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of <h1>Supreme Court rules in favor of partnership firm in tax case, burden of proof on tax department</h1> <h3>Girdhari Lal Nannelal Versus Sales Tax Commissioner, MP</h3> Girdhari Lal Nannelal Versus Sales Tax Commissioner, MP - [1977] 109 ITR 726, [1977] 39 STC 30 (SC), 1977 AIR 298, 1976 (3) SCC 701 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.
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