Cash credits as undisclosed income require full appraisal of source evidence, not conjecture, and the finding failed here.

Cash credits cannot be treated as undisclosed income unless all material circumstances bearing on their source are examined and the inference rests on evidence rather than conjecture. The court held that the assessee's explanation of borrowings had to be tested against the whole factual background, including prior concealment findings, available funds after earlier assessments and tax liabilities, and whether the wealth statement and earlier additions could reasonably explain the credits. Because the Tribunal had not made that complete and informed appraisal, the finding that the amount represented income from an undisclosed source was unsustainable and was decided in favour of the assessee.

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Issues: Whether there was material to sustain the finding that the sum of Rs. 59,000 represented income of the assessee from an undisclosed source.

Analysis: The assessee's explanation that the credits represented borrowals was rejected, but the surrounding circumstances had to be considered as a whole. The court noted that the assessee had been found in the immediately preceding years to have concealed substantial income, and the Tribunal had not examined what funds would still have remained available after those assessments and tax liabilities. The Tribunal also failed to investigate whether the wealth statement and earlier additions could reasonably account for the amount credited in the relevant year. In these circumstances, the inference that the amount was assessable income of the year could not rest on a complete and informed appraisal of the material.

Conclusion: The finding that Rs. 59,000 was income from an undisclosed source was not sustainable, and the issue was answered in favour of the assessee.

Ratio Decidendi: A finding that cash credits represent undisclosed income cannot be sustained unless all material and relevant circumstances bearing on the source of the credits are examined and the inference is supported by evidence, not conjecture.

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