The Supreme Court examined the scope and applicability of Section 69A of the Income Tax Act, 1961, in the context of alleged short delivery of bitumen by a transporter engaged as a carriage contractor. The principal issues before the Court were whether the assessee could be treated as the owner of the bitumen and whether bitumen could be classified as an “other valuable article” for the purposes of Section 69A.

The appellant was engaged in the business of transporting bitumen from oil companies to various divisions of the Road Construction Department of the Government of Bihar. During assessment proceedings, the Revenue alleged that the appellant had lifted quantities of bitumen which were not fully delivered and invoked Section 69A to treat the value of the alleged short supply as unexplained income. The additions were sustained by the Assessing Officer and the Income Tax Appellate Tribunal, and later upheld by the High Court.

The Supreme Court analysed the statutory scheme of Sections 69 and 69A and held that Section 69A can be invoked only when the assessee is found to be the owner of money, bullion, jewellery, or other valuable articles not recorded in the books of account, and where no satisfactory explanation regarding the nature and source of acquisition is offered. Ownership was held to be a sine qua non for invoking the provision.

The Court held that a common carrier, acting as a bailee under a contract of carriage, does not become the owner of the goods entrusted to it merely by virtue of possession. The relationship between the consignor and the carrier is one of bailment, and unless there is a lawful transfer of ownership, possession contrary to the contract or even misappropriation does not convert the carrier into the owner of the goods. The Court clarified that recognising a carrier or even a thief as an owner for the purposes of Section 69A would lead to unjust and legally impermissible consequences.

On the interpretation of the expression “other valuable article”, the Court applied the principles of ejusdem generis and noscitur a sociis and held that the term must take colour from the preceding words “money, bullion and jewellery”. Bitumen, being a consumable industrial commodity used for road construction, does not fall within the category of “other valuable article” as contemplated under Section 69A.

The Court distinguished earlier decisions such as Chuharmal v. CIT, where possession coupled with absence of explanation justified the inference of ownership, and relied upon decisions including Addl. CIT v. S. Pichaimanickan Chettiar to reiterate that liability under Section 69A arises only when ownership is clearly established. The Court also emphasised that mere rejection of an explanation does not dispense with the statutory requirement of proving ownership.

Accordingly, the Supreme Court held that the invocation of Section 69A was legally unsustainable, set aside the additions made on account of alleged short supply of bitumen, and allowed the appeals.

Source Link - https://api.sci.gov.in/supremecourt/2018/7803/7803_2018_3_1501_44587_Judgement_16-May-2023.pdf

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