2025 (12) TMI 1146 - AT - Money Laundering

Unexplained large cash deposits and disputed source of funds led to provisional attachment being upheld; natural justice challenge rejected

Whether the provisional attachment under the PMLA was vitiated for non-application of mind and breach of natural justice turned on whether the appellant ... Money Laundering - provisional attachment order - challenge to Impugned Order on the ground that it is bad in law and has been passed without application for mind since the Appellant has explained the deposit of cash in his bank accounts - principles of natural justice - HELD THAT:- There is no cogent explanation from the Appellant as to the necessity for the signature of various persons on the deposits slip for cash. Moreover, it is not explained that why so much of cash was allowed to remain at his house even though the same was received in February, 2016, for almost over two months, before the same were deposited in tranches within a week. The Appellant has also as part of the Appeal submitted a hand written list of persons with the mention of the amounts against each such person with their address shown as the village of the place to which they belong. The details of the address and the identification are missing. The Appellant has also taken plea that part of the cash deposits were made by his father and grandfather, for which he has enclosed the affidavit of his grandfather. However, the affidavit is bereft of corroborative evidence as to the sources of funds. None of the statement and explanation given by the Appellant has been corroborated by evidence. The investigation under PMLA revealed that for the Assessment Year 2017-18 the total income declared by the Appellant Shri Gajendra Narayan in his ITRs was Rs. 6,88,869/- out of which Rs. 2,54,848/- had been invested. It is an admitted fact that cash deposits of Rs. 11.38 lakhs were made in his bank accounts. The statements of the Appellant in his pleading that the Income Tax Act does not require mandatory mention of the said deposits in his ITRs as his annual income was less than Rs. 50,00,000/- and the cash gifts in marriage being not taxable, do not have any bearing on the issue involved in this matter. The main question relates to the origin and the sources of the funds in his bank accounts. The fact that these funds by and large arose from cash deposits which do not match the earning capacity of the Appellant leads us to the questions that whether the sources of such deposits have been disclosed and explained. However, no such disclosure and explanation have been provided other than assertions without any corroboration. It is also observed that there is a clear finding in the Impugned Order that the assets attached of the Appellant Shri Gajendra Narayan are involved in money laundering. Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the Appellant satisfactorily explained the source and origin of the admitted cash deposits made in his bank accounts, so as to rebut the finding that the attached amounts were proceeds of crime and involved in money-laundering. (ii) Whether the Adjudicating Authority's confirmation of attachment suffered from 'non-application of mind' or erroneous presumptions, including alleged double counting/'artificial inflation' of proceeds of crime, warranting interference. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Sufficiency and credibility of explanation for cash deposits vis-à-vis finding of proceeds of crime / money-laundering involvement Legal framework (as discussed by the Tribunal): The Tribunal treated the determinative inquiry as the origin and sources of funds underlying the attached amounts, and assessed whether the Appellant's explanation was supported by corroborative evidence adequate to displace the inference drawn in the impugned order that the assets were involved in money-laundering. Interpretation and reasoning: The Tribunal found it undisputed that substantial cash deposits were made in the Appellant's bank accounts between May 2016 and November 2016. As regards the deposits in the rural bank account, the Appellant attributed them largely to cash gifts received at marriage and partly to contributions from his father and grandfather. The Tribunal rejected this explanation as not credible on the recorded deposit pattern: multiple deposits of identical amounts occurred more than once on the same date (including three deposits on certain days), undermining the stated rationale of 'security' and 'distance' for depositing in tranches. The Tribunal also found no cogent explanation for different persons signing deposit slips and no convincing explanation for retaining large cash at home for over two months after the marriage before depositing it within a week. The handwritten list of alleged gift-givers was treated as deficient because identification particulars were missing. The affidavit relied upon for family contributions was found uncorroborated as to sources of funds. Overall, the Tribunal held that the Appellant's narrative remained unproved assertions. For the metropolitan bank account, the Tribunal similarly found the explanations unsubstantiated. The claimed medical-treatment cash and festival-related cash were supported only by an affidavit that did not disclose sources and contained a numerical mismatch with the bank statement entry (cash deposit amount not matching the affidavit figure). The explanation for withdrawal and next-day redeposit was held unconvincing. The Tribunal further noted that cheque transfers used for payments into this account originated from the other account where the underlying sums were themselves cash-funded, reinforcing the concern as to origin. The Tribunal also considered the Appellant's disclosed annual income and the admitted scale of cash deposits and held that the deposits did not match his earning capacity, and that the explanations offered amounted to ex-post rationalisation without corroboration. The Tribunal further treated the timing-an 'upsurge' in cash deposits after marriage-as a relevant circumstance, noting the Appellant's proximity after marriage to a person facing serious allegations in scheduled offences and the investigation's revelation that assets were acquired in the names of close relations. On this basis, the Tribunal accepted the impugned order's conclusion that the attached assets were involved in money-laundering. Conclusions: The Tribunal concluded that the Appellant failed to provide a credible, evidence-backed explanation for the source of the cash deposits and related funds. In the absence of corroboration, the Tribunal upheld the finding that the attached assets were involved in money-laundering and treated as proceeds of crime for purposes of attachment confirmation. Issue (ii): Alleged non-application of mind; relevance of income-tax assertions; and allegation of double counting/inflation Legal framework (as discussed by the Tribunal): The Tribunal confined relevance to whether the Appellant could explain the origin and source of the funds. Arguments based on income-tax treatment were assessed only to the extent they bore upon that core inquiry. Interpretation and reasoning: The Tribunal held that the Appellant's contentions about income-tax non-taxability of marriage gifts and lack of mandatory disclosure in returns did not bear on the decisive issue, which was the actual source and provenance of the funds. The Tribunal also addressed the 'artificial inflation/double counting' argument and, on examining the impugned order, found no double counting: the order attributed only the amount transferred from the rural bank account as proceeds of crime, while a different figure was referenced in connection with the other bank account context. The Tribunal therefore rejected the claim that the attachment value was inflated by duplication. Conclusions: The Tribunal found no merit in the challenge alleging non-application of mind or erroneous presumption warranting interference. The income-tax-based arguments were held irrelevant to the core source-of-funds inquiry, and the allegation of double counting/inflation was rejected on the record. The appeal was dismissed and the attachment confirmation sustained.