Unexplained income addition fails where the assessee's explanation is reasonable and the rejection rests only on conjecture.

An addition as undisclosed income cannot be sustained on surmise, conjecture, or arbitrary estimation. Where the assessee offered a reasonable explanation for high denomination notes, supported by a substantial cash balance before demonetisation, the Tribunal could accept part of that explanation but not reject the balance without concrete material. A finding of unexplained income must rest on evidence, not guesswork. On that basis, the balance amount could not be brought to tax as income from an undisclosed source, and the reference was answered in favour of the assessee.

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Issues: Whether there was material before the Tribunal to sustain the addition of the balance high denomination notes as income from an undisclosed source.

Analysis: The assessment year concerned was 1947-48 and the assessee had a substantial cash balance shortly before demonetisation. The Tribunal accepted that part of the high denomination notes could reasonably have come from that cash balance, but rejected the remainder by making an estimate unsupported by concrete material. A finding of undisclosed income must rest on evidence and not on guesswork, and an explanation that is reasonable on the record cannot be rejected on mere suspicion or conjecture.

Conclusion: The Tribunal had no material to sustain the addition of the balance amount as income from an undisclosed source, and the answer was in favour of the assessee.

Final Conclusion: The reference was answered against the revenue's contention and the assessee succeeded on the sole question referred.

Ratio Decidendi: An addition as unexplained income cannot be upheld where the rejection of the assessee's explanation is based only on surmise, conjecture, or arbitrary estimation and not on material evidence.

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