Unexplained Cash Receipts may be treated as income if the assessee fails to prove source and nature, shifting no burden to revenue.

Unexplained cash receipts whose source and nature the assessee fails to prove may be inferred to be income; the correct legal principle permits the assessing authority to treat such unexplained receipts as income for assessment purposes. A mere prior omission by the assessing authority to notice similar unexplained receipts in earlier years does not change the evidential burden in the current year and does not oblige the revenue to prove that the receipts are income. Operatively, unexplained cash credits remain taxable unless the assessee establishes their source and nature.

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Issues: (i) Whether, where an assessee fails to prove positively the source and nature of cash receipts during the year, the Income Tax Officer is entitled to draw the inference that such receipts are of an income nature; (ii) Whether, where the Income Tax Officer failed to notice similar unexplained cash receipts in earlier years' assessments, the burden of proving that such receipts are of an income nature shifts to the Income Tax Officer.

Issue (i): Whether an inference of income may be drawn when the assessee fails to prove the source and nature of cash receipts.

Analysis: The issue presupposes a factual foundation that the assessee has not established the source and nature of the cash receipts. Given that both source and nature remain unproved, the only permissible inference consistent with tax assessment principles is that the unexplained receipts are income; allowing the opposite would enable assessees to enter unexplained cash credits and compel a presumption of capital treatment.

Conclusion: Yes. Where the assessee fails to prove positively the source and nature of cash receipts, the Income Tax Officer is entitled to infer that the receipts are of an income nature. This conclusion is in favour of the revenue.

Issue (ii): Whether the failure of the Income Tax Officer to notice similar unexplained receipts in earlier years places on the Officer the burden of proving that the receipts are income in the year under assessment.

Analysis: The question concerns the effect of prior non-noticing of similar entries by the assessing authority. The question as framed addresses mere failure to notice earlier receipts, not any prior adjudication or concluded finding that would estop the Revenue. Mere omission to notice in earlier years does not shift the burden of proof in the current assessment year.

Conclusion: No. The burden of proving that such receipts are of an income nature does not fall upon the Income Tax Officer merely because similar unexplained receipts were not noticed in earlier years. This conclusion is in favour of the revenue.

Final Conclusion: The reference is answered by holding that unexplained cash receipts, whose source and nature the assessee fails to prove, may be treated as income, and prior non-noticing of similar receipts does not transfer the burden of proof to the Income Tax Officer.

Ratio Decidendi: Where an assessee fails to prove the source and nature of cash receipts, the only reasonable inference for assessment purposes is that such receipts are income; prior omission by the revenue to notice similar entries in earlier years does not impose on the revenue a burden to prove that current unexplained receipts are income.

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