2025 (7) TMI 502 - AT - Benami Property

Appellate Tribunal confirms benami property finding after appellant fails to prove legitimate income source for Rs.50 lakh purchase

Shri Chikkam Subba Rao, Shri Thota Khanna Rao Versus The Initiating Officer, Hyderabad

Shri Chikkam Subba Rao, Shri Thota Khanna Rao Versus The Initiating Officer, Hyderabad - TMI The core legal questions considered by the Tribunal in these appeals under Section 46 of the Prohibition of Benami Property Transactions Act, 1988 ('the Act of 1988') were:1. Whether the property purchased in the name of the appellant Chikkam Subha Rao was involved in a benami transaction, with appellant Thota Kanna Rao as the beneficial owner.2. Whether the burden of proof to establish a benami transaction lies on the respondents (Initiating Officer) or shifts to the appellants (benamidar and beneficial owner).3. Whether the procedural requirements regarding service of show cause notice and opportunity to reply were complied with, and whether the provisional attachment order was validly passed.4. Whether the appellant Chikkam Subha Rao had adequate and lawful source of funds to purchase the property, thereby negating the claim of benami transaction.Issue 1: Existence of Benami TransactionThe legal framework governing benami transactions is contained in the Act of 1988, as amended in 2016, which defines a benami transaction under Section 2(9)(A). The Act prohibits holding property in the name of another person when the consideration is provided by a different individual (beneficial owner).Precedents establish that a benami transaction involves a person (benamidar) holding property without any consideration from his own funds and on behalf of another (beneficial owner).The respondents initiated proceedings based on information that appellant Thota Kanna Rao, along with his wife and associated companies, had defaulted on large bank loans and had transferred properties in the name of others to evade recovery.The Tribunal noted that the property in question was purchased for Rs.50,73,000/- in the name of Chikkam Subha Rao, who lacked a credible financial background, did not possess a PAN card, and had no income tax filings. The relationship between the appellants was established by prior dealings, including the fact that appellant Thota Kanna Rao was a witness in one of the sale deeds executed by Chikkam Subha Rao.The Court found that the transfer was made to avoid attachment by the financial institution, indicating a benami transaction.Issue 2: Burden of ProofThe appellants contended that the burden to prove a benami transaction lies solely on the person alleging it (respondents) and cannot be shifted to the appellants. They relied on the Supreme Court precedent which states that the initial burden lies with the party alleging the benami nature.The Tribunal examined this contention and observed that the respondents had discharged their initial burden by producing credible information and material indicating the transaction was benami. The Tribunal further noted that the appellants failed to satisfactorily prove their source of funds to rebut the presumption of benami transaction.Thus, the Court held that while the initial burden is on the respondents, once discharged, the appellants must demonstrate legitimate sources of funds to acquire the property. The failure to do so justifies the adverse finding.Issue 3: Procedural Compliance Regarding Notice and AttachmentThe appellants challenged the validity of the show cause notice service and the provisional attachment order, arguing that the notice was initially returned undelivered due to 'insufficient address' and was served belatedly through the Income Tax Officer's office. They contended that the order of attachment was passed on the same day the reply period expired, denying them effective opportunity to respond.The Tribunal analyzed the timeline: the show cause notice was issued on 05.03.2019, initially unserved, subsequently served on 16.05.2019, with a 15-day period to reply expiring on 31.05.2019. The provisional attachment order was passed on 31.05.2019, while the appellant's reply was filed on 04.06.2019 and 05.06.2019.The Court found no procedural infirmity, holding that the appellant was duly served and failed to file a timely reply. The passing of the attachment order on the last day of the reply period was not improper, especially since the appellant had actual notice and opportunity to respond.Issue 4: Source of Funds and Financial Capacity of BenamidarThe appellants asserted that the benamidar Chikkam Subha Rao was an agriculturist with income from sale of paddy and had received substantial sums from his mother through three sale deeds executed in 2019, which were used to purchase the property in 2018. They claimed the appellant had disclosed these sources and that the respondents failed to disprove them.The Tribunal scrutinized the financial evidence, including bank statements and transaction dates. It noted that the sale deeds relied upon by the appellant were executed in 2019, subsequent to the property purchase in November 2018, and thus could not justify the source of funds at the time of purchase.The bank statements revealed multiple cash withdrawals and payments unrelated to the property acquisition, and no clear evidence of sufficient funds available to make the purchase. The appellant also failed to provide proof such as mandi receipts for the claimed sale of paddy amounting to Rs.4,84,840/-.The Tribunal concluded that the appellant did not have adequate source of funds at the relevant time, supporting the inference that the property was held benami.Conclusions on IssuesThe Tribunal concluded that:The respondents discharged the initial burden of proving the benami nature of the transaction by providing credible material.The appellants failed to rebut the presumption by proving legitimate sources of funds at the time of purchase.The procedural requirements regarding service of notice and opportunity to reply were complied with, and the provisional attachment order was validly passed.The property was rightly held to be benami, with appellant Chikkam Subha Rao as benamidar and appellant Thota Kanna Rao as beneficial owner.Significant Holdings and Core Principles EstablishedThe Tribunal emphasized the principle that while the initial burden to prove benami transaction lies on the party alleging it, once discharged, the onus shifts to the alleged benamidar to establish lawful source of funds and ownership.It was held that 'the subsequent sale of the land by the mother cannot justify the purchase of property prior to it and could not have been accounted to it.'Further, the Tribunal stated: 'It is apart from the fact that the analysis of the account of the appellant was made by the respondents to find out the sources of the appellant... The amount disclosed by the appellant to acquire the property was only the receipts without withdrawals for house expenses and payment to different persons... Thus, the appellant was not having sufficient source to acquire the property worth of Rs.50,73,000/- even if all the receipts in the hands of the appellant are accepted to be genuine.'On procedural compliance, the Tribunal noted: 'The appellant was given an opportunity to file reply to the show cause notice... The reply was not filed within the time given therein and accordingly the order was passed.'Ultimately, the Tribunal dismissed the appeals, affirming the Adjudicating Authority's order confirming the provisional attachment and holding the transaction benami.