Unexplained high denomination notes may be treated as income when the assessee fails to prove their source and nature.

An assessee who fails to prove the source and nature of high denomination notes can be subjected to an adverse inference that the receipt is income in character. The assessee's shifting explanations and inability to establish a credible source justified rejection of the explanation, and the Tribunal was entitled to make a reasonable estimate from the surrounding circumstances, including the assessee's status, habits, and expenses. As the matter remained one of fact and disclosed no error of law, the finding that the amount was assessable income was upheld in favour of the Revenue.

---

---

Issues: Whether there was material to sustain the finding that Rs. 53,000 represented assessable income from unexplained high denomination notes.

Analysis: The assessee failed to establish the source and nature of the high denomination notes and gave shifting explanations at different stages. The settled rule applied was that the burden lies on the assessee to prove positively the source and character of a receipt, and if he fails to do so the revenue authorities may draw an inference that the amount is income in nature. The Tribunal was entitled to reject unsupported explanations, draw an adverse inference, and make a reasonable estimate on the basis of the assessee's status, habits, and expenses. The High Court also held that the question remained one of fact and did not disclose any error of law warranting interference.

Conclusion: The finding that Rs. 53,000 was assessable income was upheld and the answer to the reference was against the assessee and in favour of the Revenue.

Ratio Decidendi: Where an assessee fails to prove the source and nature of a receipt, the revenue may treat the unexplained amount as income and draw an adverse inference on the basis of the surrounding circumstances.

---