2025 (11) TMI 977 - AT - Benami Property

Order upheld as timely; properties declared benami under s.2(9)(A) and retrospective s.23 approval affirmed; appeals dismissed

Smt. Indu Srivastava and Shri Keshav Lal Versus The Initiating Officer, Kanpur

The AT upheld the impugned order as timely and within statutory limits and rejected appellants' procedural objections, finding retrospective approval ... Validity of order passed beyond the statutory time limit u/s 26(7) - Compliance of the ingredients of section 2(9) of the PBPT Act, 1988 - Requirement of prior approval under Section 23 - search & seizure operation - syndicate working in the transportation of the goods purchased or sold without paying VAT or any other statutory tax liability on the sale - syndicate bribed BO a fixed amount of money in cash, on regular basis, for protection of their illegal activities - huge cash in old denomination, which was accumulated through illegal sources, was exchanged by BO with newly issued currency through illegal channels - HELD THAT:- According to the Section 24(7) of the said Act “no order under 26(3) shall be passed after the expiry of one year from the end of the month in which the reference under sub-section 5 of section 24 was received. In the present case, it is seen that the reference was filed on 11.04.2018, so the end of that month was 30.04.2018. The one-year period is to be counted from 30.04.2018 which ends on 30.04.2019. The impugned order has been passed on 23.04.2019. This goes to show that the impugned order was passed within the stipulated period. There is nothing on record to show that the Ld. AA had pronounced in any place other than the open court. Therefore, this issue is against the Appellants and hence rejected. In the present case, we find that the Appellants failed to provide a satisfactory explanation to show cause as to why the property should not be considered as benami. Appellant Smt. Indu Srivastava has not furnished any cogent or substantive evidence to demonstrate that the properties in question should not to be treated as benami. Though Smt. Indu Srivastava has claimed ownership of the properties in question, she has failed to provide any plausible explanation or supporting material to substantiate her claim. On perusal of the material, it is apparent that there is lack of credible evidence to substantiate the fund to acquire the said benami properties. The Appellants failed to establish any legitimate means through which the said properties were acquired. Appellants have submitted that the funds came from identifiable and declared sources such as gifts from relatives, commission from business concerns, and the Appellant’s own income. - The documents relied upon by the Appellant to prove the ownership of the property does not prove the source of the income that was used for the obtaining the benami property. The Appellants have also claimed that the IO did not have approval under Section 23, which mandates prior approval, before initiating investigation and issuing notices. However, the Respondent appropriately invoked explanation to Section 23 (inserted by Act 23 of 2019 with retrospective effect) which allows for retrospective approvals where the authority otherwise had jurisdiction. Therefore, this issue is decided against the Appellants. It was also mentioned that the said properties were found to have been purchased and constructed out of unaccounted and illegal income of Shri Keshav Lal - In the present case, in absence of any reliable evidence placed by the Appellants, the consideration has not flown from any lawful or disclosed income of Shri Keshav Lal. The materials gathered during the investigation, including the seizure of unexplained cash and disproportionate assets, conclusively establish that the funds have not originated from any independent, legitimate, and verifiable source of income. Hence, the statutory exception under clause (iii) stands inapplicable. It is evident that the property in Sector-100, Noida, though registered in the name of Smt. Indu Srivastava, was purchased out of the undisclosed and unaccounted income of her husband, Shri Keshav Lal. The alleged Benamidar, Smt. Indu Srivastava, has failed to demonstrate any legitimate source of income commensurate with the value of the said property or the other assets seized during investigation. Her income-tax returns reveal an aggregate income of approximately ₹50 lakhs, which is grossly disproportionate to the value of the assets found in her name, including cash exceeding ₹10 crores and jewellery worth over ₹3 crores. Section 2(9)(A) of the PBPT Act clearly envisages a situation where property is held by one person for the immediate or future benefit, direct or indirect, of another person providing the consideration. The relationship of husband and wife, by its very nature, involves a certain degree of trust and informal arrangement. The alleged BO is the husband of the BD and by extension any property in the name of Shri. Indu Srivastava would also be for the benefit of her husband, Shri Kehsav Lal, the alleged BO. Therefore, even though there is no direct evidence of transfer of consideration, in the backdrop the overwhelming circumstantial evidence, it can be inferred that the properties were acquired from the consideration provided by the BO for his immediate or future benefit. Accordingly, it is established that Smt. Indu Srivastava merely acted as a name-lender with reference to property at serial no. (i), (ii) and (iii) (supra) and the name of Shri Ravindra Kumar was used to conceal the true ownership of the property at serial no. (iv) (supra), while the real ownership and beneficial interest vested with Shri Keshav Lal. The properties in question, therefore, falls within the ambit of Section 2(9)(A) of the PBPT Act, 1988, and the exception relied upon by the Appellants is inapplicable in the absence of proof of known and legitimate sources of income. In the light of the above discussion, we dismiss the present Appeals. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority's order under Section 26(3) of the PBPT Act was time-barred under Section 26(7). 2. Whether the Amending provisions of the PBPT Act, 2016 (w.e.f. 01.11.2016) and the omission of erstwhile Section 3(2) apply to the immovable property in question. 3. Whether the Show Cause Notice under Section 24(1) and associated proceedings were vitiated for want of prior approval under Section 23 (and effect of explanation to Section 23 inserted retrospectively). 4. Whether the material before the Initiating Officer constituted 'reason to believe' and supported issuance of the Show Cause Notice under Section 24(1). 5. Whether the properties (immovable property, jewellery and cash) satisfy the statutory definition of 'benami transaction' under Section 2(9) (specifically clause (A) and alternatively clause (D)), or fall within exceptions such as Section 2(9)(A)(ii)/(iii). 6. Whether cash found/seized under search proceedings (Income Tax Act) can constitute 'property' for attachment under the PBPT Act and whether such cash, deposited in PD account under Section 132B IT Act, is immune from attachment under PBPT Act. 7. Whether the Tribunal/Adjudicating Authority erred in treating circumstantial evidence, ITRs, explanations and documentary support (kuchha bills, unverified MOA, unproduced third parties) as insufficient to rebut the inference of benami transaction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Time-bar under Section 26(7) Legal framework: Section 24(5) reference triggers adjudication and Section 26(7) prescribes that no order under Section 26(3) shall be passed after expiry of one year from the end of the month in which the reference was received. Interpretation and reasoning: The reference was filed on 11.04.2018; the one-year period is counted from 30.04.2018 and therefore expired on 30.04.2019. The Adjudicating Authority's order dated 23.04.2019 was within that period. Ratio vs. Obiter: Ratio - the statutory one-year period is computed from end of month of receipt of reference. Conclusion: Time-bar challenge is rejected; order was passed within statutory period. Issue 2 - Applicability of PBPT Amendment, 2016 and omission of Section 3(2) Legal framework: Amendment w.e.f. 01.11.2016 omitted Section 3(2); relevant date of purchase determines applicability. Interpretation and reasoning: The contested immovable property was purchased/registered in 2017; therefore amended Act applies and the erstwhile Section 3(2) is not available to the appellants. Reliance on earlier decisions holding amendment prospective is inapposite where purchase post-amendment and earlier authority has been recalled. Conclusion: Amendment applies; contention based on pre-amendment protection fails. Issue 3 - Requirement of prior approval under Section 23 Legal framework: Section 23 requires prior approval for inquiry/investigation; later explanation to Section 23 and retrospective effect considered. Interpretation and reasoning: Explanation to Section 23 (as inserted) permits retrospective validation where authority otherwise had jurisdiction; material before IO furnished reasonable belief and retrospective validation applies. Ratio vs. Obiter: Ratio - absence of prior approval does not invalidate proceedings where explanation/retrospective provision validates the action and jurisdiction existed. Conclusion: Procedural objection on Section 23 fails. Issue 4 - Sufficiency of material to form 'reason to believe' for issuing SCN under Section 24(1) Legal framework: Section 24(1) permits issuance of SCN if IO has reason to believe, recorded in writing; evidence must be examined in proceedings. Interpretation and reasoning: Material included search/seizure recoveries (cash, jewellery), investigations indicating unaccounted income, abnormal asset-income disproportion, unsubstantiated explanations and absence of corroborative third-party testimony. Multiple opportunities to explain were afforded but explanations were not supported by credible/verified documents. Ratio vs. Obiter: Ratio - credible record of disproportionate assets and seizure can constitute material to form reason to believe and to issue SCN. Conclusion: There was adequate material to form reason to believe; issuance of SCN was valid. Issue 5 - Whether assets constitute 'benami transaction' under Section 2(9) (A) and/or (D); exceptions Legal framework: Section 2(9) defines benami transaction; clause (A) requires (i) property held by one and consideration provided by another and (ii) property held for benefit of the person providing consideration; exceptions (iii) (spouse) and (ii) (fiduciary) apply when consideration is from known sources or fiduciary relation exists. Clause (D) applies where person providing consideration is not traceable or fictitious. Precedent treatment: Principles accepting inference from circumstantial evidence, disproportionate assets and failure to explain sources to hold property benami applied (citing settled jurisprudential approach as relied upon by Tribunal). Interpretation and reasoning: Facts show immovable property, jewellery and large cash were registered/held in BD's name while consideration flowed from BO with unaccounted sources; ITRs and bank records show disproportion; explanations (gifts, MOA, commissions) lacked supporting, verifiable documentary proof and third-party confirmations. Husband-wife relationship, coupled with evidence of routing of funds and inability to trace third parties, permits inference that BD was name-lender and property held for BO's benefit. For cash where alleged BD denied ownership and person claimed to be owner was untraceable or denied, clause (D) also attracts. Exception for spouse (2(9)(A)(iii)) is inapplicable because consideration was not from known/declared sources; fiduciary exception (2(9)(A)(ii)) is inapplicable as servant-employer relationship did not amount to fiduciary trust. The requirement that benami transaction involves distinct consideration and distinct holder is satisfied even for cash because cash is 'property' under Section 2(26) and may be the subject of arrangement where consideration originates from another. Ratio vs. Obiter: Ratio - where circumstantial evidence, seizure and disproportionate assets exist and explanations are unsubstantiated, Section 2(9)(A) (and alternatively 2(9)(D)) can be satisfied; exceptions apply only if consideration is from known/declared sources or fiduciary relationship established. Conclusion: The Adjudicating Authority lawfully concluded that immovable property, jewellery and cash were benami; exceptions relied upon by appellants do not apply. Issue 6 - Whether cash seized under Income-tax search and deposited in PD account is immune from attachment under PBPT Act Legal framework: Section 132B IT Act governs treatment of seized assets for tax purposes; PBPT Act defines 'property' and provides for attachment/confiscation of benami property. Interpretation and reasoning: Section 132B regulates application of seized assets for tax liability but does not transfer ownership to Income-tax authorities or bar other statutory mechanisms. Where seized assets constitute benami property, PBPT Act may attach/confiscate irrespective of deposit in PD account; statutes operate in respective fields without inconsistency preventing PBPT action. Ratio vs. Obiter: Ratio - seizure/deposit under income-tax provisions does not preclude subsequent benami attachment/confiscation if statutory tests under PBPT are met. Conclusion: Cash deposited under Section 132B is not immune from PBPT attachment where it constitutes benami property. Issue 7 - Evaluation of evidence and role of circumstantial proof, ITRs and documentary shortcomings Legal framework: Burden to explain transactions rests on person in possession; circumstantial evidence and disproportionality are relevant; primary facts may be inferred from totality of material. Interpretation and reasoning: Appellants produced kuchha invoices, unverified letters, a sub-lease instead of sale deed, an unexecuted/unsupported MOA and no attendance of alleged third-party fund providers. ITRs reflected modest incomes inconsistent with assets. Tribunal found such material insufficient to discharge onus and rejected claims of legitimate sources. Settlement order under tax law relates to assessment and does not bind PBPT proceedings. Ratio vs. Obiter: Ratio - weak, unverified or informal documentary proofs and failure to produce third-party witnesses justify adverse inference and sustain benami finding where other material points to illicit source. Conclusion: Appellants failed to rebut inference of benami transaction; documentary shortcomings and absence of corroboration warranted confirmation of PAO. OVERALL CONCLUSION The Adjudicating Authority's findings that the immovable property, jewellery and cash constituted benami property under Section 2(9) (primarily clause (A) and alternatively clause (D)) are legally sustainable; procedural and technical objections fail. The appeals are accordingly dismissed and the attachment/confirmation under the PBPT Act is upheld.