Bitumen not valuable article u/s 69A as it requires large quantity to make it valuable – SC

Bitumen not valuable  article u/s 69A as it requires ownership in large quantity to treat it valuable – Supreme Court

ABCAUS Case Law Citation:
ABCAUS 3742 (2023) (05) SC

Important Case Laws relied upon:
Dhirajlal Haridas v. Commissioner of Income Tax
Commissioner of Income Tax v. Amrit lal Chunilal
Kotak Mahindra Bank Ltd. v. A. Balakrishnan and another
Kishinchand Chellaramv. Commissioner of Income Tax
Chuharmal vs. Commissioner of Income Tax

J.S. Parkar v. V.B. Palekar
Mohan B. Samtani v. Commissioner of Income-Tax

Supreme Court judgment

In the instant case, the assessee had challenged the order passed by the Hon’ble High Court in confirming the addition u/s 69A of Income Tax Act, 1961 (the Act).

The appellant assessee carried on the business as carriage contractor for bitumen which is used for Road Construction. The appellant used to pick the load of the bitumen from various oil companies for delivery to be made to various divisions of the State Public Works Department. 

The media reported a scam which consisted of transporters of bitumen, misappropriating the bitumen and not delivering the quantity lifted to the PWD Divisions.

The Assessing Officer noted the scam reported and on scrutiny found that the there was a substantial gap in the quantity of the bitumen lifted by the appellant and the quantity delivered.

Accordingly, invoking Section 69A of the Act, the AO made an addition of the said difference to the income of the appellant as unexplained money etc..

CIT(A) deleted the addition. However, the ITAT found that photocopies of the delivery challans submitted by the appellant were false and fabricated and all Executive Engineers of the PWD confirmed non-delivery. Therefore, ITAT allowed the appeal filed by the Revenue and sustained the Order of the Assessing Officer.

High court inter alia upheld the invocation of section 69A to the facts of the case. It held that the appellant was found to be the owner of the bitumen and the addition was sustained. 

The Hon’ble Supreme Court observed that Section 69 deals with unexplained investment. Section 69A deals with unexplained money, bullion, jewellery or other valuable articles.

The Hon’ble Supreme Court broken down  the essential conditions of the section 69A as under:

  1. The assessee must be found to be the owner;
  2. He must be the owner of any money, bullion, jewellery or other valuable articles;
  3. The said articles must not be recorded in the Books of Account, if any maintained;
  4. The assesseeis unable to offer an explanation regarding the nature and the source of acquiring the articles in question; or The explanation, which is offered, is found to be,in the opinion of the Officer, not satisfactory;
  5. If the aforesaid conditions are satisfied, then, the value of the bullion, jewellery or other valuable article may be deemed as the income of the financial year in which the assessee is found to be the owner;
  6. In the case of money, the money can be deemed to be the income of the financial year

Two important question framed by Hon’ble Supreme Court, was (1) whether the appellant could be treated as the owner of the bitumen? and (2) whether bitumen could be treated as other valuable articles? 

The Apex Court stated that when goods are entrusted to a common carrier, the entrustment would amount to a contract of bailment within the meaning of Section 148 of the Contract Act, 1872. A bailee, who is a common carrier, is not an owner of the goods. The Hon’ble Court also analysed the implications of the carriage by road Act 2007, criminal breach of trust, the sale of goods act 1930 in answering the question whether, the appellant could be said to be the owner of the bitumen. The Hon’ble Apex Court also considered the question as to if a thief be treated as the owner of the goods.

The Court stated that in the absence of any explanation about the source and quality of the possession, it would justify an assessing officer finding him to be the owner. However, when the facts are known that the carrier is not the owner and somebody else is the owner, then to describe him as the owner may produce results which are most illegal apart from being unjust.

The Hon’ble Supreme Court observed that the right over the bitumen as an owner at no point of time could have been claimed by the appellant. The possession of the appellant at best is a shade better than that of a thief as the possession had its origin under a contract of bailment.

The Hon’ble Supreme Court held that the Assessing Officer acted illegally in holding that one appellant was the ‘owner’ and onthe said basis made the addition.

The Hon’ble Supreme Court observed that when it comes to value, it is noticed that in the definition of the word ‘valuable’ in Black’s Law Dictionary, it is defined as ‘worth a good price; having a financial or market value’. The word ‘valuable’ has been defined again as an adjective and as meaning worth a great deal of money in the Concise Oxford Dictionary. Valuable, therefore, cannot be understood as anything which has any value.

The Hon’ble Supreme Court opined that Each case must be decided with reference to the facts to find out that while articles or movables worth a great deal of money or worth a good price are comprehended articles which may not command any such price must stand excluded from the ambit of the words ‘other valuable articles’. The concept of ‘other valuable articles’ may evolve with the arrival in the market of articles, which can be treated as other valuable articles on satisfying the other tests.

The Hon’ble Supreme Court observed that Bitumen is a residual product in the petroleum refineries and it is usually used in road construction.

The Hon’ble Supreme Court, with the help of data given in the Assessment Order found that the price of one kilogram of the bitumen was only Rs. 5/-

The Hon’ble Supreme Court opined that Bitumen may be found in small quantities or large quantities. If the ‘article’ is to be found ‘valuable’, then even in small quantity it must not just have some value but it must be ‘worth a good price’ or ‘worth a great deal of money’, then Section 69A would then stand attracted. But if to treat it as ‘valuable article’, it requires ownership in large quantity, in the sense that by multiplying the value in large quantity, a ‘good price’ or ‘great deal of money’ is arrived at then it would not be a valuable article u/s 69A of the Act.

The Hon’ble Supreme Court held that ‘bitumen’ as such cannot be treated as a ‘valuable  article’ and accordingly set aside the impugned judgment.

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