Concealed income from high denomination notes requires cogent material; conjecture about cash patterns is insufficient.

Where the department alleges that high denomination notes represent concealed income from an undisclosed source, it must prove that conclusion with cogent material. The Tribunal had accepted that some notes could have arisen from business transactions, but still treated 13 notes as undisclosed income on conjecture about possible transaction patterns and a presumed proportion of such notes in the cash balance. That approach was insufficient because the mere absence of shown transactions of Rs. 1,000 or more did not exclude the possibility of such notes being received in business dealings. The finding was therefore unsupported by material and was decided in favour of the assessee.

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Issues: Whether there was material to support the finding that 13 out of 21 high denomination notes encashed by the assessee represented income from an undisclosed source.

Analysis: In a case of alleged concealed income represented by high denomination notes, the burden lay on the department to establish, on material in its possession, that the notes were income from an undisclosed source. The Tribunal did not reject the assessee's explanation outright, accepted that some notes could have arisen in business transactions, and proceeded on conjectural assumptions as to the kind of transactions in which such notes could have been received and as to a supposed proportion of high denomination notes in the cash balance. The existence of such notes could not be excluded merely because transactions of Rs. 1,000 or more were not shown, nor could a supposed proportional presence of such notes in cash balance furnish a reliable basis for discharging the department's burden.

Conclusion: The finding that the remaining 13 high denomination notes represented income from an undisclosed source was unsupported by material and was answered in the negative in favour of the assessee.

Ratio Decidendi: When the department alleges that high denomination notes constitute concealed income from an undisclosed source, it must prove that conclusion by cogent material; conjecture about possible business receipts or a presumed proportion of notes in cash balance is insufficient.

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