2025 (9) TMI 1177 - AT - Benami Property

Provisional attachment under Section 24(4)(b) of Benami Transactions Act upheld; transaction held under Section 2(9)(d); appeal dismissed

Sh. Rachamalla Dharma Raju Versus The Initiating Officer, Hyderabad

AT upheld the provisional attachment under Section 24(4)(b) of the Benami Transactions Act, rejecting the challenge that it was governed by Section 24(3). ... Benami transaction - order for provisional attachment passed in ignorance of Section 24(3) - pre-supposes apprehension of alienation - No reason to apprehend transfer of the cash so as to attach - Effect of Income-tax assessment/taxation on maintainability of Benami Act proceedings - unexplained credits and unexplained money - cash later on seized through requisition u/s 132A of the Income-tax Act, 1961 - failed to disclose the source - assessment and taxation of the same seized amount as 'undisclosed income' Or treatment under Sections 68/69A of the Income-tax Act - HELD THAT:- A perusal of Sub-section (4)(b) of the Section 24 of the Act of 1988, reveals that where the Provisional Attachment Order (PAO) has not been made under sub-Section (3) of Section 24 of the Act of 1988, the order can be passed by the Initiating Officer with prior approval of the Approving Authority till the passing of the order by the Adjudicating Authority under sub-section(3) of Section 26 of the Act of 1988. The provision aforesaid has been invoked by the respondent in the case in hand where provisional attachment does not pre-supposes apprehension of alienation. Ld. Counsel for the appellant has argued the case treating it to be under Section 24(3) of the Act of 1988 whereas the PAO was under Section 24(4)(b) of the Act of 1988 and therefore the first ground raised by the appellant in reference to the order passed by the Metropolitan Magistrate to hand over the seized cash to the Income Tax Department would not nullify the PAO having been passed under Section 24(4)(b) of the Act of 1988. The first ground raised by the appellant is, thus, rejected summarily. The perusal of the paras quoted, reveals that despite opportunity given to the appellant to disclose the source of income of Rs. 2 Crore, the appellant failed to furnish the source of cash of Rs. 2 Crore and accordingly we do not find any error in the order of the Adjudicating Authority to hold it to be a case of the benami transaction. Section 68 and 69A of the Income- tax Act, 1961 contain deeming provisions whereby unexplained credits in the books of account, or unexplained money, bullion, jewellery or other valuable article of which the assessee is found to be the owner, but for which no reasonable explanation is given by him, is deemed to be the income of the assessee for that financial year. Notably, it is a deeming provision for the purposes of the Income-tax Act only, and cannot override the express provisions of the Act of 1988. The two Acts operate in different spheres and the mere fact that the amount has been taxed in the hands of a person on account of a deeming provision under the Income-tax Act cannot determined its treatment under the Act of 1988. If the transaction answers to the definition of ‘benami transaction’ within the definition of 2(9) of the Act of 1988, it will fall within the mischief of the Act of 1988. The Adjudicating Authority found a case falling under Section 2(9)(D) of the Act of 1988. Shri Rachamalla Dharma Raju, the appellant failed to furnish the source of the cash which led to the conclusion of benami transaction and accordingly the PAO was confirmed. The appellant was treated to be the benamidar. Accordingly appeal fails and is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Provisional Attachment Order (PAO) under Section 24(4)(b) of the Prohibition of Benami Property Transactions Act, 1988 is invalidated by an earlier Magistrate order directing police to hand seized cash to the Income Tax Department, where the Initiating Officer did not invoke Section 24(3) (apprehension of alienation) prior to attachment. 2. Whether assessment and taxation of the same seized amount as 'undisclosed income' (or treatment under Sections 68/69A of the Income-tax Act) precludes or bars a finding of benami transaction and confirmation of provisional attachment under the Benami Act. 3. Whether the material on record (statements recorded under Sections 131/133A of the Income-tax Act and the failure of the person in possession to account for the source of cash) suffices to support the Adjudicating Authority's conclusion that the transaction falls within the definition of 'benami transaction' (specifically Section 2(9)(D) of the Benami Act) and to justify confirmation of the PAO. 4. Ancillary question: the proper legal interplay between the deeming provisions under the Income-tax Act (Sections 68/69A) and the substantive provisions of the Benami Act-whether one statute's deeming treatment can displace or determine the other. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of PAO-Section 24(4)(b) vs Section 24(3) (apprehension of alienation) Legal framework: Section 24(3) permits provisional attachment where the Initiating Officer is of the opinion that the person in possession may alienate the property during the notice period (and requires prior approval). Section 24(4)(b) empowers the Initiating Officer, after inquiries and taking relevant materials into account and with prior approval, to pass an order provisionally attaching the property where provisional attachment under sub-section (3) has not been made. Precedent treatment: The Tribunal applied the statutory text; no contrary precedent was invoked by the appellant to equate or collapse sub-section (4)(b) into the apprehension requirement of sub-section (3). Interpretation and reasoning: The Court analyzed the statutory distinction: sub-section (3) requires an opinion of apprehended alienation; sub-section (4)(b) contemplates provisional attachment after inquiries even where sub-section (3) was not applied. The impugned PAO was made under Section 24(4)(b), not under Section 24(3). Therefore the earlier Magistrate order handing over the cash to the Income Tax Department-which, if the PAO had been sought under sub-section (3), might have negated any reasonable apprehension of alienation-does not nullify a PAO lawfully made under sub-section (4)(b). Ratio vs. Obiter: Ratio-affirmation that a PAO under Section 24(4)(b) does not pre-suppose the 'apprehension of alienation' required by Section 24(3); a Magistrate order handing property to the Income Tax Department does not ipso facto invalidate an attachment made under sub-section (4)(b). Conclusions: Ground alleging invalidity of the PAO on the basis of the Magistrate's order and absence of apprehension is rejected because the initiating legal basis was Section 24(4)(b), which does not require the same apprehension threshold as Section 24(3). Issue 2: Effect of Income-tax assessment/taxation on maintainability of Benami Act proceedings Legal framework: Sections 68 and 69A of the Income-tax Act contain deeming provisions for treating unexplained credits and unexplained money as income for income-tax purposes. The Benami Act governs ownership and recovery of benami property and contains its own substantive definition of 'benami transaction' (Section 2(9)). Precedent treatment: The Tribunal treated the two statutes as operating in different spheres and applied the established principle that deeming provisions for one statute do not automatically override express provisions of another statute absent clear legislative intention. Interpretation and reasoning: The Court noted that the income-tax assessment treated the amount as unexplained income under Income-tax provisions based on statutory deeming and the assessee's failure to explain the source. However, taxation under the Income-tax Act does not determine or preclude adjudication under the Benami Act. If the transaction satisfies the elements of 'benami transaction' under the Benami Act, that Act applies regardless of Income-tax deeming. The Tribunal emphasized the separate domains: Income-tax deeming is for tax incidence; the Benami Act addresses benami ownership and recovery. Ratio vs. Obiter: Ratio-assessment of the amount as income under the Income-tax Act does not bar or preclude a finding of benami transaction under the Benami Act; the two Acts operate independently for their respective purposes. Conclusions: Ground asserting that prior assessment as 'undisclosed income' precludes a benami finding is rejected; the Adjudicating Authority's confirmation of PAO was not negated by the Income-tax assessment. Issue 3: Sufficiency of evidence to establish benami transaction (statements, failure to disclose source) Legal framework: The Benami Act requires satisfaction of statutory elements of 'benami transaction' as defined, and the Initiating Officer/Adjudicating Authority must consider relevant material and reasons in writing before provisional attachment and confirmation. Precedent treatment: The Tribunal reviewed factual materials relied upon by the Adjudicating Authority-statements recorded under Section 131, results of survey under Section 133A, and failure of persons in possession (and alleged beneficial owner) to account for source of cash. Interpretation and reasoning: The material facts found by the Adjudicating Authority included: two persons apprehended with Rs. 2 crore who disclaimed ownership and said they were carrying the cash at instructions of an accounts manager; the accounts manager disowned knowledge of the cash source; an accounts officer's statement corroborated employment and lack of explanation; the person later claimed the amount as business income but could not provide supporting records despite notices under Section 142(1) and show-cause opportunities. The Tribunal held that the cumulative record justified the Adjudicating Authority's conclusion that the transaction fell within Section 2(9)(D) (i.e., the circumstances pointed to benami transaction) and supported confirmation of the PAO. Ratio vs. Obiter: Ratio-where persons in possession disclaim ownership, attribute receipt to a third person, and the putative benamidar/beneficial owner fails to furnish credible source or documentary proof despite opportunity, such material can sustain a finding of benami transaction and confirmation of provisional attachment under the Benami Act. Conclusions: The evidence on record was adequate to uphold the Adjudicating Authority's finding of benami transaction and to confirm the PAO; no error was found in that factual-conclusory exercise. Issue 4: Interplay between Income-tax deeming provisions and Benami Act-statutory autonomy and effect Legal framework: Deeming provisions in tax law operate to treat certain items as income for tax purposes; the Benami Act contains express provisions targeting benami property and provides its own machinery for notice, attachment and adjudication. Precedent treatment: The Tribunal reiterated the separateness of the Acts and rejected any contention that an Income-tax deeming provision 'overrides' or displaces the Benami Act's operation as to ownership status and attachment. Interpretation and reasoning: The Court reasoned that deeming for taxation does not alter the substantive criteria of benami ownership; the two enactments serve different purposes and both may independently apply to the same facts. The Adjudicating Authority was entitled to consider the Income-tax material as relevant but not determinative to the legal question under the Benami Act. Ratio vs. Obiter: Ratio-statutory deeming under the Income-tax Act does not preclude independent adjudication under the Benami Act; each statute's jurisdictional and substantive tests remain intact. Conclusions: The Tribunal concluded that the Benami Act proceedings and attachment could validly proceed despite taxation of the amount under the Income-tax Act; the Acts operate concurrently without one annulling the other. Overall Disposition The Tribunal found no infirmity in the Adjudicating Authority's reasoning or conclusions: the PAO lawfully made under Section 24(4)(b) was properly confirmed; the Magistrate's prior order and the Income-tax assessment did not invalidate the benami determination; the material on record sufficed to satisfy the requirements of the Benami Act. The appeal was dismissed.