Cash credit in third-party accounts: rejected explanation alone is not enough; surrounding facts must support undisclosed income.

Where cash credits were entered in the accounts of related third parties, the court distinguished between circumstances permitting an inference of undisclosed income and a mere rejected explanation. For the minor son's credit, the partner's control over firm funds and the absence of satisfactory proof linking withdrawals to later deposits provided material to treat the amount as the assessee's taxable profits, and that finding was upheld. For the father's credit, the entry stood in an adult third party's name and the Department produced no additional material connecting it to the firm, so the amount could not be treated as the assessee's income and that finding was set aside.

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Issues: (i) Whether the sum of Rs. 16,200 credited in the account of the partner's minor son could be treated as profits of the assessee liable to tax; (ii) Whether the sum of Rs. 13,700 credited in the account of the partner's father could be treated as profits of the assessee liable to tax.

Issue (i): Whether the sum of Rs. 16,200 credited in the account of the partner's minor son could be treated as profits of the assessee liable to tax.

Analysis: The credits were made through a partner who could deal with the firm's funds, and the surrounding circumstances, including the absence of any satisfactory proof connecting the withdrawals with the later deposits, afforded material from which an inference could be drawn that the entries represented income from undisclosed sources. The inference was a possible one on the facts found and could not be disturbed merely because another view was also possible.

Conclusion: The finding that Rs. 16,200 represented profits of the assessee liable to tax was supported by material and was upheld.

Issue (ii): Whether the sum of Rs. 13,700 credited in the account of the partner's father could be treated as profits of the assessee liable to tax.

Analysis: The amount stood in the name of an adult third person who had independent business, and the mere rejection of the assessee's explanation that it was a loan did not supply positive material to prove that the money belonged to the firm. Since the entry itself indicated another person as the recipient and no additional circumstances connected the amount with the assessee, the initial burden on the Department was not discharged.

Conclusion: The finding that Rs. 13,700 represented profits of the assessee liable to tax was not supported by material and was set aside.

Final Conclusion: The reference was answered partly in favour of the Revenue and partly in favour of the assessee, with each party bearing its own costs.

Ratio Decidendi: A rejected explanation does not by itself prove that a credit entry is the assessee's undisclosed income; the Department must still adduce material showing that the amount belongs to the assessee, though an inference of taxable income may be drawn where the surrounding circumstances reasonably support it.

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