Plausible explanation for capital credits cannot be rejected on conjecture when the adverse finding lacks evidentiary support.

An addition of capital credited in the assessee's books as income from undisclosed sources was unsustainable where the assessee offered a plausible explanation supported by surrounding facts, including pre-partition business activity, bank transfers, and migration precautions. The adverse inference was based mainly on conjecture and irrelevant material, and the finding that only part of the funds had been brought from Lahore lacked evidentiary support. The conclusion was therefore perverse and could not stand as a proper finding of fact, so the addition was set aside in favour of the assessee.

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Issues: Whether the Tribunal was justified in treating Rs. 2,33,414 out of the capital credited on 30 March 1948 as income from undisclosed sources for the assessment year 1948-49.

Analysis: The assessee had to explain the nature and source of the capital introduced in its books. The surrounding material showed that the family had been carrying on a fairly large pre-partition business in Lahore, had transferred substantial sums through banks, and had taken precautions consistent with carrying valuable assets during migration. The rejection of the assessee's explanation rested mainly on conjectural grounds, including adverse inferences from non-filing of returns in Lahore and informal questioning of Roshan Lal, which could not constitute proper material. On the admitted facts, it was highly improbable that the assessee could have earned such a large amount within a few months in the disturbed post-partition period. The finding that only Rs. 1,00,000 had been brought from Lahore was therefore unsupported by material and amounted to an unreasonable conclusion.

Conclusion: The addition of Rs. 2,33,414 as undisclosed income was unsustainable and the question referred had to be answered against the revenue and in favour of the assessee.

Final Conclusion: The assessment addition was set aside because the Tribunal's conclusion lacked evidentiary support and could not stand as a proper finding of fact.

Ratio Decidendi: Where an assessee gives a plausible explanation for capital introduced in its books and the adverse conclusion is founded on inadequate or irrelevant material, the finding may be interfered with as perverse and unsupported by evidence.

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