2025 (12) TMI 1686 - AT - Benami Property

Demonetization cash deposits and RTGS transfers alleged as benami property; s.24(1) 'reasons to believe' upheld, appeal dismissed.

The dominant issue was whether the provisional attachment and s.24(1) show-cause notice were invalid for want of prior recording and disclosure of ... Benami transactions - Provisional attachment - conversion of demonetized money - survey conducted u/s 133A - Cash received from different middlemen/beneficiaries and after depositing, transferred through RTGS to the beneficiaries - requirement of recording 'reasons to believe' - ignorance of the notice to show cause under section 24(1) - HELD THAT:- The allegation is that the “reasons to believe” has to be recorded prior to the issuance of the notice, as only after recording “reasons to believe” a notice can be issued. We find that the reasons were recorded in writing and therefore they were incorporated in the show cause notice. There is no mandate to send a separate copy of reasons to believe. The reasons to believe have been disclosed in the show cause notice which shows that required exercise was undertaken and for that the IO had carefully analyzed the statement recorded apart from the bank statements. It is after analyzing the aforesaid, the show cause notice was issued. Thus, it cannot be said that reasons to believe were not recorded by the IO and was conveyed to the appellant even though there is no mandate for it under section 24(1) of the Act. The receipt of the money in the bank account of the appellant was again a clinching evidence to show a case of benami transaction, particularly when it was the time of demonetization of money and therefore it was not accepted in general as a valid tender after the expiry of the period and thereby to circulate the money, appellant along with Angadia and the benamidar got involved in benami transaction. The justification for receipt has been given by the appellant out of the earth-filling work but failed to substantiate the fact aforesaid and thereby the appellant could not support the receipt in its bank account. Thus, we do not find any merit in the case so as to cause interference in the impugned order. Appeal, accordingly fails and is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Initiating Officer complied with the requirement of recording 'reasons to believe' in writing before issuance of notice under section 24(1), and whether non-supply of a separate copy of such reasons vitiated the proceedings. 2. Whether the notice under section 24(1), provisional attachment, and reference were invalid for lack of independent application of mind by the Initiating Officer, on the allegation that action was based only on 'borrowed' information from the Income Tax Department. 3. Whether the appellant satisfactorily proved a legitimate source for the receipt of Rs. 50 lakhs (claimed as consideration for earth-filling work) so as to negate the finding of a benami transaction and invalidate the attachment/confirmation. 4. Whether absence of proof of the appellant's linkage with the cash depositor/intermediary and the cash deposit into the benamidar's account undermined the finding that the Rs. 50 lakhs transfer to the appellant was part of a benami transaction warranting confirmation of attachment. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Recording and disclosure of 'reasons to believe' under section 24(1) Legal framework: The Tribunal considered section 24(1) as requiring the Initiating Officer to have 'reason to believe' on the basis of material in possession and to record such reasons in writing before issuing notice. Interpretation and reasoning: On examination of the record, the Tribunal found that the show cause notice itself contained the 'reasons to believe' and that these reasons were framed prior to issuance of the notice and then incorporated into it. The Tribunal rejected the contention that reasons had not been recorded, holding that the notice evidenced prior recording and disclosure. It further held that there was no mandate to supply a separate copy of reasons to believe; disclosure within the show cause notice was sufficient, and the Court/Tribunal could not add requirements by rewriting the provision. Conclusion: The statutory requirement of recording reasons in writing was complied with; the proceedings were not vitiated on the ground of non-recording or non-supply of a separate reasons document. Issue 2: Independent satisfaction/application of mind by the Initiating Officer Legal framework: The Tribunal evaluated whether initiation of action was the product of the Initiating Officer's analysis of available material, rather than mere reliance on another agency's report. Interpretation and reasoning: The Tribunal relied on the contents of the show cause notice, which stated that the Initiating Officer had gone through the material available, carefully analyzed sworn statements and bank account statements, and formed reasons to believe that the relevant transaction was benami. The Tribunal treated these recorded reasons and the stated analysis as demonstrating application of mind. Accordingly, it rejected the allegation that the notice and attachment were based solely on 'borrowed' information. Conclusion: The Tribunal held that the Initiating Officer exercised independent satisfaction based on analysis of statements and banking material; initiation and attachment were not invalid on this ground. Issues 3 & 4 (Grouped): Legitimacy of Rs. 50 lakhs receipt and sufficiency of linkage supporting benami finding Interpretation and reasoning: The Tribunal considered the appellant's explanation that Rs. 50 lakhs received by RTGS represented consideration for earth-filling work. It found the assertion unsubstantiated: no contract or supporting documents were produced; the appellant did not disclose the counterparty for whom work was allegedly performed; and no adequate reason was given for why payment would come from the concerned account. The Tribunal also addressed the contention that there was no evidence linking the appellant to the cash deposit/intermediary. It held that the material (including statements relied upon by the authorities) supported that the amount was routed/rotated through an intermediary as an instrument to facilitate deposit into the benamidar's account and subsequent transfer to the appellant. The Tribunal treated it as unusual that the appellant received a large amount yet claimed ignorance of its source and made no inquiry, and it viewed the receipt during the demonetization period as reinforcing the inference of routing demonetized cash through banking channels. The appellant's failure to substantiate a legitimate source was considered 'clinching' against it. Conclusion: The Tribunal held that the appellant failed to prove a bona fide business source for the Rs. 50 lakhs and that the evidentiary material sufficiently supported the finding that the transfer formed part of a benami transaction; therefore, there was no ground to interfere with confirmation of attachment.