2025 (4) TMI 125 - AT - Benami Property

Bullion companies lose appeals over Rs 35 crore demonetized currency conversion through benami transactions

Shri. Sanjay M. Soni, Sh. Paresh D. Soni, Smt. Shital P. Soni, Kundan Trading Co., M/s Parker Buildcon Pvt. Ltd., M/s M.S. Jeweler, M/s Gayatri Jewellers, M/s Shreeji Enterprise, Shri Rajeshbhai Amrutlal Patel and Shri Shrenik Shah Versus The Initiating Officer, DCIT (BPU-1), Ahmedabad

The Appellate Tribunal under SAFEMA dismissed appeals by bullion companies (beneficial owners) involved in converting demonetized currency worth over Rs. ... Benami transaction for period of demonetization of the currency note of Rs. 500/- and Rs. 1000/- by the Government of India - circulate demonetize money to convert it to legal tender - allegation against the appellants is for their involvement to get demonetized money deposited in the bank accounts of people having no means for the total value of more than Rs. 35 crores and accordingly the prayer of the counsel for the parties to pass a common order has been accepted. Whether the second show cause notice to transpose the beneficial owner to be abettors and abettors to be the beneficial owner is permissible under the Act of 1988? - Subsequent show cause notice dated 07.09.2018 calling upon the noticee to appear and submit reply/ defence was for 24.09.2018. The notice aforesaid was not for 30 days period as has been provided under second proviso but the material on record shows that appellant sought adjournment while putting appearance on the first date i.e. 24.09.2018 and the matter was adjourned to call upon reply on 09.10.2018 which was for the period of more than 30 days to file reply. The subsequent show cause notice to call upon reply was for the period making it for more than of 30 days and thereby no prejudice was caused to the appellants because period to file reply was extended and thereby mandate of section 26 (1) was followed. It was otherwise a curable defect. The purpose of 30 days’ notice is to give sufficient time for response which exist in the present matter. Thus, on the facts, we do not find that section 26(1) has been contravened. Whether property involved is benami or it is not a benami property? - The appellant, beneficial owner, has submitted that there was no benami transaction at their instance. It is submitted that not only books of accounts but stock register was produced to show the stock of gold with the appellant Companies and in fact was delivered to the purchaser who are now taken to be benamidars. It is with further statement that even the entry operators did not disclose the name of the appellant Companies named above for providing cash - We have scanned the matter carefully to analyzed the issue and find that that appellant bullion Companies had created back dated entries in the stock register and other documents which become clear from the FSL digital device report and schedule I to V. In fact, the bullion companies were not having matching stock of gold to pass it on to those firms who had transferred the amount through RTGS. The reference of audio recording to show the transaction has been given which has also been analyzed and mere recording of the transaction would not mean that actual transaction has taken. What is required is the actual happening and not just recording of happening to take place. It is not that the documents produced by the appellant bullion companies were casually ignored rather deep routed investigation was made. The alleged delivery of gold to the benamidars through the abettors was said to have been delivered further to one ‘Mohammad’ who has refused about delivery of gold. The respondent thus tried to reach to the complete chain to find out actual happening. It is further necessary to clarify that if the gold was purchased, the appellant bullion Company should have produced the payment towards the alleged gold but no such material was produced in a specific. The critical analysis of all the issues has been made in the order passed by the Adjudicating Authority and we don't find any error therein to cause interference in the finding and accordingly the appeal fails and dismissed. Case of the abettors - The argument against the attachment has been raised by the abettor. It is submitted that their property has been attached while they were not the beneficial owner or the benamidars. A reference of section 53 of the Act of 1988 has been given to show that abettors can be subjected to prosecution but there is no provision for attachment of their property. The counsel for the respondents made a contest to it. We find substance in the argument of the counsel for the abettors. As per the framework of the Act of 1988, what can we attached is the benami property. In the instant case, the property in the hands of abettor has not been taken to be benami property. Respondents have failed to prove that the property of the abettors is benami property as defined under the Act of 1988. In fact, the bullion Companies were taken to be the beneficial owner and the allegation against them was to channelize the demonetized money to convert into monetized money. The money was routed through the benamidars and ultimately reached to them as stated by the respondents themselves. There is no allegation that money came to that abettor and it remained with them. The appeals of the abettors are thus allowed. The attachment of their properties is set aside for the reason that attached property could not be proved to be benami property however they are not excluded for their role in benami transaction with consequence of section 53 of the Act of 1988. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in the judgment include:- Whether the transactions conducted by the appellants constituted benami transactions under the Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred to as 'the Act').- Whether the Adjudicating Authority had the jurisdiction to transpose parties from the status of abettors to beneficial owners and vice versa.- Whether the procedural requirements under Section 26 of the Act were adhered to, particularly concerning the issuance of show cause notices and the period allowed for responses.- Whether the evidence, including forensic reports and digital evidence, supported the allegations of benami transactions.- Whether the attachment of properties of the abettors was justified under the Act.2. ISSUE-WISE DETAILED ANALYSISFor each identified issue, the analysis is as follows:Benami Transactions Allegations:- Relevant legal framework: The case revolves around the interpretation and application of the Act, particularly the definitions and scope of benami transactions.- Court's interpretation and reasoning: The Tribunal considered the evidence, including statements from various parties, forensic reports, and the modus operandi of the transactions. It found that the appellants engaged in benami transactions by channeling demonetized currency through benamidars and abettors to convert it into legal tender.- Key evidence and findings: The Tribunal relied on forensic analysis, digital evidence, and statements from involved parties, which indicated backdated entries and lack of actual gold transactions.- Application of law to facts: The Tribunal applied the provisions of the Act to determine that the transactions were indeed benami, as the appellants failed to provide sufficient evidence to prove legitimate business transactions.- Treatment of competing arguments: The appellants argued that their transactions were legitimate business dealings, supported by financial records and stock registers. However, the Tribunal found these records to be backdated and fabricated.- Conclusions: The Tribunal concluded that the appellants were involved in benami transactions, and their properties were justifiably attached.Jurisdiction and Procedural Compliance:- Relevant legal framework: The Tribunal examined the procedural requirements under Section 26 of the Act, which governs the adjudication process.- Court's interpretation and reasoning: The Tribunal found that the Adjudicating Authority had the jurisdiction to transpose parties based on new evidence, as permitted under Section 26(6) of the Act.- Key evidence and findings: The Tribunal noted that sufficient notice and opportunity to respond were provided to the appellants, satisfying the procedural requirements.- Application of law to facts: The Tribunal determined that the procedural steps taken, including the issuance of show cause notices and the allowance of response time, were in compliance with the Act.- Treatment of competing arguments: The appellants argued that the procedural requirements were not met, particularly concerning the notice period. However, the Tribunal found that any deficiencies were cured by subsequent extensions and opportunities to respond.- Conclusions: The Tribunal upheld the procedural actions of the Adjudicating Authority, finding no jurisdictional errors.Attachment of Abettors' Properties:- Relevant legal framework: The Tribunal considered the provisions of the Act concerning the attachment of properties involved in benami transactions.- Court's interpretation and reasoning: The Tribunal concluded that the properties of the abettors could not be attached as benami properties, as there was no evidence to support such a classification.- Key evidence and findings: The Tribunal found that the properties in question did not meet the criteria for benami properties under the Act.- Application of law to facts: The Tribunal applied the relevant provisions to determine that the attachment of abettors' properties was not justified.- Treatment of competing arguments: The respondents argued for the attachment based on the abettors' involvement in the transactions. However, the Tribunal found that the properties themselves were not proven to be benami.- Conclusions: The Tribunal set aside the attachment of the abettors' properties, allowing their appeals.3. SIGNIFICANT HOLDINGS- The Tribunal held that the appellants were involved in benami transactions, justifying the attachment of their properties. It stated, 'The appellant bullion Companies... had created back dated entries in the stock register and other documents which become clear from the FSL digital device report and schedule I to V.'- The Tribunal established that the Adjudicating Authority had the jurisdiction to transpose parties under Section 26(6) of the Act, emphasizing the provision's purpose to achieve justice.- The Tribunal determined that the procedural requirements under Section 26 were met, as the appellants were given sufficient time to respond to notices.- The Tribunal concluded that the attachment of abettors' properties was not justified, as the properties were not proven to be benami under the Act.- The appeals of the abettors were allowed, and the attachment of their properties was set aside, while the appeals of the bullion companies were dismissed.