Accepted cash balance and demonetised notes: source need not be proved note by note when the books and explanation are genuine.

Where an assessee's books of account are accepted as genuine and the recorded cash balance on the date of demonetisation is sufficient to cover the high denomination notes later encashed, the enquiry is whether the receipt stands explained, not whether the assessee must prove the source of each note separately. In the absence of tangible material showing the explanation to be false, suspicion or conjecture cannot displace legal evidence. On these facts, the burden did not shift to the assessee to establish a separate source for each note, and the Tribunal's contrary approach was held erroneous.

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Issues: Whether, when the assessee's books of account were accepted as genuine and the cash balance on the date of demonetisation was sufficient to cover the disputed high denomination notes, the assessee was bound to prove the source of each high denomination note presented for encashment.

Analysis: The cash balance shown in the books was accepted as genuine, and it was not disputed that the balance on the relevant date was sufficient to cover the notes later presented. In such a situation, the relevant enquiry was whether the income or receipt of money stood explained, not whether the assessee could prove the source of receipt of each high denomination note as such. A finding against the assessee could not rest on placing the onus on him to establish the source of the notes when the underlying cash balance had already been disclosed and accepted, and no tangible material showed the explanation to be false. Suspicion or conjecture could not substitute for legal evidence.

Conclusion: The assessee was not required, on these facts, to prove the source of receipt of the high denomination notes separately, and the Tribunal erred in holding otherwise.

Final Conclusion: The reference was answered in favour of the assessee, with the result that the disputed cash balance was held to include the 140 high denomination notes.

Ratio Decidendi: Where the assessee's books are accepted as genuine and the proved cash balance is sufficient to cover the value of subsequently demonetised notes, the burden does not shift to the assessee to prove the source of each such note; the department must establish, by legal evidence, that the explanation is false or that the amount represents undisclosed income.

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