2025 (10) TMI 560 - AT - Benami Property

Benami finding upheld: cash in nominee's account treated as benami property; fiduciary exception under Section 2(9)(A)(ii) inapplicable

Mahendra C. Jain & Anr. Versus The Initiating Officer, DCIT, BPU, Mumbai

The AT dismissed the appeal, holding that cash deposited in the alleged benamidar's account constituted benami property under the PBPT Act and was not ... Benami transaction - cash deposited in the bank account of the beneficiary company - effect of demonetization to flush out black money by showing unexplained cash in old currency to be legitimate business receipts - search and survey proceedings under section 132/133A of the Income Tax Act - existence of a fiduciary relationship between the alleged Benamidar and the alleged Beneficial Owner - Cash as 'Property' under PBPT Act - definition of property as provided under Section 2(26) of the PBPT Act, 1988 - HELD THAT:- It is claimed by the appellants that the cash was handed over to Sh. M.C. Jain by M/s BGJPL in order to capture the business opportunity on account of huge demand of gold ornaments in the festive and marriage season in the last week of October/first week of November, 2016 and the cash was out of the duly accounted sale proceeds of the company. The respondent Department, however, has held that in view of demonetization of old currency notes of denominations of Rs. 1000/- and Rs. 500/-, Sh. M.C. Jain had allowed his bank account to be used to deposit old notes of these denominations belonging BGJPL and the sum so deposited was later transferred to account of BGJPL. The argument of the ld. Counsel of the respondent that M/s BGJPL itself being in the jewellery business, what expertise was Shri M.C Jain expected to bring in purchasing gold on their behalf, is also not without merit. In light of all these facts, we have no hesitation in coming to the conclusion that the true version of the facts was what had originally been stated by Shri M.C Jain in his statement, namely, that the entire exercise was intended to defeat the effect of demonetization to flush out black money by showing unexplained cash in old currency to be legitimate business receipts. The differing versions of facts claimed before the ITAT and this Appellate Tribunal gives credence to the submission of the Ld. Counsel for the respondent that the appellant is blowing hot and cold. Thirdly, it is evident that as per the appellant’s own submission before the ITAT, the amount of Rs. 92,00,000/- had previously not been declared and was only declared after the search operation conducted by the I-T Department. Considering all these facts, we see absolutely no merit in the claim that the ITAT has given any finding in the appellant’s favour as regards the cash of Rs. 92,00,000/-. On the contrary, the order of the ITAT clearly goes against the claims made by the appellant before us. Fiduciary capacity - None of the alleged Benamidars claimed right or ownership over the cash, rather it was stated by them that it belongs to the alleged Beneficial Owners. In the statement of alleged Beneficial Owners, they also did not disown the cash, rather it was stated by them cash belonged to them and was kept in the safe custody of their employees. In that case, the appellants’ claim of exception from the definition of benami property on account of existence of a fiduciary relationship between the alleged Benamidar and the alleged Beneficial Owner was upheld while at the same time, holding that fiduciary capacity cannot be used as an exception in all the circumstances which may include transfer of property for or is held for illegal purpose. The appellant is not an employee of M/s BGJPL but is admittedly running an independent jewellery business of his own. Secondly, the transaction occurred during the demonetization period which offers a much simpler explanation for the same, which was also duly admitted by Shri M.C Jain in his statement on oath. The fake invoice discussed in the preceding paragraphs also reveals the mental state and the deliberate intention of the appellants to cook-up facts with an ulterior motive. Cash as 'Property' under PBPT Act - We are also wholly in agreement with the submission of the Ld. Counsel for the respondent that cash is squarely covered in the definition of property as provided under Section 2(26) of the PBPT Act, 1988 wherein the word has been defined in widest terms to include assets of every kind, movable and immovable, tangible or intangible, corporeal or non-corporeal. Thus cash, being a highly valuable and highly liquid asset which finds ready and universal acceptability within the country, and is even convertible into currencies of other countries, clearly falls within the definition of property as provided under the Act and can be the subject matter of a Benami Transaction. A transaction could be benami if it is either “transferred to” or “held by” a person and the other conditions specified in the section are also met. In the present case an amount of Rs. 92,00,000/- in cash was “transferred to” Shri M.C Jain in cash and it was “held by” him in his account, even though only for a short period, before it was transferred to M/s BGJPL by RTGS. It is also not denied, rather it is expressly admitted, that the property was transferred to and held by Sh. M.C. Jain for the benefit of M/s BGJPL which was, therefore, the ‘beneficial owner’ of the property within the meaning of the Act. Accordingly, all the attributes required to constitute the deposit a benami property were clearly present. We have already held that the property was not held by Shri M.C Jain in the fiduciary capacity, and therefore, the exception under section 2(9)(A)(ii) is not attracted. We find no merit in the instant appeal and therefore, dismiss the same. ISSUES PRESENTED AND CONSIDERED 1. Whether an amount of currency deposited in a bank account and thereafter transferred by RTGS constitutes 'property' capable of being the subject-matter of a benami transaction under the PBPT Act, 1988 (as amended 2016). 2. Whether a bipartite transaction (beneficial owner handing over cash directly to an alleged benamidar who deposits and returns it) falls within the scope of 'benami transaction' under section 2(9)(A) of the PBPT Act, or whether the definition is restricted to tripartite transactions. 3. Whether a deposit of cash made by a purported beneficial owner with instructions to deposit and return (during the demonetisation period) is excluded from the definition of benami transaction by reason of a fiduciary relationship or by operation of section 2(9)(A)(ii). 4. Whether statements recorded under section 131 of the Income-tax Act and subsidiary documentary evidence (invoice) can be relied upon to sustain a finding of a benami transaction and to justify provisional attachment under section 24(3)/(4) of the PBPT Act. 5. Whether the setting aside/remand of an income-tax assessment order by the ITAT undermines or negatived the findings/evidence relied upon by the Initiating Officer and Adjudicating Authority under the PBPT Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Cash as 'Property' under PBPT Act Legal framework: Section 2(26) defines 'property' in expansive terms to include movable assets; the PBPT Act contemplates property of every kind as capable of being benami. Precedent treatment: The Court refers to authoritative interpretation in the context of the 2016 amendment which treats cash within the wide ambit of property under the Act. Interpretation and reasoning: Cash is a highly valuable and liquid asset, universally acceptable and convertible; therefore, currency notes fall within the statutory definition of property. The currency transfer and bank deposit are treated as transfer/holding of property for purposes of the Act. Ratio vs. Obiter: Ratio - cash can be subject-matter of benami transaction under the PBPT Act. Conclusion: Cash deposited and transferred in bank accounts may constitute 'property' capable of being benami property. Issue 2 - Bipartite Transactions within Section 2(9)(A) Legal framework: Section 2(9)(A) describes a benami transaction where a property is transferred to/held by one person and consideration provided by another, and the property is held for the immediate or future benefit of the person providing consideration. Precedent treatment: Consideration of the Supreme Court's analysis of the 2016 amendment shows explicit expansion from only tripartite to include bipartite transactions; earlier narrower constructions are distinguishable on amendments. Interpretation and reasoning: The statutory text contemplates both scenarios by using language 'transferred to, or is held by' a person and by including instances where property is transferred and held even for a short period. Here, the cash was transferred to and held by the alleged benamidar (in his account) for the benefit of the person who provided it, satisfying the twin conditions of section 2(9)(A). Ratio vs. Obiter: Ratio - post-amendment, bipartite transactions can fall within the definition of benami transaction; the present facts satisfy the statutory conditions. Conclusion: The PBPT Act covers bipartite transactions; the placed facts meet the statutory requirements for a benami transaction. Issue 3 - Fiduciary Relationship Exception (Section 2(9)(A)(ii)) Legal framework: Section 2(9)(A)(ii) excludes certain relationships (e.g., trustee, agent, fiduciary) where property is held on account of such bona fide relationships from being benami. Precedent treatment: Tribunal decisions accepting fiduciary exceptions are fact-specific and not binding if facts differ materially; fiduciary claims cannot be invoked where the nature of the relationship and conduct are inconsistent with a bona fide fiduciary role. Interpretation and reasoning: The Court examined factual matrix: the alleged benamidar ran an independent business, the timing amid demonetisation, lack of contemporaneous record of handing over cash prior to demonetisation, inconsistent accounts of purpose, and existence of a suspect invoice. These factors undermined the claim of a bona fide fiduciary transfer. The arrangement was not established as a genuine agency/ fiduciary relationship but as a short-term holding to integrate demonetised notes into banking channels for the benefit of the provider. Ratio vs. Obiter: Ratio - fiduciary exception not attracted on these facts where independent business status, timing, inconsistent statements, and documentary evidence point to an ulterior motive rather than bona fide fiduciary holding. Conclusion: Section 2(9)(A)(ii) exception does not apply; the cash was not held in a bona fide fiduciary capacity. Issue 4 - Reliance on Statements under Section 131 and Documentary Evidence (Invoice) to Sustain Benami Finding and Provisional Attachment Legal framework: Statements recorded under oath and contemporaneous documentary evidence can constitute admissible material forming basis for administrative action (provisional attachment under sections 24(3)/(4)); the PBPT Act permits provisional measures on satisfaction of the Initiating Officer. Precedent treatment: Statements made under oath and corroborated by independent statements/documentary evidence are of high evidentiary value; courts will require formal retraction with cogent reasons before discarding such statements as being under duress. Interpretation and reasoning: The alleged benamidar's sworn statement admitted receipt, deposit and transfer back with instructions. That statement was corroborated by a sworn statement of a director of the provider. The appellants' later inconsistent explanations (vague dates, shifting rationales) and admission that the invoice was a scrap document undermined their defence. The Court held that a bare allegation of duress without formal retraction or cogent explanation does not nullify sworn admissions. The invoice suggesting simulated sale reinforced an intention to conceal source/character of funds. Ratio vs. Obiter: Ratio - sworn statements and corroborative documentary evidence support the finding of benami transaction and justify provisional attachment; mere later inconsistency or ITAT remand does not automatically negate such evidence. Conclusion: The Initiating Officer and Adjudicating Authority were justified in relying on statements and documentary material to confirm provisional attachment. Issue 5 - Effect of ITAT Setting Aside/Remand of Income-Tax Assessment on PBPT Proceedings Legal framework: Findings and orders under the Income-tax Act, including remand/setting-aside by appellate authorities, are not determinative of independent statutory proceedings under PBPT; differing statutory schemes govern separate remedies. Precedent treatment: Remand by tax appellate forum to examine factual claims does not amount to an affirmance of the assessee's defence; it is a direction for further inquiry and does not preclude action under other statutes when independent evidence supports such action. Interpretation and reasoning: The ITAT remitted the tax issue for factual verification and did not accept the appellants' version as a conclusive finding in their favour. The Court noted inconsistent positions taken before different fora and treated the ITAT order as not contravening the evidence relied upon in PBPT proceedings. The PBPT proceedings stand on their own facts and statutory criteria for benami and attachment. Ratio vs. Obiter: Ratio - an appellate tax order remitting or setting aside assessments does not nullify independent findings under the PBPT Act where the PBPT record contains admissible, corroborated admissions and documentary material. Conclusion: The ITAT order did not vitiate the Initiating Officer's or Adjudicating Authority's findings; it did not preclude confirmation of provisional attachment under the PBPT Act. Final Conclusion On the facts - sworn admissions, corroborative director's statement, suspicious invoice, timing during demonetisation, inconsistent later explanations, and statutory construction - the attributes necessary for a benami transaction under section 2(9)(A) (transfer/holding by one person, consideration provided by another, held for benefit of person providing consideration) are satisfied. The fiduciary exception is not attracted. Cash is within the definition of property. Reliance on sworn statements and documentary material to confirm provisional attachment was permissible. Accordingly, the appeal is without merit and the confirmation of provisional attachment is sustained.