2026 (1) TMI 908 - AT - Benami Property

Benami nature of property disputed: insufficient proof of benami transaction; provisional attachment rightly denied u/s24(3).

Dominant issue: whether the Initiating Officer proved a benami transaction sufficient to confirm provisional attachment. The AT applied the legal standard ... Benami transaction - provisional attachment - infusion of money by the beneficial owner in the shell Companies for allotment of shares - lack of evidence - burden of proof - piercing the corporate veil - use of documentary evidence - identification of beneficial owner - admissibility of statements under Section 131 - HELD THAT:- The Adjudicating Authority made observation as to why the shares allotted by the respondent companies to the alleged Shell Companies could not to be attached if it was a case of benami transaction. The argument was raised by the appellant in ignorance of the finding that the Initiating Officer failed to subscribe the evidence to make out a case of benami transaction. Thus, we do not find any conflict in finding of the Adjudicating Authority. We, further, find that the appellant company has shown not only their business activity but a profit earned out of it. It was followed by the return of income-tax duly assessed. The appellant has shown their profit before tax to a sum of Rs. 3,09,78,498/- in the Financial Year 2008-09 on the paid- up capital of Rs 77.25 lakhs. The profit was shown to be more than 400% to its capital in one year alone, demonstrating its financial capacity from business operations to justify allotment of shares on the premium in pursuance to the Share Allotment Application which said to have been routed through the Shell Companies. We may accordingly refer to the facts pertaining to the alleged Shell Companies. The appellant has failed to show an independent inquiry to find out a case of benami transaction. The appellants have solely relied upon the material collected in the Income-tax proceedings. For that reason alone, the appellant could not show that alleged benami transaction was used for the benefit of beneficial owner. The facts on records, rather, show that the properties in the shape of shares of CGCL and other financial investments were acquired by the respondent companies for their own benefit and not for the benefit of the beneficial owner. The benefit was never passed on to beneficial owner and the appellants have failed to show any such arrangement to make out a case of benami transaction. Accordingly, the Adjudicating Authority did not find a case to confirm the provisional attachment order while answering the references. It is despite of the fact that burden of proof lies on the person making allegation of benami transaction which in that case is the Initiating officer. We do not find any error in the findings recorded by the adjudicating Authority for the aforesaid. Section 24 of the Act of 1988 is to be invoked to continue the PAO passed under Section 24(3) of the Act of 1988 or if no such order has been passed then to pass an order for provisional attachment under Section 24(4) of the Act of 1999 which in the present case was not applicable in the light of the availability of the order under Section 24(3) of the Act of 1988. The addition of the properties for provisional attachment was caused and has been taken to be illegal by the Adjudicating Authority. It has been highlighted by the respondent in their arguments. We accordingly accept the arguments raised by the Ld. Counsel for the respondent touching the merits of the case supported by the judgments to endorse the order passed by the Adjudicating Authority denying the confirmation of the Provisional Attachment Order finding lack of evidence to prove a case of benami transaction. Thus, we do not find any reason to cause interference in the impugned order. The confirmation of the provisional attachment of different properties in the hands of the four respondents has been rightly denied and accordingly this order would cover the cases of four respondent companies. Appeals are accordingly dismissed. Issues: (i) Whether the Adjudicating Authority erred in refusing to confirm the Provisional Attachment Order (PAO) for lack of evidence that the beneficial owner infused consideration through shell/accommodation entities so as to make the properties benami; (ii) Whether initiation invoking both Section 2(9)(A) and Section 2(9)(D) of the Prohibition of Benami Property Transactions Act, 1988 rendered the proceedings unsustainable where the beneficial owner was identified; (iii) Whether provisional attachment of properties other than those specified in the show cause notice (and beyond Section 24(3) PAO) was validly made under Section 24(4) of the Act.Issue (i): Whether the evidence on record sufficed to establish that the respondent companies held the attached properties as benami property of the alleged beneficial owner.Analysis: The issue was examined by reference to receipt and utilisation of share application money, audited returns, past income-tax assessments and orders, the presence or absence of independent inquiries by the Initiating Officer, and reliance on statements recorded under Section 131 of the Income-tax Act. The Adjudicating Authority found no material tracing infusion of cash by the alleged beneficial owner through the alleged shell/accommodation entities into the respondent companies, noted substantial documentary evidence of the respondent companies' business activity and profits, and observed that the department relied on third-party statements without independent corroboration.Conclusion: The Adjudicating Authority correctly concluded that the Department failed to discharge the burden of proof to show that the attached properties were benami; the PAO confirmation was rightly denied. This conclusion is against the appellant.Issue (ii): Whether invoking both Section 2(9)(A) and Section 2(9)(D) in the notice was tenable when the beneficial owner was identified.Analysis: The question turns on the statutory definitions: Section 2(9)(A) applies where a beneficial owner is known and identifiable, whereas Section 2(9)(D) contemplates a situation where source/beneficial owner is not traceable. The Adjudicating Authority found inconsistency in treating the matter simultaneously under both provisions and recorded that Section 2(9)(D) was not tenable in circumstances where the beneficial owner was named and served.Conclusion: Invocation of both provisions was not tenable in the facts of these cases; the Adjudicating Authority's finding on this point favours the respondents.Issue (iii): Whether provisional attachment of properties not specified in the show cause notice and purportedly attached under Section 24(4) was valid.Analysis: The issue requires examining the scope of Section 24(3) PAO and the circumstances in which Section 24(4) may be invoked. The Adjudicating Authority held that attachment of additional properties for the first time under Section 24(4) without prior specification in the show cause notice and without following the procedural prerequisites was impermissible; reliance was placed on settled principles that the Department cannot deviate from the case made in the show cause notice.Conclusion: Attachment of properties beyond those identified in the show cause notice was invalid; the Adjudicating Authority correctly set aside such attachments in favour of the respondents.Final Conclusion: On the merits and procedure, the Adjudicating Authority's determinations that the Department failed to prove benami transactions, that concurrent invocation of Sections 2(9)(A) and 2(9)(D) was untenable where the beneficial owner was identified, and that certain additional attachments were invalid are upheld; the appeals by the Department do not succeed.Ratio Decidendi: Confirmation of a provisional attachment under the PBPTA requires independent, cogent and traceable evidence showing that the consideration for the property was provided by the alleged beneficial owner and routed through intermediary entities; absent such proof and in the absence of an appropriate independent inquiry, a PAO cannot be confirmed and attachments beyond those specified in the statutory notice are invalid.