Tax findings need evidence: unsupported inference of secreted business profits cannot stand when account books are accepted as genuine.

The Tribunal's attribution of secreted business profits to an assessee was held to lack evidentiary support where the accepted account books showed substantial cash balances and were treated as genuine. Once part of the explanation for the high-denomination notes was accepted on the strength of those entries, there was no rational basis for rejecting the balance by a rule-of-thumb estimate. Suspicion and conjecture could not replace proof, and a factual finding became vulnerable where it rested on no evidence, irrelevant material, or perversity. On that footing, the conclusion that the amount represented secreted profit could not stand.

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Issues: Whether the Tribunal's finding that Rs. 1,41,000 represented secreted business profits was supported by material and liable to be taxed under the income-tax and excess profits tax laws.

Analysis: The accepted account books showed substantial cash balances on the relevant date, and the Tribunal itself treated the books as genuine. Once the explanation for the high denomination notes was accepted in part on the basis of those entries, there was no rational basis for rejecting it for the balance by a rule-of-thumb estimate. The surrounding circumstances relied on by the revenue were treated as suspicions and conjectures rather than evidence. A finding of fact becomes open to interference when it is based on no evidence, on irrelevant material, or is perverse. Applying that principle, the Tribunal's partial rejection of the explanation had no evidentiary foundation.

Conclusion: The finding that Rs. 1,41,000 was secreted profit was unsupported by material and could not stand; the answer to the referred question should have been in the negative, in favour of the assessee.

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