1976 (3) TMI 51 - SC - VAT and Sales Tax

Whether, on the facts and the circumstances of the case, it was legal to treat ₹ 10,000, an item of cash credit standing in the name of the wife of one of the partners of the assessee-firm, as the profit or income out of concealed sales? Held that - The fact that neither the assessee-firm nor its partner or his wife adduced satisfactory material to show the source of that money would not, in the absence of anything more, lead to the inference that the said sum represents the income of the firm accruing from undisclosed sale transactions. It was, in our opinion, necessary to produce more material in order to connect the amount of ₹ 10,000 with the income of the assessee-firm as a result of sales. In the absence of such material, the mere absence of explanation regarding the source of ₹ 10,000 would not justify the conclusion that the sum in dispute represents profits of the firm derived from undisclosed sales. We, therefore, accept the appeal, discharge the answer given by the High Court to question (1)(a) and answer that question in the negative, in favour of the assessee-appellant and against the revenue.

Summary

Issues:
1. Whether the amount of Rs. 10,000, a cash credit standing in the name of a partner's wife, can be treated as profit from concealed sales.
2. If the above is affirmed, whether enhancing the turnover by Rs. 1,00,000 based on the Rs. 10,000 cash credit is excessive.

Analysis:
The case involves an appeal against the Madhya Pradesh High Court's judgment under the Madhya Pradesh General Sales Tax Act, 1958. The appellant, a partnership firm dealing in cotton and cotton seeds, contested the treatment of Rs. 10,000, credited to a partner's wife, as income from concealed sales. The assessing authority added Rs. 1,00,000 to the turnover based on this amount, rejecting the explanation that it was a pre-marriage gift. The High Court upheld this view, stating the lack of a reasonable explanation indicated the amount as business profit from undisclosed sales.

In the Supreme Court, the appellant argued that the Rs. 10,000 entry did not necessarily represent the firm's income from sales. The State emphasized the absence of a satisfactory explanation regarding the source of the amount. The Court noted that for sales tax liability, it must be shown that the unexplained money arose from taxable transactions, not just undisclosed sources. The burden of proof rested with the department to establish both points, not solely on the appellant's lack of explanation.

The Court differentiated between income tax and sales tax cases, highlighting the need for material linking the unexplained money to taxable transactions for sales tax liability. Mere absence of explanation does not automatically attribute the amount to undisclosed sales profit. In this case, the Court found insufficient evidence connecting the Rs. 10,000 to the firm's sales income. Consequently, the High Court's decision was overturned, and the question regarding turnover enhancement did not arise. The appeal was accepted in favor of the appellant, with no cost order made.