Rejected explanation for a receipt can support an inference of income from surrounding circumstances without direct evidence.

An assessee's explanation for a receipt may be rejected by examining surrounding circumstances, including inconsistencies in the explanation and the absence of supporting evidence; if those circumstances justify only one proper inference, the receipt may be treated as income as a matter of fact. No question of law arises merely because the Tribunal considered surrounding circumstances, so long as its reasoning does not rest on irrelevant material, conjecture, or prejudice. On the facts discussed, direct evidence from the Department was not required once the explanation failed and the circumstances supported the inference that the receipt was income.

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Issues: (i) Whether the Tribunal's order, on its face, raised any question of law by relying on irrelevant considerations, conjectures, surmises or suspicions. (ii) Whether, on rejection of the assessee's explanation, the Department was required to prove by direct evidence that the amount received was income in his hands.

Issue (i): Whether the Tribunal's order, on its face, raised any question of law by relying on irrelevant considerations, conjectures, surmises or suspicions.

Analysis: The Tribunal was entitled to examine the probability and truth of the assessee's explanation by considering the surrounding circumstances, including inconsistencies in the assessee's versions, the conduct of the father and uncle, the alleged custody and transfer of the money, and the absence of supporting evidence about the estate and investments. The circumstances criticised by the assessee were held to be relevant to testing the story put forward and did not show that the Tribunal had acted on irrelevant material or mere prejudice. The order was read as a whole, and no defect of the kind identified in the cited authorities was found.

Conclusion: No question of law arose from the Tribunal's order on this ground, and the contention failed.

Issue (ii): Whether, on rejection of the assessee's explanation, the Department was required to prove by direct evidence that the amount received was income in his hands.

Analysis: The rejection of the explanation did not automatically conclude every case, but where the surrounding circumstances justified only one proper inference, the receipt could be treated as income without direct proof. Such an inference was characterised as an inference of fact, not of law. On the facts found, the circumstances supported the treatment of the sum as income.

Conclusion: Direct evidence was not necessary in the circumstances, and the assessee's challenge failed.

Final Conclusion: The order of the High Court was left undisturbed because the Tribunal's findings did not disclose any legal error and the assessee's explanation for the receipt of Rs. 87,500 was not accepted.

Ratio Decidendi: Where an assessee's explanation for a receipt is rejected on relevant surrounding circumstances, the conclusion that the receipt is income may be drawn as an inference of fact; unless the Tribunal's reasoning is shown to rest on irrelevant material or true conjecture, no question of law arises.

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