Unexplained receipt treated as income only when supported by evidence and surrounding circumstances, not bare rejection of explanation.

An unexplained receipt can be treated as income only where the inference is reasonably supported by evidence after considering the surrounding facts and circumstances; a mere rejection of the assessee's explanation is not enough. The Kerala HC noted that the assessee had no substantial known source of income in the relevant period apart from agricultural property and had begun business only later, yet the tax authorities relied only on the rejected explanation for the credited amount and property investments without testing whether the amounts could properly be inferred as previous-year income. On that basis, the addition as income from undisclosed sources was held invalid and the disputed amount was deleted.

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Issues: Whether the addition of Rs. 60,813 as income from undisclosed sources was valid and justified in law.

Analysis: The assessee had no substantial known source of income in the relevant period apart from agricultural property and had started business only on 17 August 1950. The income-tax authorities merely rejected the explanation for the credited amount and the property investments without examining whether, on the facts and circumstances, it was reasonable to infer that the amounts were income of the previous year. A finding that receipts constitute income cannot rest only on the rejection of the explanation; the fact-finding authority must consider the explanation in the light of all surrounding circumstances and must have evidentiary support for the inference drawn.

Conclusion: The addition of Rs. 60,813 as income from undisclosed sources was not valid or justified, and the answer was against the Revenue and in favour of the assessee.

Final Conclusion: The reference was answered in the negative, and the disputed addition was deleted.

Ratio Decidendi: An unexplained receipt may be treated as income only if, on a proper consideration of the surrounding facts and circumstances, the inference is reasonably supportable on evidence; a bare rejection of the assessee's explanation is insufficient.

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