Unexplained cash credits cannot automatically be set off against earlier intangible additions without proof of prior availability of funds.

Unexplained cash credits in the books are to be explained by the assessee, because the relevant facts lie especially within the assessee's knowledge. If the explanation is unsatisfactory, the credits may be treated as income of that year. A later attempt to characterise the credits as arising from earlier-year earnings depends on the material before the assessing authorities and Tribunal, including the assessee's prior stand and any connection between the credits and alleged prior availability of funds. An estimated addition in an earlier year does not, by itself, compel automatic set-off against unexplained credits in a later year; the set-off claim was rejected.

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Issues: Whether a set-off against unexplained cash credits or intangible additions could be claimed on the basis that earlier additions represented income available to the assessee in a subsequent year.

Analysis: Cash credits found in the books during the relevant accounting period are matters for explanation by the assessee, since the relevant facts lie especially within the assessee's knowledge. Where the explanation is unsatisfactory, the credits may properly be treated as income of that year. A later attempt to shift the explanation and to link the credits with alleged earlier-year earnings is a matter for the assessing authorities and the Tribunal to evaluate, including the assessee's earlier stand, the change in explanation, and the material connecting the credits with prior availability of funds. The existence of an estimated addition in an earlier year does not, by itself, require the department to treat that amount as automatically available for set-off against unexplained credits in a later year.

Conclusion: The contention that the unexplained credits had to be accepted as set off against intangible additions was rejected, and the answer to the reference was in favour of the Revenue.

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