not require maintenance or production of accounts unless the assessee actually maintained and suppressed them, so no adverse inference can be drawn merely because some accounts were not produced. The sufficiency of the explanation must be tested by whether the disclosed sources could reasonably account for the credit entry, not by insisting on proof of the exact purpose of the amount on the last day of the accounting year. The cash credit was therefore not taxable as income from an undisclosed source.

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Issues: Whether the cash credit of Rs. 14,600 could be assessed as income from an undisclosed source, and whether the Revenue authorities were justified in rejecting the assessee's explanation on grounds unrelated to the enquiry.

Analysis: The assessee had disclosed specific sources from which the money could have been drawn. The law did not require him to maintain accounts unless he actually maintained and suppressed them, so no adverse inference could be drawn merely because certain accounts were not produced. The sufficiency of the explanation had to be tested by whether the disclosed sources could reasonably account for the credit entry, not by insisting on proof of the precise purpose for which the amount was credited on the last day of the accounting year. A prima facie reasonable explanation could not be rejected on capricious, arbitrary, or irrelevant grounds.

Conclusion: The cash credit could not be treated as income from an undisclosed source, and the Revenue authorities were not justified in rejecting the explanation on the grounds relied upon.

Final Conclusion: The reference was answered in favour of the assessee, with the disputed amount held not taxable as undisclosed income on the reasoning accepted by the Court.

Ratio Decidendi: Where an assessee gives a prima facie reasonable explanation for a receipt and discloses identifiable sources from which it could arise, the explanation cannot be rejected on irrelevant, arbitrary, or capricious grounds, and no adverse inference can be drawn merely because no account is maintained or produced.

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