2025 (8) TMI 1239 - AT - Benami Property

Omission of 'reasons to believe' in s.24(1) SCN not fatal where investigating officer had ample incriminating material

M/s Om Samriddhi Banquet & Hospitality LLP Versus The Initiating Officer, ACIT Benami Prohibition Unit, Mumbai

M/s Om Samriddhi Banquet & Hospitality LLP Versus The Initiating Officer, ACIT Benami Prohibition Unit, Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether it is mandatory for the Initiating Officer (IO) to supply the reasons to believe before issuing a show cause notice under Section 24(1) of the PBPT Act, and whether failure to supply such reasons vitiates the proceedings. 2. Whether the appellant was prejudiced by not being afforded an opportunity to cross-examine persons whose statements were used in the proceedings, and whether reliance on those statements without cross-examination invalidates the orders. 3. Whether the cash was deposited into third-party accounts contrary to the appellant's instructions (i.e., whether deposits into the alleged benamidar's accounts were made against directions). 4. Whether the facts and material on record satisfy the statutory definition of a benami transaction under Section 2(9)(A) and related definitions (benamidar, property, consideration), including whether cash/demonetized currency constitutes 'property'/'consideration' for the purposes of the PBPT Act. 5. Whether bona fide subsequent transfer of funds by the alleged benamidar back to the beneficial owner, or a short duration of holding, precludes action under the PBPT Act. 6. Whether a provisional attachment in the amount identified may be made against the beneficial owner's account irrespective of the actual balance in that account on the date of attachment. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatory supply of reasons to believe before issuing show cause notice (Section 24(1)) Legal framework: Section 24(1) requires the IO, where he has reason to believe a person is a benamidar, to record reasons in writing and issue a notice to show cause why the property should not be treated as benami property. The text is silent on mandatory supply of the recorded reasons to the noticee. Precedent treatment: Authorities cited by the appellant (decisions requiring reasons to be incorporated in or served with orders) were noted by the Court but treated as distinguishable on facts and statutory language. Interpretation and reasoning: The Court read Section 24(1) strictly and observed it does not expressly require that the recorded reasons be supplied to the noticee with the show cause notice. The Court further found that, on the facts, ample incriminating material (informational input from investigation directorate, admissions in statements, bank transfer trail) was available to constitute genuine reasons to believe. The appellant failed to produce the show cause notice to demonstrate absence of reasons recorded therein. Ratio vs. Obiter: Ratio - non-supply of the recorded reasons is not a jurisdictional defect under Section 24(1) where the statute is silent and there is sufficient material constituting reasons to believe; factual absence of service of reasons did not vitiate the proceedings. Obiter - reliance on comparative provisions in other statutes was considered but not adopted as controlling. Conclusion: Issue decided against the appellant; failure to supply recorded reasons did not vitiate the proceedings on the present facts. Issue 2 - Prejudice from denial of opportunity to cross-examine makers of statements Legal framework: Administrative fairness requires opportunity to meet evidence; question whether inability to cross-examine makers of statements which formed part of the material causes prejudice invalidating action under PBPT Act. Precedent treatment: The Court recognized general principles of natural justice but emphasized that admissibility/value of evidence depends on surrounding facts and alternative documentary evidence. Interpretation and reasoning: The Court treated certain statements as part of the evidentiary matrix but held that even if such statements were discarded, the admitted facts and documentary trail (handing over of cash; deposits into benamidar accounts; RTGS transfers back to alleged beneficial owner; accounting entries) independently supported the IO's action. Thus no prejudice arose sufficient to invalidate the proceedings. Ratio vs. Obiter: Ratio - lack of opportunity to cross-examine did not prejudice the appellant where independent and admitted documentary evidence establishes the core facts. Obiter - general admonition that statements obtained under compulsion or without opportunity for cross-examination may be of limited value. Conclusion: Issue disposed against the appellant; no invalidating prejudice shown. Issue 3 - Whether deposits were made contrary to instructions of the beneficial owner Legal framework: Whether depositing cash in a third party's account contrary to the depositor's instruction negates a benami relationship or supports a defence of mistaken deposit. Precedent treatment: Court applied established approach that intention of the person who provided funds is material and is deduced from surrounding circumstances and subsequent conduct. Interpretation and reasoning: Court examined circumstances: opening of multiple accounts by the alleged benamidar during demonetization; large cash entrusted to persons without prior dealings; sequence of deposits into third-party accounts and transfer back; initial bookkeeping entries into suspense and later reclassification as business receipts. These facts were held to indicate purpose to use third-party accounts to conceal origin rather than an innocent or mistaken deposit contrary to instructions. Ratio vs. Obiter: Ratio - objective surrounding circumstances can rebut a claim of innocent or mistaken deposit where conduct indicates the contrary. Obiter - mention that commission paid or service arrangements are immaterial to benami determination. Conclusion: Deposits were not shown to have been made contrary to instructions in a manner that negates a benami inference; finding against appellant. Issues 4 & 5 - Whether the transaction satisfies definition of benami transaction; whether subsequent retransfer or short holding period defeats action Legal framework: Section 2(9)(A) defines benami transaction as where property is held by one person but consideration is provided by another, and the property is held for the benefit (immediate or future) of the person who provided the consideration. Definitions of 'benamidar', 'property' (Section 2(26)) and contract law concept of 'consideration' were applied. Precedent treatment: The Court applied statutory definitions and doctrinal principles concerning intention, benefit, and the nature of property/consideration rather than distinguishing earlier case law. Interpretation and reasoning: The Court held cash (including demonetized currency) qualifies as 'property' under the wide statutory definition and that cash given by one person and held/deposited by another can constitute both 'consideration' and 'property' in the benami analysis. The transaction here involved handing over demonetized currency to intermediaries who deposited it into their own accounts and later transferred equivalent amounts back to the purported beneficial owner via banking channels - conduct consistent with use of a benamidar to conceal origin and to transform cash into bankable funds. The Court ruled that immediate retransfers do not negate the benami character: temporary holding for the purpose of converting or concealing funds fits within clause (b) (immediate or future benefit). The commission or brief custody arrangements do not alter the statutory character where the substance evidences a benami arrangement. Ratio vs. Obiter: Ratio - cash/demonetized notes constitute 'property' and 'consideration'; holding of cash by another with transfers back to the payer can constitute a benami transaction; brief holding period or subsequent retransfers do not preclude invocation of PBPT provisions. Obiter - examples illustrating interchangeability of cash as property and consideration. Conclusion: Transaction met statutory elements of benami transaction; issues decided against the appellant. Issue 6 - Validity of provisional attachment for the identified sum irrespective of account balance Legal framework: Provisional attachment under Section 24(3)/(4) permits attachment of benami property or property held for the benami transaction; question whether attachment quantum is limited by actual balance in alleged beneficial owner's bank account on the date of order. Interpretation and reasoning: The Court held that attachment may be made for the value of the benami transaction as determined from material, regardless of the actual ledger balance in the beneficiary's account on the date of attachment, because the attachment relates to the tainted property/amount identified as benami value rather than the contemporaneous ledger balance. Ratio vs. Obiter: Ratio - attachment for the value of the benami transaction is permissible notwithstanding that the nominal bank balance is less on the date of attachment. Obiter - none material beyond reasoning. Conclusion: Provisional attachment for the identified sum was valid; issue decided against the appellant. Overall Conclusion On the totality of facts, documentary trail, admitted acts, and statutory interpretation of 'property', 'consideration', 'benamidar' and 'benami transaction', the Court found the IO had reason to believe, the elements of a benami transaction were satisfied, procedural defects (if any) did not vitiate the proceedings, and the provisional attachment and its confirmation were upheld.