Unexplained cash credit can be taxed as undisclosed income when the assessee fails to prove its source.

An unexplained cash credit in the assessee's books may be treated as income from an undisclosed source where the assessee fails to prove the source, nature and character of the receipt. The burden remained on the assessee to give a satisfactory explanation, and the adverse inference was justified because the explanation was found unreliable and the receipt was not proved. The principle relied on was that, when a credit appears in the books and remains unexplained, income-tax authorities may treat the amount as taxable income. The Tribunal was therefore justified in bringing the sum to tax in the relevant assessment year, and the reference was answered against the assessee.

---

---

Issues: Whether an unexplained cash credit entered in the assessee's books during the accounting year could be treated as assessable income from an undisclosed source where the assessee failed to prove satisfactorily the source, nature and character of the receipt.

Analysis: The assessee's explanation for the cash credit was rejected as unreliable, and the finding of fact was that the source, nature and character of the receipt had not been proved. In such a situation, the burden remained on the assessee to establish the source of the money. The governing principle applied was that where a receipt is found in the books and the assessee does not satisfactorily explain it, the income-tax authorities are entitled to draw an inference that the amount is taxable income. The Court distinguished cases where the source of the receipt was disclosed and not disputed, and held that those principles did not assist the assessee here.

Conclusion: The Tribunal was justified in treating the sum of Rs. 18,005 as income from an undisclosed source and in bringing it to tax in the relevant assessment year. The answer to the referred question was against the assessee and in favour of the Revenue.

---