Month: September

Exemption/ deduction u/s 10B – For claiming the benefit u/s 10B(8), the twin conditions of furnishing the declaration to the AO in writing and that the same must be furnished before the due date of filing the return of income under Sub-section (1) of Section 139 of the IT Act are required to be fulfilled and/or satisfied – Both the conditions to be satisfied are mandatory – The significance of filing a declaration u/s 10B(8) could be said to be co-terminus with the filing of a return u/s 139(1), as a check has been put in place by virtue of Section 10B(5) to verify the correctness of the claim of deduction at the time of filing the return

Revised return of income – The Assessee can file a revised return in a case where there is an omission or a wrong statement – By filing the revised return of income, the Assessee cannot be permitted to substitute the original return of income filed u/s 139(1) of the IT Act – A revised return of income, u/s 139(5) cannot be filed, to withdraw the claim and subsequently to claim the carried forward or set-off of any loss

The Assessee, a 100% export-oriented unit engaged in the business of running a call centre and IT-Enabled and Remote Processing Services, filed its return of income on 31st October, 2001 for A.Y. 2001-2002, declaring a loss of Rs. 15,47,76,990 and claimed exemption u/s 10B of the IT Act. Along with the original return filed on 31st October, 2001, the Assessee annexed a note to the computation of income in which the Assessee stated that the company was a 100% export-oriented unit and entitled to claim exemption u/s 10B of the IT Act and, therefore no loss was being carried forward. Thereafter, the Assessee filed a declaration dated 24th October, 2002 before the Assessing Officer (AO) stating that the Assessee did not want to avail of the benefit u/s 10B for A.Y. 2001-02 as per Section 10B(8). The Assessee filed the revised return of income on 23rd December, 2002 wherein exemption u/s 10B of the IT Act was not claimed, and the Assessee claimed carry forward of losses.

The AO passed an order dated 31st March, 2004 rejecting the withdrawal of exemption u/s 10B, holding that the Assessee did not furnish the declaration in writing before the due date of filing of return of income, which was 31st October, 2001. Thereby, the AO made the addition in respect of the denial of the claim of carrying forward losses u/s 72.

The Assessee filed an appeal before the Commissioner of Income Tax (Appeals) (‘CIT(A)’). By order dated 19th January, 2009, the CIT(A) upheld the order passed by the AO, making addition in respect of the denial of the claim of carrying forward losses u/s 72.

Aggrieved by the order passed by the CIT(A), the Assessee filed an appeal before the ITAT. Vide order dated 25th November, 2016, the ITAT decided the issue in favour of the Assessee, stating that the declaration requirement u/s 10B(8) was filed by the Assessee before the AO before the due date of filing of return of income as per Section 139(1). ITAT allowed the Assessee’s claim for carrying forward of losses u/s 72 of the IT Act.

Feeling aggrieved and dissatisfied with the order passed by the ITAT, allowing the Assessee’s claim to carry forward losses u/s 72, the Revenue preferred an appeal before the High Court. The High Court has dismissed the said appeal.

Hence, Revenue has filed an appeal before the Supreme Court.

According to the Supreme Court, the short question which was posed for its consideration was whether, for claiming exemption u/s 10B(8) of the IT Act, the Assessee is required to fulfil the twin conditions, namely, (i) furnishing a declaration to the AO in writing that the provisions of Section 10B(8) may not be made applicable to him; and (ii) the said declaration to be furnished before the due date of filing the return of income under Sub-section (1) of Section 139 of the IT Act.

The Supreme Court noted that in the present case, the High Court, as well as the ITAT, had observed and held that for claiming the so-called exemption relief u/s 10B(8) of the IT Act, furnishing the declaration to the AO was mandatory but furnishing the same before the due date of filing the original return of income was directory. The Supreme Court observed that in the present case, when the Assessee submitted its original return of income u/s 139(1) on 31st October, 2001, which was the due date for filing of the original return of income, the Assessee specifically and clearly stated that it was a company and was a 100% export-oriented unit and entitled to claim exemption u/s 10B. Therefore, no loss was being carried forward. Along with the original return filed on 31st October, 2001, the Assessee had also annexed a note to the computation of income clearly stating as above. However, thereafter the Assessee filed the revised return of income u/s 139(5) on 23rd December, 2002 and filed a declaration u/s 10B(8), which admittedly was after the due date of filing of the original return u/s 139(1), i.e., 31st October, 2001.

According to the Supreme Court, on a plain reading of Section 10B(8) of the IT Act as it is, i.e., “where the Assessee, before the due date for furnishing the return of income under sub-section (1) of Section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of Section 10B may not be made applicable to him, the provisions of Section 10B shall not apply to him for any of the relevant assessment years”, it was evident that the wordings of Section 10B(8) are very clear and unambiguous. For claiming the benefit u/s 10B(8), the twin conditions of furnishing the declaration to the AO in writing and that the same must be furnished before the due date of filing the return of income under sub-section (1) of Section 139 of the IT Act are required to be fulfilled and/or satisfied. According to the Supreme Court, both the conditions to be satisfied were mandatory. It could not be said that one of the conditions would be mandatory and the other would be directory, where the words used for furnishing the declaration to the AO and to be furnished before the due date of filing the original return of income under sub-section (1) of Section 139 are same/similar. The Supreme Court held that in a taxing statute, the provisions are to be read as they are, and they are to be literally construed, more particularly in a case of exemption sought by an Assessee.

According to the Supreme Court, filing a revised return u/s 139(5) of the IT Act claiming carrying forward of losses subsequently would not help the Assessee. The Assessee had filed its original return u/s 139(1) and not u/s 139(3). The revised return filed by the Assessee u/s 139(5) could only substitute its original return u/s 139(1) and cannot transform it into a return u/s 139(3) to avail the benefit of carrying forward or set-off of any loss u/s 80. The Assessee can file a revised return in a case where there is an omission or a wrong statement. But a revised return of income u/s 139(5) cannot be filed to withdraw the claim and subsequently claim the carried forward or set-off of any loss. Filing a revised return u/s 139(5) and taking a contrary stand and/or claiming the exemption, which was specifically not claimed earlier while filing the original return of income, was not permissible. The Supreme Court, therefore, held that claiming benefit u/s 10B(8) and furnishing the declaration as required u/s 10B(8) in the revised return of income which was much after the due date of filing the original return of income u/s 139(1), could not mean that the Assessee had complied with the condition of furnishing the declaration before the due date of filing the original return of income u/s 139(1) of the Act.

According to the Supreme Court, even the submissions on behalf of the Assessee that (i) it was not necessary to exercise the option u/s 10B(8) of the IT Act; (ii) that even without filing the revised return of income, the Assessee could have submitted the declaration in writing to the AO during the assessment proceedings; and (iii) that filing of the declaration subsequently and may be during the assessment proceedings would have made no difference, had no substance. According to the Supreme Court, the significance of filing a declaration u/s 10B(8) could be said to be co-terminus with the filing of a return u/s 139(1), as a check has been put in place by virtue of Section 10B(5) to verify the correctness of the claim of deduction at the time of filing the return. If an Assessee claims an exemption under the Act by virtue of Section 10B, then the correctness of the claim has already been verified u/s 10B(5). Therefore, if the claim is withdrawn post the date of filing of return, the accountant’s report u/s 10B(5) would become falsified and would stand to be nullified.

The Supreme Court held that its decision in the case of G.M. Knitting Industries Pvt. Ltd. (2016) 12 SCC 272, relied upon by the learned Counsel appearing on behalf of the Assessee, was dealing with claiming an additional depreciation u/s 32(1)(ii-a) of the Act which cannot be compared with Section 10B(8) which is an exemption provision. According to the Supreme Court, as per the settled position of law, an Assessee claiming exemption has to strictly and literally comply with the exemption provisions. Therefore, the said decision did not apply to the facts of the case on hand while considering the exemption provisions. Even otherwise, Chapter III and Chapter VIA of the Act operate in different realms and the principles of Chapter III, which deals with “incomes which do not form a part of total income”, cannot be equated with the mechanism provided for deductions in Chapter VIA, which deals with “deductions to be made in computing total income”. Therefore, none of the decisions which were relied upon on behalf of the Assessee on interpretation of Chapter VIA was applicable while considering the claim u/s 10B(8) of the IT Act.

The Supreme Court held that so far as the submission on behalf of the Assessee that against the decision of the Delhi High Court in the case of Moser Baer (ITA No. 950 of 2007), a special leave petition had been dismissed as withdrawn, and the Revenue could not be permitted to take a contrary view is concerned, it had to be noted that the special leave petition against the decision of the Delhi High Court in the case of Moser Baer (supra) had been dismissed as withdrawn due to there being low tax effect and the question of law had specifically been kept open. Therefore, withdrawal of the special leave petition against the decision of the Delhi High Court in the case of Moser Baer (supra) could not be held against the Revenue.

The Supreme Court in view of the above discussion and for the reasons stated above, held that the High Court had committed a grave error in observing and holding that the requirement of furnishing a declaration u/s 10B(8) was mandatory, but the time limit within which the declaration is to be filed was not mandatory but was directory. The same was erroneous and contrary to the unambiguous language contained in Section 10B(8) of the IT Act. The Supreme Court held that for claiming the benefit u/s 10B(8), the twin conditions of furnishing a declaration before the AO and that too before the due date of filing the original return of income u/s 139(1) are to be satisfied and both are to be mandatorily complied with. Accordingly, the question of law was answered in favour of the Revenue and against the Assessee. The orders passed by the High Court as well as ITAT taking a contrary view were set aside, and it was held that the Assessee should not be entitled to the benefit u/s 10B(8) of the IT Act on non-compliance of the twin conditions as provided u/s 10B(8), as observed hereinabove. The present appeal was accordingly allowed.

Search and seizure – At the stage of search and seizure, the Court has to examine whether the reason to believe are in good faith; it cannot merely be pretence – The belief recorded must have a rational connection or a relevant bearing to the formation of the belief and should not be extraneous or irrelevant to the purpose of the section – The sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorisation to conduct search and seizure – Recording of reasons acts as a cushion in the event of a legal challenge being made to the satisfaction reached – Reasons enable a proper judicial assessment of the decision taken by the Revenue – However, this by itself, would not confer in the Assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorisation – Any such view would be counterproductive of the entire exercise contemplated by Section 132 of the Act – It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the Assessee.

The Assessee, during the financial year 2016-17, transferred a sum of Rs. 6 crores on 1st June, 2016 and Rs. 4 crores on 21st June, 2016 to M/s. Goan Recreation Clubs Private Ltd. The Assessee secured the loan by way of a mortgage of the property forming part of Survey No. 31/1-A situated in Village Bambolim, Distt. North Goa. The Assessee became the Director of the Company on 18th May, 2016 and then ceased to be so on 23rd June, 2016. The amount of Rs. 10 crores was repaid on different dates starting from 6th October, 2016 till 31st March, 2017, and after repayment of the loan, the mortgage was released on 10th July, 2017. The Company paid interest as well. The Assessee had filed his income-tax return showing the interest income of Rs. 42,51,946, which has been taxed as well. The assessment was finalised u/s 143(3) of the Act on 2nd March, 2021.

In terms of the authorisation after recording reasons to believe in the satisfaction note, search was conducted on 10th August, 2018 at the residential premises of the Assessee which continued till 3:00 am on 11th August, 2018 in terms of Section 132 of the Act. The satisfaction note was not supplied to the Assessee.

The Assessee, in a writ petition, challenged the act of authorisation for search and seizure on the ground that it is a fishing enquiry and the conditions precedent as specified in Section 132 of the Act are not satisfied. It was the stand of the Assessee that he was looking for an avenue to invest some money and the M/s. Goan Recreation Clubs Private Ltd. was in need of finance for setting up its business and hence consequently approached the Assessee for a loan. As a security, the borrower company offered that another company would give its property to the Assessee.

In the counter-affidavit filed by the Revenue, giving the history of the transaction, it was inter alia stated that the authorized officers/ investigating officers conducted search and seizure operations at various spots across various states related to the case of Shri Sarju Sharma and other associated group of companies which had financial transactions with Shri Sarju Sharma and M/s. Goan Recreation Clubs Pvt. Ltd., Goa, and the apparent investment made by the Assessee were found to be not a judicious investment choice from the point of view of a prudent businessman as the company to which the loan was provided by the Assessee had no established business, no goodwill in the market, nor was it enlisted in any of the stock exchanges, nor did the Assessee had any financial dealings with the company previously. The quick repayment of the loan shows that the investment was not meant to earn steady interest income. The investment and nature of the transaction entered into by the Assessee were akin to the familiar modus operandi employed by the entry operators to provide an accommodation entry to bring the unaccounted black money to books for a brief period to run the business till sufficient fund is generated by running the business or some fund from any other unaccounted source comes later on. This is the angle of the investigative process underway in which the trail of the money being paid by the Assessee is being investigated.

The High Court found that none of the reasons to believe to issue authorization met the requirement of Section 132(1)(a), (b) and (c).

According to the Supreme Court, in the light of the views expressed by it in ITO vs. Seth Bros. [ITO vs. Seth Bros., [(1969) 2 SCC 324 : (1969) 74 ITR 836] and Pooran Mal [Pooran Mal vs. Director of Inspection (Investigation), [(1974) 1 SCC 345 : 1974 SCC (Tax) 114 : (1974) 93 ITR 505], the opinion expressed by the High Court was plainly incorrect. The necessity of recording reasons, despite the amendment of Rule 112(2) with effect from 1st October, 1975, had been repeatedly stressed upon by it so as to ensure accountability and responsibility in the decision-making process. The necessity of recording reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, this by itself, would not confer in the Assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorisation. Any such view would be counterproductive to the entire exercise contemplated by Section 132 of the Act. It is only at the commencement stage of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the Assessee.

According to the Supreme Court, the High Court had committed a serious error in reproducing in great detail the contents of the satisfaction note(s) containing the reasons for the satisfaction arrived at by the authorities under the Act. In the light of the above, the Supreme Court did not approve of the aforesaid part of the exercise undertaken by the High Court, which was highly premature; having the potential of conferring an undue advantage to the Assessee, thereby frustrating the endeavour of the Revenue, even if the High Court was eventually not to intervene in favour of the Assessee.

The Supreme Court observed that the detailed satisfaction note showed multiple entries in the account books of Sarju Sharma and others. The manner in which Sarju Sharma, who was either in Siliguri (West Bengal) or Goa, contacted the Assessee in Ahmedabad for a loan of Rs. 10 crores did not appear to be a normal transaction. The subsequent repayment of the mortgage and the interest income reflected in the relevant assessment year appeared to be steps taken by the Assessee to give a colour of genuineness, but the stand of the Revenue that such entry was an accommodation entry is required to be found out and also the cobweb of entries required to be unravelled, including the trail of the money paid by the Assessee.

According to the Supreme Court, the High Court, despite quoting extensively from the counter-affidavit filed by the Revenue, still returned a finding that the Court could not find any other material whatsoever insofar as the Assessee is concerned for the purpose of recording satisfaction u/s 132. The Supreme Court observed that reasons to believe are not the final conclusions which the Revenue would arrive at while framing block assessment in terms of Chapter XIV-B of the Act. The test to consider the justiciability of belief was whether such reasons were totally irrelevant or whimsical. The reply in the counter-affidavit showed that the intention of the Revenue was to un-layer the layering of money which was suspected to be done by the Assessee. The Revenue had asserted that the accommodation entry was a common modus operandi to bring the unaccounted black money to books for a brief period. The investment of Rs. 10 crores for a short period was not for earning interest income as the same was repaid in the same assessment year. The Revenue intended to investigate the fund trail of the money paid by the Assessee. Such belief was not out of hat or whimsical. The Assessee’s stand was that it was a fishing enquiry and a malafide action of the Revenue. The Revenue was specific so as to find out the genuineness of the transaction, believing that it was a mere accommodation entry.

According to the Supreme Court, there could be cases in which a search may fail, or a reasonable explanation of the documents may be forthcoming. At the stage of search and seizure, the Court has to examine whether the reason to believe is in good faith; it cannot merely be pretence. The belief recorded must have a rational connection or a relevant bearing to the formation of the belief and should not be extraneous or irrelevant to the purpose of the section. In view of the detailed reasons recorded in the satisfaction note, including the investment made by the Assessee for a brief period and that investment was alleged to be an accommodation entry, it could not be said to be such which did not satisfy the prerequisite conditions of Section 132(1) of the Act.

The Supreme Court observed that as per the Revenue, Clauses (b) & (c) of Section 132(1) were satisfied before the warrant of authorization was approved. The satisfaction note was recorded in terms of an Assessee whose jurisdictional assessing officer was in the State of West Bengal. It was the cobweb of accounts of such Assessee which were required to be unravelled. It was not unreasonable for the Revenue to apprehend that the Assessee would not respond to the summons before the Assessing Officer in the State of West Bengal. It was also alleged that such summons would lead to the disclosure of information collected by the Revenue against Sarju Sharma and his group. Therefore, it was a reasonable belief drawn by the Revenue that the Assessee shall not produce or cause to be produced any books of accounts or other documents which would be useful or relevant to the proceedings under the Act. Such belief was not based upon conjectures but on a bonafide opinion framed in the ordinary conduct of the affairs by the Assessee generally. The notice to the Assessee to appear before the Income Tax authorities in the State of West Bengal would have been sufficient notice of the material against the Company and its group to defeat the entire attempt to unearth the cobweb of the accounts by the Company and its associates.

According to the Supreme Court, even Clause (c) of Section 132(1) was satisfied. The Assessee was in possession of R10 crores, which was advanced as a loan to the Company. The Revenue wished to find out as to whether such amount was an undisclosed income which would include the sources from which such amount of R10 crores was advanced as a loan to a totally stranger person, unconnected with either the affairs of Assessee or any other link, to justify as to how a person in Ahmedabad has advanced R10 crores to the Company situated at Kolkata in West Bengal for the purpose of investment in Goa. The Revenue may fail or succeed, but that would not be a reason to interfere with the search and seizure operations at the threshold, denying an opportunity to the Revenue to unravel the mystery surrounding the investment made by the Assessee.

The Supreme Court, after referring to the judicial precedents, held that the sufficiency or inadequacy of the reasons to believe recorded could not be gone into while considering the validity of an act of authorization to conduct search and seizure. The belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness. Such reasonableness is not a power to act as an appellate authority over the reasons to believe recorded.

The Supreme Court restated and elaborated the principles in exercising the writ jurisdiction in the matter of search and seizure u/s 132 of the Act as follows:

i)    The formation of opinion and the reasons to believe recorded is not a judicial or quasi-judicial function but administrative in character;

ii)    The information must be in possession of the authorised official based on the material and the formation of opinion must be honest and bona fide. It cannot be mere pretence. Consideration of any extraneous or irrelevant material would vitiate the belief/satisfaction;

iii)    The authority must have information in its possession based on which a reasonable belief can be founded that the person concerned has omitted or failed to produce books of accounts or other documents for the production of which summons or notice had been issued, or such person will not produce such books of accounts or other documents even if summons or notice is issued to him; or

iv)    Such person is in possession of any money, bullion, jewellery or other valuable Article which represents either wholly or partly income or property which has not been or would not be disclosed;

v)    Such reasons may have to be placed before the High Court in the event of a challenge to the formation of the belief of the competent authority, in which event the Court would be entitled to examine the reasons for the formation of the belief, though not the sufficiency or adequacy thereof. In other words, the Court will examine whether the reasons recorded are actuated by mala fides or on a mere pretence and that no extraneous or irrelevant material has been considered;

vi)    Such reasons forming part of the satisfaction note are to satisfy the judicial consciousness of the Court, and any part of such satisfaction note is not to be made part of the order;

vii)    The question of whether such reasons are adequate or not is not a matter for the Court to review in a writ petition. The sufficiency of the grounds which induced the competent authority to act is not a justiciable issue;

viii)    The relevance of the reasons for the formation of the belief is to be tested by the judicial restraint in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made. The Court shall not examine the sufficiency or adequacy thereof;

ix)    In terms of the explanation inserted by the Finance Act, 2017 with retrospective effect from 1st April, 1962, such reasons to believe as recorded by income-tax authorities are not required to be disclosed to any person or any authority or the Appellate Tribunal.

In view of the above, the Supreme Court found that the High Court was not justified in setting aside the authorisation of search dated 7th August, 2018. Consequently, the appeal was allowed, and the order passed by the High Court was set aside. As a consequence thereof, the Revenue was at liberty to proceed against the Assessee in accordance with the law.

Business Loss — Loss of confiscation — Search was conducted by Directorate of Revenue Intelligence (DRI) officers at premises of Assessee — Recovered slabs of silver and two silver ingots were confiscated — The decision of the High Court holding that the loss on confiscation of silver by DRI official of Customs Department was business loss relying upon decision of Supreme Court in case Piara Singh is reversed as the assessee was carrying on an otherwise legitimate silver business and his business could not be said to be smuggling of the silver bars as was the case in the case of Piara Singh (supra) — Also, any loss incurred by way of an expenditure by an Assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act.

A search was conducted by the Directorate of Revenue Intelligence (DRI) officers at the premises situated at NOIDA taken on rent by the Assessee, Shri Prakash Chand Lunia. The DRI recovered 144 slabs of silver from the premises and two silver ingots from the business premises of the Assessee at Delhi. The Assessee was arrested under section 104 of the Customs Act for committing offence punishable under Section 135 of the Customs Act. The Collector, Customs held that the Assessee Shri Prakash Chand Lunia was the owner of silver/bullion and the transaction, thereof, was not recorded in the books of accounts. The Collector of Customs, New Delhi ordered confiscation of the said 146 slabs of silver weighing 4641.962 Kilograms, valued at Rs. 3.06 Crores. The Collector Customs further imposed a personal penalty of Rs. 25 Lakhs on Shri Prakash Chand Lunia under Section 112 of the Customs Act. The Collector held that the silver under reference was of smuggled nature.

During the course of the assessment proceedings for the A.Y. 1989–90, the AO observed that the Assessee was not able to explain the nature and source of acquisition of silver of which he was held to be the owner; therefore, the deeming provisions of Section 69A of the Income-tax Act, 1961 (hereinafter, referred to as ‘the Act’) would be applicable. The investment in this regard was not found recorded in the books of accounts of the Assessee that were produced before the then AO. Accordingly, the AO passed an assessment Order and made an addition of Rs. 3,06,36,909 under section 69A of the Act.

In appeals preferred by the Assessee against the assessment order, the CIT(A) dismissed the appeal of the Assessee.

Feeling aggrieved, the Assessee preferred the appeal before the ITAT. The ITAT, Jaipur also upheld the order of the CIT(A) so far as Section 69A is concerned. However, the ITAT partly allowed the appeal of the Assessee. As regards some other minor additions, the ITAT set aside some minor other additions and remanded the matter to the AO for fresh examination.

The AO re-examined the issue and addition was made. The CIT(A) also upheld the order of the AO. The Assessee preferred the appeal against the fresh order passed by the CIT(A) before the ITAT. The ITAT, in the second round as well, upheld the order of the authorities below.

A reference was made by the ITAT to the High Court with the following questions of law:

(i)    “Whether on the facts and in the circumstances of the case, the Tribunal after construing and interpreting the provisions contained in Section 69A of the Income-tax Act, 1961 was right in law, in holding that the Assessee was the owner of the 144 silver bars found at premises No. A 11 & 12, Sector – VII, Noida and two silver bars found at premises of M/s Lunia & Co. Delhi and in sustaining addition of Rs. 3,06,36,909 being unexplained investment in the hands of the Assessee under Section 69A of the Act?

(ii)    If the answer to the above question is in affirmative then, whether, on the facts and in the circumstances of the case, the Tribunal was right in law in distinguishing the ratio laid down by their Lordships of the Supreme Court in the case of Piara Singh vs. CIT, 124 ITR 41 and thereby not allowing the loss on account of confiscation of silver bars?

While the reference was pending before the High Court, penalty proceedings were initiated against the Assessee. An order under Section 271(1)(c) of the Act came to be confirmed by both the CIT(A) and the ITAT. Accordingly, the Assessee filed an appeal under Section 260A of the Act against the Penalty order, before the High Court. The High Court while deciding both the cases together, qua the first question, decided in favour of the Revenue, and the same was to be added to his income as a natural consequence. However, with regard to the second question, the High Court held that loss of confiscation by the DRI official of Customs Department was business loss. While holding, the High Court relied upon the decision of the Supreme Court in the case of CIT, Patiala vs. Piara Singh reported in 124 ITR 41.

An appeal was filed before the Supreme Court against the judgment and order passed by the High Court.

According to the Supreme Court, the short question which was posed for consideration before it was whether the High Court has erred in law in allowing the Respondent – Assessee the loss of confiscation of silver bars by DRI officials as a business loss, relying upon the decision of this Court in the case of CIT Patiala vs. Piara Singh, [(1980) 124 ITR 40 – SC].

On going through the judgment and order passed by the High Court, it appeared to the Supreme Court that the High Court had simply relied upon the decision of the Supreme Court in the case of Piara Singh (supra). After going through the decision in the case of Piara Singh (supra), the Supreme Court was of the opinion that the High Court had materially erred in relying upon the decision in the case of Piara Singh (supra).

The Supreme Court noted that in the case of Piara Singh (supra), the Assessee was found to be in the business of smuggling of currency notes and to that it was found that confiscation of currency notes was a loss occasioned in pursuing his business, i.e., a loss which sprung directly from carrying on of his business and was incidental to it. Due to this, the Assessee in the said case was held to be entitled to deduction under Section 10(1) of the Income Tax Act, 1922. In view of the above fact, the Supreme Court in the case of Piara Singh (supra) distinguished its decisions in the case of Haji Aziz & Abdul Shakoor Bros. [(1961) 41 ITR 350 –SC] and the decision in the case of Soni Hinduji Kushalji & Co. [(1973) 89 ITR 112 (AP)] and did not agree with the decision of the Bombay High Court in the case of J S Parkar vs. V B Palekar, [(1974) 94 ITR 616 (Bom)]. The Supreme Court observed that in all the aforesaid three cases which were relied upon by the Revenue in the case of Piara Singh (supra), the assessees were found to be involved in legitimate businesses and not smuggling business. However, they were found to have smuggled goods contrary to law, which resulted in an infraction of law and resultant confiscation by customs authorities.

The Supreme Court noted that in the case of Haji Aziz (supra), the Assessee claimed deduction of fine paid by him for release of his dates confiscated by customs authorities, which was rejected on the ground that the amount paid by way of penalty for breach of law was not a normal business carried out by it. In the case of Soni Hinduji Kushalji (supra) and J S Parkar (supra), the customs authorities had confiscated gold from Assessees otherwise engaged in legitimate businesses. In the aforesaid two cases, the Assessee claimed the value of gold seized as a trading / business loss. It was held that the Assessees were not entitled to the deductions claimed as business loss.

In the case of Soni Hinduji (supra), the Andhra Pradesh High Court held that when a claim for deduction is made, the loss must be one that springs directly from or is incidental to the business which the Assessee carries on and not every sort or kind of loss which has absolutely no nexus or connection with his business. It was observed that confiscation of contraband gold was an action in rem and not a proceeding in personam. Thus, a proceeding in rem in the strict sense of the term is an action taken directly against the property (i.e., smuggled gold); and even if the offender is not known, the customs authorities have the power to confiscate the contraband gold.

In the case of J S Parkar (supra), the Assessee not only claimed the value of the gold confiscated as a trading loss, but also set off of the said loss against his assumed and assessed income from undisclosed sources. The value of gold was sought to be taxed under section 69/69A of the Act by the tax authorities. However, the Bombay High Court held the Assessee to be the owner of the smuggled confiscated gold and not entitled to claim value of such gold as a trading loss.

The Supreme Court noted that in the present case, the ownership of the confiscated silver bars of the Assessee was not disputed. Even on that, there were concurrent findings by all the authorities below and including the customs authorities. Therefore, the question that required consideration was as to whether the Assessee could claim the business loss of the value of the silver bar confiscated and whether the decision of this Court in the case of Piara Singh (supra) would be applicable?

To answer the aforesaid question, the Supreme Court noted that in the present case, the main business of the Assessee was dealing in silver. His business could not be said to be smuggling of the silver bars as was the case in the case of Piara Singh (supra). He was carrying on an otherwise legitimate silver business and in attempt to make larger profits, he indulged into smuggling of silver, which was an infraction of law. In that view of the matter, the decision of the Supreme Court in the case of Piara Singh (supra), which had been relied upon by the High Court while passing the impugned judgment and order, would not be applicable to the facts of the case. On the other hand, the decision of the Supreme Court in the case of Haji Aziz (1961) 41 ITR 350 (SC) and the decisions of the Andhra Pradesh High Court and the Bombay High Court, which were pressed into service by the Revenue in Piara Singh (supra), would be applicable with full force.

In view of the above, the impugned judgment and order passed by the High Court quashing and setting aside the order passed by the AO, CIT(A) and the ITAT, which rejected the claim of the Assessee to treat the silver bars confiscated by the customs authorities as business loss, and consequently allowing the same as business loss, were unsustainable and the same were quashed and set aside by the Supreme Court.

By a separate order, Justice Shri M M Sundresh, while concurring with the ultimate conclusion arrived at in overturning the decision of the High Court by Justice Shri M R Shah, gave his own reasoning on the aforesaid aspect. After considering the provisions of Section 37(1), including Explanation 1 thereto and that of Section 115BBE of the Act and after referring to the plethora of judgements on the subject, he concluded as follows:

I.    The word “any expenditure” mentioned in Section 37 of the Act takes in its sweep loss occasioned in the course of business, being incidental to it.

II.    As a consequence, any loss incurred by way of an expenditure by an Assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act.
III.    Such an expenditure / loss incurred for any purpose which is an offence shall not be deemed to have been incurred for the purpose of business or profession or incidental to it, and hence, no deduction can be made.

IV.    A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance to the same is not available for deduction, regardless of the nature of business, as a penalty or confiscation cannot be said to be incidental to any business.

V.    The decisions of this Court in Piara Singh (supra) and Dr T A Quereshi [(2006) 287 ITR 547- SC] do not lay down correct law in light of the decision of this Court in Haji Aziz (supra) and the insertion of Explanation 1 to Section 37.

The appeal of the Revenue, therefore, deserves to be allowed, though conscious of the fact that Section 115BBE of the Act may not have an application to the case on hand being prospective in nature.

Note:
The detailed discussion by Justice Shri M M Sundresh on subject with reference to English and Indian cases makes it a good read.
 
45. D N Singh vs. CIT
(2023) 454 ITR 595 (SC)

Unexplained money, etc. — Section 69A — Assessee must be found to be the owner, and he must be the owner of any money, bullion, jewellery or other valuable articles — Short delivery of bitumen by carrier — A carrier who clings on to possession not only without having a shadow of a right, but what is more, both contrary to the contract as also the law cannot be found to be the owner — No material to show that the goods short delivered were sold — Bitumen not a valuable article — Addition could not be made.

The Appellant–Assessee carried on business as carriage contractor for bitumen loaded from oil companies namely HPCL, IOCL and BPCL from Haldia. The goods were to be delivered to various divisions of the Road Construction Department of the Government of Bihar. According to the Appellant, it has been in the business for roughly three decades.

A scam was reported in the media. The scam consisted of transporters of bitumen, lifted from oil companies, misappropriating the bitumen and not delivering the quantity lifted to the various Divisions of the Road Construction Department of the Government of Bihar. The scam had its repercussion in the assessments under the Act.

By an Assessment Order dated 27th March, 1998 being passed for A.Y. 1995–96, the AO, taking note of the scam, issued ShowCause Notice dated 23rd January, 1998, alleging that the Appellant had lifted 14,507.81 metric tonnes of bitumen but delivered only 10,064.1 metric tonnes. This meant that the Appellant had not delivered 4,443 metric tonnes. The Appellant produced photocopies of challans to establish that the bitumen had been delivered. Summons was issued by the AO to the Executive Engineers and Junior Engineers. It is the case of the Appellant that all Junior Engineers, except Shri Madan Prasad and Ahia Ansari, accepted the factum of delivery of bitumen. The AO, in fact, noticed that only those Junior Engineers accepted receipt of bitumen, where the Engineer in-charge or the Executive Engineer accepted the delivery. Shri Madan Prasad denied that the signature alleged to be his, was not his signature. The AO found that the Junior Engineers denied putting stamp and took the position that if there was stamp, then, it must indicate the name of the section. The AO added a sum of Rs. 2,19,85,700 being the figure arrived at, by finding that 4,443 metric tonnes of bitumen had not been delivered. This was done by invoking Section 69A of the Act.

For the A.Y. 1996–97, the AO passed Order dated 31st March, 1999. The Appellant, in its Return, disclosed a net profit of Rs. 6,76,133. On scrutiny, the AO, again, noticing the scam and finding that while 10,300.77 metric tonnes had been lifted by the Appellant, only 8,206.25 metric tonnes had been delivered. Accordingly, it was found that 2,094.52 metric tonnes had not been delivered. On the said basis and again invoking Section 69A of the Act, a sum of Rs. 1,04,71,720.30 was added as income of the Appellant.

The Commissioner Appeals found that all Junior Engineers, except two, had accepted delivery. After finding that the addition made by the AO in respect of quantity, where Junior Engineers had accepted delivery, was untenable, the Appellate Authority ordered deletion of a sum of Rs. 2,01,14,659. This amount represented the value of 4,064.28 metric tonnes. In regard to the disputed quantity, viz., the dispute raised by Shri Madan Prasad and Ahia Ansari, Junior Engineers, the matter was remanded back for affording an opportunity for cross-examination. This Order related to the A.Y. 1995–96.

The Revenue filed appeals before the Income-Tax Appellate Tribunal (hereinafter referred to as, ‘the ITAT’, for short) for both the Assessment Years, viz., 1995–96 and 1996–97.

In regard to the order passed by the Appellate Authority for the A.Y. 1995–96, another development took place during the pendency of the Appeal before the ITAT. By rectification Order dated 31st May, 2001, the CIT(A) set aside the addition of Rs. 2,01,14,659 with the direction to the AO that he shall issue summons to the concerned Jr. Engineers, who have received 4,064.28 metric tonnes of bitumen as per challans furnished by the Appellant, record their statement, allow the Appellant an opportunity to cross-examine them and, if necessary, refer their signatures to the handwriting experts to establish the genuineness or otherwise of such signatures. Only after carrying out these directions, any addition shall be made.

The Revenue had filed an Appeal before the ITAT for the A.Y. 1995–96. The Appellant had filed cross-objection in the said Appeal. The Appellant also filed appeal before the ITAT against the Order of Rectification passed under Section 154 of the Act. The ITAT dismissed the Appeals filed by the Revenue and the Appellant taking note of the Order of the CIT(A), passed under Section 154 of the Act, by which, the matter stood remitted back. The cross-objection came to be disposed of accordingly.

For the A.Y. 1996–97, the ITAT disposed of the Appeal filed by the Revenue and also the cross-objection filed. The Appeal filed by the Revenue was allowed. The Tribunal found that the Appellant had not disputed the lifting of the bitumen. The claim made by the Appellant that full supply was made, stood demolished, when photocopies of delivery challans were found to be false and fabricated. The Executive Engineers, it was further found, had confirmed non-delivery to the tune of 2,090.40 metric tonnes. The Commissioner Appeals, it was found, reached a wrong conclusion, as he did not address himself to the explanation offered by the Junior Engineers. It was found that all Executive Engineers of the Consignee Divisions presented a case of non-delivery before the AO. Thus, the ITAT allowed the Appeal filed by the Revenue and sustained the Order of the AO relating to addition on account of short supply of bitumen for the A.Y. 1996–97.

On an appeal to the High Court by the Appellant–Assessee for the A.Y. 1996–97, the Court, after referring to the submissions, focussed on the scope of Section 69A of the Act. The High Court found that the word “owner” has different meaning in different contexts, and when a transporter sells the goods and receives money for that not on behalf of the real owner, it became the owner for the purpose of tax. Having lifted bitumen and not supplied to the Road Construction Department to which it was to be supplied, the Appellant would be liable to pay tax on the bitumen lifted and not delivered. The High Court distinguished the judgment in Dhirajlal Haridas vs. CIT (Central), Bombay (1982) 138 ITR 570 by noting that for determining the person liable to pay tax, the test laid down by this Court was to find out the person entitled to that income. The Court also went on to distinguish the judgment in CIT vs. Amritlal Chunilal (1984) 40 CTR Bombay 387. It was found that in the said case, the Assessee, therein, was not found to be the owner whereas the ITAT found the Appellant to be the owner. The High Court agreed with the said finding. Thereafter, the High Court went on to deal with the argument that the words “other valuable articles” in Section 69A could not include “bitumen”. The argument of the Appellant which is noted is that for applying Section 69A bitumen should have some nexus with money, bullion or jewellery. It was found that any Article which has value would come under the expression “valuable article” under Article 69A and the value of such Article can be deemed to be the income of the Assessee, should the Assessee fail to offer any explanation or the explanation offered be unsatisfactory. The argument that Section 69A would not apply as the Appellant had offered an explanation was not accepted as it was found that an explanation though offered, being not accepted, would lead to the invocation of Section 69A if the explanation was not satisfactory. In other words, Section 69A applied. Lastly, in regard to the argument of the Appellant that the cost of the bitumen and not the value, thereof, was added as income, the High Court found that the Appellant did not have a case that it had sold the bitumen at the price lower than the cost. The Appellant was found to be the owner of the bitumen and the addition was sustained.

The Supreme Court noted that Section 69A may be broken down into the following essential parts:

a.    The Assessee must be found to be the owner;

b.    He must be the owner of any money, bullion, jewellery or other valuable articles;
c.    The said articles must not be recorded in the Books of Account, if any maintained;

d.    The Assessee is 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;

e.    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;

f.    In the case of money, the money can be deemed to be the income of the financial year.

Applying the provision to the facts of the case, the Supreme Court noted that the points that arise were as follows:

I.    The question would arise, as to whether the Appellant could be treated as the owner of the bitumen;

II.    The further question would arise, as to whether bitumen could be treated as other valuable articles;

III.    Thirdly, the question arises, as to how the value of the bitumen is to be ascertained.

As regards the first question, viz., whether the Appellant could be treated as the owner of the bitumen is concerned, it was indisputable that the Appellant was engaged as a carrier to deliver the bitumen, after having lifted the same from the Oil Companies to the various Divisions of the Road Construction Department of the Government of Bihar.

Under Section 15 of the Carriage by Road Act, 2007, which repealed the Carriers Act, 1865, if the consignee fails to take delivery of any consignment of goods within 30 days, the consignment is to be treated as unclaimed. The period of 30 days is declared inapplicable to perishable consignments, in which case, a period of 24 hours’ notice or any lesser period, as may be agreed between the consignor and the common carrier, suffices. In the case of perishable consignment, following such notice, the consignment can be sold. In a case where the goods are not perishable, if there is failure by the consignee to remove the goods after the receipt of a notice of 15 days from the carrier, the common carrier is given a right to sell the consignment without further notice. Section 15(3) enables the carrier to retain a sum equal to the freights, storage and other charges, due, including expenses incurred for the sale. The surplus from the sale proceeds is to be returned to the consigner or the consignee. Section 15(4) clothes the carrier with a right to sell in the event of failure by the consignee to make payment of the freight and other charges, at the time of taking delivery. In such cases, if the other ingredients of Section 69A are satisfied, there may be no fallacy involved if an Assessee is found to be the owner of the goods which he disposes of under the authority of law.

The Supreme Court noted that in this case, it is not the case of either party that the Appellant had become the owner of the bitumen in question in a manner authorised by law. On the other hand, the specific case of the Appellant is that the Appellant never became the owner and it remained only a carrier. However, as noticed, if it is found that there has been short delivery, this would mean that the Appellant continued in possession contrary to the terms of contract of carriage.

The Supreme Court further observed 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 when it is for being carried by road, as in this case.

According to the Supreme Court, to apply Section 69A of the Act, it is indispensable that the Officer must find that the other valuable article, inter alia, is owned by the Assessee. A bailee, who is a common carrier, is not an owner of the goods. A bailee who is a common carrier would necessarily be entrusted with the possession of the goods. The purpose of the bailment is the delivery of the goods by the common carrier to the consignee or as per the directions of the consignor. During the subsistence of the contract of carriage of goods, the bailee would not become the owner of the goods. In the case of an entrustment to the carrier otherwise than under a contract of sale of goods also, the possession of the carrier would not convert it into the owner of the goods.

The Supreme Court further noted that Section 405 of the Indian Penal Code, 1860 reads as follows:

“Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits ‘criminal breach of trust’.

Illustration (f) Under Section 405 is apposite, and it reads as follows:

Illustration f. A, a carrier, is entrusted by Z with property to be carried by land or by water. A dishonestly misappropriates the property. A has committed a criminal breach of trust.”

The Supreme Court noted the provisions of Sections 27 and 39 of the Sale of Goods Act, 1930, and observed that sale by a carrier does not pass title except when it is immunised by the conduct of the owner of the good, which would in turn estop the owner from impugning the title of the buyer.

The Supreme Court noted that in the commentary in the context of Section 69A on Sampath Iyengar’s, Law of Income Tax, it was observed it cannot be said in the case of stolen property that the thief is the owner thereof.

The Supreme Court observed that the question would arise pointedly, as to, when a common carrier refuses to deliver the consignment, and continues to possess it contrary to contract and law, and converts it into his use and presumably sells the same, as to whether he could be found to be the owner of the goods. Would he be any different from a person who commits theft and sells it claiming to be the owner. Can a thief become the owner? It would be straining the law beyond justification if the Court were to recognise a thief as the owner of the property within the meaning of Section 69A. Recognising a thief as the owner of the property would also mean that the owner of the property would cease to be recognised as the owner, which would indeed be the most startling result. While possession of a person may in appropriate cases, when there is no explanation forthcoming about the source and quality of his possession, justify an
AO finding him to be the owner, 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.

After considering the other relevant laws and various judgment of the Supreme Court dealing with the meaning of “owner” in the context of different provisions of the Income-tax Act, 1961 and applying various test considered therein, the Supreme Court, in this context, summarised its findings as under: 

2.    The possession of the Appellant began as a bailee.
 
3.    Proceeding further on the basis that instead of delivering the goods, the Appellant did not deliver the goods to the concerned divisions of the department in the State of Bihar.

4.    Ownership of the goods in question by no stretch of imagination stood vested at any point of time in the Appellant.

5.    Property would pass from the consignor to the consignee on the basis of the principles which are declared in the Sale of Goods Act. It is inconceivable that any of those provisions would countenance passing of property in the goods to the Appellant who was a mere carrier of the goods.

6.    Section 405 of the Indian Penal Code makes it an offence for a person entrusted with property, which includes goods entrusted to a carrier, being misappropriated or dishonestly being converted to the use of the carrier. A specific illustration under Section 405 makes it abundantly clear that any such act by a carrier attracts the offence under Section 405. The Supreme Court in other words would have to allow the commission of an offence by the Appellant in the process of finding that the Appellant is the owner of the goods. In other words, proceeding on the basis that there was short delivery of the goods by the Appellant, inevitably, the Supreme Court must find that the act was not a mere omission or a mistake but a deliberate act by a carrier involving it in the commission of an offence Under Section 405. In other words, the Court must necessarily find that the Appellant continued to possess the bitumen and misappropriated. It is in this state that the AO would have to find that the Appellant by the deliberate act of short delivering the goods and continuing with the possession of the goods not only contrary to the contract but also to the law of the land, both in the Carriers Act 1865 and breaking the penal law as well, the Appellant must be treated as the owner.

7.    Under Section 54 of Transfer of Property Act, a carrier who clings on to possession not only without having a shadow of a right, but what is more, both contrary to the contract as also the law cannot be found to be the owner.
 
8.    The possession of the carrier who deliberately refuses to act under the contract but contrary to it, is not only wrongful, but more importantly, makes it a case where the possession itself is without any right with the carrier to justify his possession.

9.    Recognising any right with the carrier in law would involve negation of the right of the actual owner, which if the property in the goods under the contract has passed on to the consignee is the consignee and if not the consignor.

The Supreme Court found that the Appellant was bereft of any of the rights or powers associated with ownership of property.

Approaching the issue from another angle, the Supreme Court observed that the rationale of the Revenue involves ownership of the bitumen being ascribed to the Appellant based on possession of the bitumen contrary to the contract of carriage and with the intention to misappropriate the same, which further involves the sale of the bitumen for which there is no material as such. But proceeding on the basis that such a sale also took place, even than what is important is, the requirement in Section 69A that the AO must find that the Assessee is the owner of the bitumen. According to the Supreme Court, in the facts, the Appellant could not be found to be the owner. The Appellant could not be said to be in possession in his own right, accepting the case of the Revenue that there was short delivery. The Appellant did not possess the power of alienation. 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 was a shade better than that of a thief as the possession had its origin under a contract of bailment. Hence, the Supreme Court held that the AO acted illegally in holding that one Appellant was the ‘owner’ and on the said basis made the addition.

The Supreme Court, thereafter, referred to the Principles of Ejusdem Generis and Noscitur a Sociis, which are Rules of construction and 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 intention of the law-giver in introducing Section 69A was to get at income which has not been reflected in the books of account but found to belong to the Assessee. Not only it must belong to the Assessee, but it must be other valuable articles. The Supreme Court considered few examples to illustrate the point. Let us take the case of an Assessee who is found to be the owner of 50 mobile phones, each having a market value of Rs. 2 Lakhs each. The value of such articles each having a price of Rs. 2 Lakhs would amount to a sum of Rs. 1 Crore. Let us take another example where the Assessee is found to be the owner of 25 highly expensive cameras. Could it be said that despite having a good price or worth a great deal of money, they would stand excluded from the purview of Section 69A. On the other hand, let us take an example where a person is found to be in possession of 500 tender coconuts. They would have a value and even be marketable but it may be wholly inapposite to describe the 500 tender coconuts as valuable articles. It goes both to the marketability, as also the fact that it may not be described as worth a ‘good’ price. 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.

Bitumen is defined in the Concise Oxford English Dictionary as “a black viscous mixture of hydrocarbons obtained naturally or as a residue from petroleum distillation, used for road surfacing and roofing”. Bitumen appears to be a residual product in the petroleum refineries, and it is usually used in road construction, which is also probabalised by the fact that the Appellant was to deliver the bitumen to the Road Construction Department of the State. Bitumen is sold in bulk ordinarily. The Supreme Court noted that in the Assessment Order, the Officer has proceeded to take R4,999.58 per metric ton as taken in the AG Report on bitumen scam. Thus, it is that the cost of bitumen for 2,094.52 metric ton has been arrived at as Rs. 1,04,71,720.30. This would mean that for a kilogram of bitumen, the price would be only Rs 5 in 1995–96 (F.Y.).

Bitumen may be found in small quantities or large quantities. If the ‘article’ is to be found ‘valuable’, then in small quantity, it must not just have some value but it must be ‘worth a good price’ {See Black’s Law Dictionary (supra)} or ‘worth a great deal of money’ {See Concise Oxford Dictionary (supra)} and not that it has ‘value’. 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 valuable article. Thus, the Supreme Court concluded that ‘bitumen’ as such could not be treated as a ‘valuable article’.

In view of these findings, the Supreme Court did not deal with other points. The appeals were allowed. The impugned judgment was stand set aside and though on different grounds, the order by the Commissioner Appeals deleting the addition made on the aforesaid basis was restored.

Shri Hrishikesh Roy, J. agreed with judgement of Shri K M Joseph J. that for the purposes of Section 69A, –the deeming effect of the provision will only apply if the Assessee is the owner of the impugned goods. Secondly, for any Article to be considered as ‘valuable article’ Under Section 69A, it must be intrinsically costly, and it will not be regarded as valuable if huge mass of a non-precious and common place Article is taken into account, for imputing high value and added his reasoning to justify his opinion.

Section 69A provides as a Rule of evidence that for the deeming effect to apply, the Assessee must be the owner of money, bullion, jewellery and other valuable articles on which he is unable to offer a satisfactory explanation. Someone having mere possession and without legal ownership or title over the goods will not be covered within the ambit of Section 69A. In the present case, the Assessee was certainly not the owner of the bitumen — but was the carrier who was supplying goods from the consignor – oil marketing companies to the consignee – Road Construction Department. Notably, due to short delivery of goods, the possession of the Assessee was unlawful. The inevitable conclusion, therefore, is that the Assessee is not the owner, for the purposes of Section 69A.

For purpose of Section 69A of Income-tax Act, 1961, an ‘article’ shall be considered ‘valuable’ if the concerned Article is a high-priced Article commanding a premium price. As a corollary, an ordinary ‘article’ cannot be bracketed in the same category as the other high-priced articles like bullion, gold, jewellery mentioned in Section 69A by attributing high value to the run-of-the-mill article, only on the strength of its bulk quantity. To put it in another way, it is not the ownership of huge volume of some low cost ordinary Article but precious gold and the likes that would attract the implication of deemed income under Section 69A.