2024 (1) TMI 203 - AT - Benami Property

Companies fail to prove legitimate investment sources, benami property attachment upheld under Prohibition Act

The Appellate Tribunal for SAFEMA at New Delhi upheld the Provisional Attachment Order under the Prohibition of Benami Property Transactions Act. Two ... Benami transaction (definition embracing transfer and holding) - Application of Amending Act, 2016 prospective but applicable where property is held post-amendment - Holding of property after amendment converts prior transfer into benami transaction under amended definition - Forfeiture/confiscation under Amending Act, 2016 prospective in operation - Incorrect statutory citation does not vitiate proceedings if facts attract other provision - Requirement and supply of reasons to believe - Compliance with attachment procedure under Rule 5Benami transaction (definition embracing transfer and holding) - Holding of property after amendment converts prior transfer into benami transaction under amended definition - Whether transactions involving shares transferred before 01.11.2016 fall within the Amending Act, 2016 when the shares were held by the benamidar on and after the date of amendment - HELD THAT: - The Tribunal held that the amended definition of 'benami transaction' under the Amending Act, 2016 includes both transfer and holding. If a property was transferred prior to 01.11.2016 but continued to be held by the benamidar after the amendment, and the consideration for that property was provided by another person, such holding falls within section 2(9)(A) of the Amending Act and the amended Act applies to that holding. The Tribunal accepted the respondents' contention that the word 'held' must be given full effect and that continued possession/holding after the amendment renders the transaction a benami transaction under the Amending Act even though the transfer occurred earlier. Accordingly the Apex Court's decision in Ganpati Dealcom is applied subject to this clarification: transactions that are not held by the benamidar post-amendment remain outside the scope of the Amending Act, whereas holdings continuing after the amendment are within its sweep. [Paras 27, 36, 44, 45, 51]Held that where shares transferred prior to 01.11.2016 were nevertheless held by the benamidar on and after the amendment, the Amending Act, 2016 applies to such holdings and they constitute benami transactions under the amended definition.Evidence sufficiency to establish benami transaction - Inference from admissions and financial profiling - Whether the respondents proved that M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Pvt. Ltd. were benamidars and that the Initiating Officer's findings were based on surmise or conjecture - HELD THAT: - The Tribunal reviewed the material relied upon by the Adjudicating Authority: survey statements of directors admitting lack of knowledge and acting on instructions, timing of induction of directors, absence of business activity at registered addresses, infusion of funds after 2013-14 through corporate shareholders on high premium, common features identified in financial profiling, and failed responses from alleged contributing entities. The Tribunal concluded that these facts supported an inference of control and inducement by the alleged beneficiary and were sufficient to uphold the Initiating Officer's finding of benami transactions. The Tribunal rejected the appellants' contention that the respondents failed to prove the source of funds and that the conclusions were drawn on extraneous consideration. [Paras 75, 76, 80, 83, 84]Held that the respondents adduced sufficient material and inferences to sustain the finding of benami transactions; the Initiating Officer's and Adjudicating Authority's conclusions were not based on mere surmise.Incorrect statutory citation does not vitiate proceedings if facts attract other provision - Requirement and supply of reasons to believe - Compliance with attachment procedure under Rule 5 - Whether procedural infirmities - change in legal provisions relied upon, non-supply of reasons to believe, and non compliance with Rule 5 - vitiated the provisional attachment and adjudication - HELD THAT: - The Tribunal considered that although the initial notice referenced certain sub sections, the authorities were not precluded from applying the correct provision later if the facts warranted it; an incorrect initial citation does not invalidate proceedings where the substantive case falls under another provision. The record showed that a copy of 'reasons to believe' had been supplied to the appellants and that attachment was made following the applicable rules; the appellants failed to specify any particular rule breach. On these bases the Tribunal found no merit in allegations of violation of natural justice or procedural non-compliance. [Paras 86, 88, 91, 92, 93]Held that the change in statutory provision relied upon did not vitiate proceedings, reasons to believe were supplied, and Rule 5 compliance was not shown to be breached; no procedural infirmity found.Final Conclusion: The appeals are dismissed. The Tribunal affirmed that where property transferred before 01.11.2016 continued to be held by the benamidar after the Amending Act, 2016 came into force, the amended definition applies; on the facts, the authorities had sufficient material to treat the appellant companies as benamidars and no procedural infirmity vitiated the provisional attachment or its confirmation. Issues Involved:1. Constitutionality and applicability of the Prohibition of Benami Property Transactions Act, 1988, and its 2016 Amendment.2. Definition and interpretation of 'Benami Transaction' under the amended Act.3. Evidence and proof of Benami transactions in the hands of the appellant companies.4. Alleged violation of principles of natural justice and procedural lapses in the attachment process.5. Impact of income tax assessments on the determination of Benami transactions.Issue-wise Detailed Analysis:1. Constitutionality and Applicability of the Act:The appeals challenge the order confirming the provisional attachment under the Prohibition of Benami Property Transactions Act, 1988, as amended in 2016. The appellants argued that the transactions in question occurred before the 2016 amendment, invoking the Supreme Court judgment in Ganpati Dealcom Private Limited, which declared certain provisions of the unamended Act unconstitutional and held that the 2016 amendment could not apply retrospectively. The Tribunal, however, noted that the transactions continued to be held after the amendment, thus falling within the scope of the amended Act.2. Definition and Interpretation of 'Benami Transaction':The Tribunal focused on the definition of 'Benami Transaction' under Section 2(9) of the 2016 Amendment, which includes both the transfer and holding of property where consideration is paid by another person. The Tribunal emphasized that the term 'held' is crucial, meaning that if a property is held by a person after the amendment, it falls under the definition of a Benami transaction, regardless of when the transfer occurred.3. Evidence and Proof of Benami Transactions:The Tribunal found substantial evidence supporting the conclusion that the appellant companies were involved in Benami transactions. The directors of the companies lacked knowledge of business activities and admitted to acting on instructions, indicating they were 'dummy' directors. The Tribunal noted that funds were infused into the companies through share capital at high premiums from paper companies with no business activities, linking the transactions to the appellant Suresh Bhageria.4. Alleged Violation of Principles of Natural Justice and Procedural Lapses:The appellants alleged procedural lapses, including the failure to provide reasons to believe under Section 24(1) and non-compliance with Rule 5 of the Benami Rules, 2016. The Tribunal found these claims unsubstantiated, noting that the reasons to believe were provided and the attachment process followed the prescribed rules.5. Impact of Income Tax Assessments:The appellants argued that since the income tax authorities assessed the funds, the transactions should not be questioned. The Tribunal dismissed this argument, clarifying that income tax assessments focus on income and tax compliance, not the legality of the transactions under the Benami Act. The Tribunal maintained that the assessment does not regularize Benami transactions.Conclusion:The Tribunal concluded that the appeals lacked merit, affirming the provisional attachment orders. It held that the transactions fell under the amended definition of Benami transactions due to the continued holding of shares post-amendment and dismissed the appeals, validating the actions taken under the Prohibition of Benami Property Transactions Act, 1988, as amended in 2016.