Unexplained credit entries may be taxed as undisclosed income when the assessee fails to prove the claimed capital source.

An unexplained credit entry claimed as sale proceeds of a capital asset was treated as taxable income when the assessee failed to prove the asserted source. The Court held that facts within the assessee's special knowledge had to be explained by that assessee, and under the evidence rule the burden lay on the person asserting the capital origin of the credit. As the explanation that the receipt came from sale of a diamond necklace was rejected and fresh material did not displace that finding, the taxing authority could infer undisclosed income and assess it under the head of income from other sources.

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Issues: Whether an unexplained credit entry, claimed to represent the sale proceeds of a capital asset, could be treated as taxable income from an undisclosed source when the assessee failed to prove the claimed source.

Analysis: The assessee was bound to explain the source and nature of the credit entry, since the relevant facts were especially within its knowledge. The Tribunal rejected the explanation that the amount represented the sale proceeds of a diamond necklace, and the fresh material produced did not displace that finding. The Court held that once the assessee failed to establish the asserted capital source, it was open to the taxing authority to infer that the amount was income. Section 6 of the Income-tax Act treated income from other sources as a taxable head, and section 106 of the Indian Evidence Act placed the burden of proving facts within special knowledge on the person concerned. The Court distinguished authorities dealing with double taxation of the same source or cases where the finding lacked material support.

Conclusion: The addition of Rs. 6,500 as income from an undisclosed source was justified and the question was answered in favour of the Revenue.

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