Unexplained cash credits and undisclosed income: assessee bears the burden of proving source, even after estimated business income assessment.

Unexplained cash credits in an assessee's books must be explained by the assessee, and failure to prove the source permits the revenue to treat the amount as taxable income. The text also distinguishes between questions of fact and questions of law in reference proceedings: whether an inference about undisclosed income is referable depends on the nature of the inference, and a fact-based inference is final at Tribunal level. It further states that estimated computation of disclosed business income does not bar separate treatment of credit entries as income from an undisclosed source, because the source of each receipt must be determined on the evidence.

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Issues: (i) Whether the burden of proving the source of cash credits lay on the assessee. (ii) Whether the Tribunal's inference that the credits represented income from undisclosed sources was a question of fact or a question of law. (iii) Whether, where business income had been computed on an estimated percentage basis, the authorities could treat the credit entries as profits from an undisclosed source.

Issue (i): Whether the burden of proving the source of cash credits lay on the assessee.

Analysis: The onus of explaining a sum of money found credited in the assessee's books was held to rest on the assessee. If the assessee disputed tax liability, it was for him to show that the receipt was not income or that it was exempt. In the absence of satisfactory proof, the revenue authorities were entitled to treat the amount as taxable income.

Conclusion: The burden of proving the source of the cash credits was on the assessee.

Issue (ii): Whether the Tribunal's inference that the credits represented income from undisclosed sources was a question of fact or a question of law.

Analysis: A question referred under the reference jurisdiction must arise as a question of law. The character of an inference drawn from proved facts depends on the nature of the inference itself: if it is one of fact, it is final at the Tribunal level, and if it is one of law, the appropriate question is whether such an inference could be drawn in law. The form of the question as framed did not properly raise a referable question of law.

Conclusion: The Tribunal's inference was treated as one of fact, and no referable question of law arose in that form.

Issue (iii): Whether, where business income had been computed on an estimated percentage basis, the authorities could treat the credit entries as profits from an undisclosed source.

Analysis: The fact that disclosed business income had earlier been estimated did not prevent the authorities from finding, on the facts, that separate credit entries represented income from another, undisclosed source. The suggestion that this would necessarily involve double taxation was rejected because the credits were not being treated as income of the disclosed source previously assessed. The source of income had to be determined on the evidence in each case.

Conclusion: The authorities were justified in treating the sums as income from undisclosed sources.

Final Conclusion: The answers given by the High Court against the assessee were upheld and the appeals were dismissed.

Ratio Decidendi: The assessee bears the burden of proving the source of unexplained cash credits, and such credits may be assessed as income from undisclosed sources on the facts, regardless of whether the disclosed business income was earlier computed by estimate.

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