Unexplained income addition rejected where authorities failed to assess a plausible source explanation and acted arbitrarily.

An addition as income from undisclosed sources was challenged on the ground that the assessee's explanation-namely remittances from Ceylon and agricultural income-had not been properly examined on merits. The explanation was not inherently improbable, yet the income-tax authorities rejected it with only a bare statement that it was unsatisfactory, and the appellate authority and Tribunal also failed to consider the source of funds adequately. On that basis, the rejection was treated as arbitrary, and discretionary interference under article 136 was found unwarranted.

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Issues: Whether the addition of Rs. 60,813 as income from undisclosed sources was justified in law and whether interference under article 136 was warranted.

Analysis: The assessee's explanation that the amounts represented remittances from Ceylon and income from agricultural property was not examined on merits by the income-tax authorities. The explanation was not inherently improbable, yet it was rejected by a bare statement that it was not satisfactory. The appellate authority and the Tribunal likewise did not properly consider the source of the funds. In these circumstances, the rejection of the explanation was found to be arbitrary, and the case was held not to be one fit for interference in the exercise of discretionary jurisdiction.

Conclusion: The addition was not sustained, and the appeal was dismissed in favour of the assessee.

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