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TaxTMI 
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2024 (1) TMI 203
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.... FPA-PBPT-1079/MUM/2020,FPA-PBPT-1080/MUM/2020 & FPA-PBPT-1085/MUM/2020 These appeals have been filed under section 46 of Prohibition of Benami Property Transactions Act, 1988 (in short, the Act of 1988). It is to challenge the order dated 11.05.2020 passed by the Adjudicating Authority on a reference. The Adjudicating Authority has confirmed the Provisional Attachment Order dated 01.04.2019. By the order of provisional attachment, demat and bank accounts of two Companies, namely M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited were attached. 2. It is stated that one of the appellants Suresh Bhageria, is a promoter and Director of M/s Bhageria Industries Limited (In short "BIL") and part of Bhageria Group of Companies. A survey was conducted under section 133 A of the Income Tax Act, 1961 on Bhageria Industries Ltd. It was alleged that there is benami purchase of shares of B.I.L. by Benamidars, M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited. 3. It was also alleged that the financials of M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited are not administered with the credential....
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....igible funds till financial year 2013-14 (ii) The directors of the two companies were inducted in 2014. (iii) Thereafter, huge funds were infused in the two companies by way of share capital on huge premium. (iv) These funds were used for investments in shares, mainly of listed companies such as BIL (v) There was no evidence of conduct of business by Prism and Futurage (vi) One of the directors of Prism - Sh. Rohit Lohiya, and one of the directors of Futurage- Sh. Murarilal Gupta - work as Managers in BIL. (vii) The contact email ID in one of the bank accounts of Prism and Futurage is "[email protected]". (viii) The Headquarters of the Bhageria Group were located in the same geographical area as a bank accounts of Prism and Futurage. 8. On a show cause notice, the appellants submitted their response. The provisional attachment order was, however, confirmed and is being challenged by these appeals. Before going further into the facts, it would be relevant to refer the only issue raised by the counsel for the appellant to challenge the order of Adjudicating Authority. It was in reference to the Judgemen....
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..... 15. A contest to the legal issue in reference to the judgement of the Apex Court was made by the learned counsel for the respondents. It was submitted that the benami transactions involved in the present case are not only of the period prior to 01.11.2016, (Date from which Amending Act 2016 was given effect) but are even of the period subsequent to it. 16. Elaborating the arguments, it was submitted that transfer of shares may be prior to the amendment by the Amending Act 2016, but they were held by the two companies M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited even subsequent to the amendment. 17. In the light of the aforesaid, they were involved in the benami transactions even subsequent to the amendment. A reference of the definition of "Benami Transaction" under section 2 (9) of the Act of Amending Act of 2016 was given and is quoted hereunder:- Section 2. Definitions.- In this Act, unless the context otherwise requires,- (9) "benami transaction" means,- (A) a transaction or an arrangement- (a) where a property is transferred to, or is held by, a person, and the consideration for such property ha....
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....ho has granted possession thereof continues to hold ownership of such property; (ii) stamp duty on such transaction or arrangement has been paid; and (iii) the contract has been registered. 18. As per the definition quoted above, the benami transaction means a transaction or an arrangement where a property is transferred to or is held by a person and the consideration of such property has been provided or paid by another person. The aforesaid definition is applicable to this case. According to the definition, "benami transaction" does not mean only transfer of property, but include even its holding by a person without payment of consideration rather it was paid or provided by another person. Since it has come on record that on the date of survey, subsequent to amendment by the Amending Act 2016 and even show cause notice, the shares were held by the appellant Companies, it would fall in the definition of "Benami Transaction" under the Amending Act of 2016. 19. The aforesaid issue was not argued by the counsel for the appellant in reference to word "held" rather they prayed for quashing of the orders in the light of the Judgement in the case of Ganpati Dealco....
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....e of the commission of the offence. 93. In the case at hand, the 2016 Act containing the criminal provisions is applicable only prospectively, as the relevant Sections of the preamendment 1988 Act containing the penal provision, have been declared as unconstitutional. Therefore, the question of construction of the 2016 Act as retroactive qua the penal provisions under Sections 3 or 53, does not arise. 96. This brings us to the last aspect as to the retroactive operation of confiscation (forfeiture) under Section 5 read with Chapter IV of the 2016 Act. It is the argument of the Union of India that civil forfeiture being in the domain of civil law is not punitive in nature. Therefore, it does not attract the prohibition contained under Article 20(1) of the Constitution. Meaning thereby, that if this Court holds that the civil forfeiture prescribed under the 2016 Act is punitive, only then will the prohibition under Article 20(1) apply. If not, then the prohibition does not apply. 98 It is well settled that the legislature has power to enact retroactive/retrospective civil legislations under the Constitution. However, Article 20(1) mandates that no law manda....
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.... confiscation of those transactions entered into between 05.09.1988 to 31.10.2016 as the same would tantamount to punitive punishment, in the absence of any other form of punishment. It is in this unique circumstance that confiscation contemplated under the period between 05.09.1988 and 31.10.2016 would characterise itself as punitive, if such confiscation is allowed retroactively. Usually, when confiscation is enforced retroactively, the logical reason for accepting such an action would be that the continuation of such a property or instrument, would be dangerous for the community to be left free in circulation. InR (on the appln of the Director of the Assets Recovery Agency) v Jia Jin He and Dan Dan Chen, [2004] EWHC Admin 3021, where Collins, J. had stated thus: "52. In Mudie, at page 1254, in the judgment of Laws LJ, who gave the only reasoned judgment, there is set out the citation from Butler which reads, so far as material, as follows: "It is the applicant's contention that the forfeiture of his money in reality represented a severe criminal sanction, handed down in the absence of the procedural guarantees afforded to him under article 6 of the Conventi....
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....n doubt that benami transaction prior to the amendment is to be governed by Judgement of the Apex Court and for it, certain provisions of the Amending Act, which includes even provision of forfeiture would not apply. It would, however, be relevant to find out whether benami transaction is of a period prior to the amendment or even subsequent to it also. 24. For the aforesaid, we need to reiterate the definition of "Benami Transaction." It not only refers in the transfer of property but also its holding and thereby, if somebody is holding the benami properties subsequent to the amendment, it would come in the sweep of "benami transaction". 25. If it is a case of transfer of property prior to the amendment in the definition of "Benami Transaction" and such property is not held by the benamidar as on the date of the amendment or subsequent to it, then the Amending Act of 2016 would not be applicable to such a transaction. 26. In other case, where though transfer of the property is prior to the Amending Act 2016, but it is still held by the benamidar even subsequent to the amendment, it would be a "benami transaction" under the Amending Act, 2016. 27. The clarity of the iss....
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....ded provision. A transaction was not an offence in the year prior to the amendment by the Act of 2016 would not be an offence as per section 2 (9) (A) and (C ) of the Amending Act. 34. We have considered the submissions made aforesaid. To analyse the issue, we have gone through the judgements referred to above. 35. If the facts of this case are taken into consideration, the transfer of shares of B.I.L in favour of Companies, M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited started after the year 2013. The fact, however, remains that those shares are still held by the appellant Companies and it was not only on the date of amendment by the Amending Act of 2016 but even at the time of survey by the Income Tax Department for the year 2018.-19. 36. The appellants were holding the shares on the date of initiation of action and it could not be disputed by the appellants. The perusal of the definition of "Benami Transaction" not only makes a reference of transfer of property to fall in the definition of "Benami Transaction" but even its holding section 2 (9) (A) of Amending Act, 2016 has two parts to consider a transaction to fall within the purview....
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....g of Section 2 (9) (A) read with Section 2 (9) (C) of the 1988 Act as amended by the Amendment Act of 2016, we may once again analyze the said provisions. 69.1 Admittedly, these two provisions were not in the statute either on the date when the 1988 Act was enacted or when the transaction took place on 14.12.2011. It has been brought into the statute book vide the Amendment Act of 2016. Question for consideration is whether the aforesaid definitions can be applied to the above transaction which took place on 14.12.2011? 70. As per Section 2 (9) (A), a benami transaction would mean a transaction or an arrangement - (a) where a property is transferred to or is held by a person and the consideration for such property has been provided or paid by another person; and (b) the property is held for the immediate or future benefit, direct or indirect of the person who has provided the consideration barring the four exceptions carved out with which we may not be concerned. 71. Thus, as per Section 2 (9) (A), there must be a transaction or an arrangement; as per such transaction or arrangement, a property is transferred to or is held by a person; the consideration f....
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....g contained in Sub- Section (2) which provides for a stiffer penalty of rigorous imprisonment for a term which shall not be less than one year but which may extend to seven years and shall also be liable to fine which may extend to twenty five percent of the fair market value of the property. We may, even at the cost of repetition, mention that it is not the case of the respondents that the transaction in question is a benami transaction within the meaning of Section 2 (a) of the unamended 1988 Act. If it is a benami transaction under Section 2 (a) of the unamended 1988 Act, then it would attract the lesser penalty under Section 3(2). But if it is a benami transaction under Sections 2 (9) (A) and 2 (9) (C) of the 1988 Act as amended by the Amendment Act of 2016, then it will attract the stiffer penalty under Section 3 (3). 93. From the conspectus of the discussions made above, it is apparent that Section 2 (9) (A) and Section 2 (9) (C) are substantive provisions creating the offence of benami transaction. These two provisions are significantly and substantially wider than the definition of benami transaction under Section 2 (a) of the unamended 1988 Act. Therefore, Section....
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....as paid or provided by a person prior to 01.11.2016 and such a property is not held by the person on date or subsequent to the amendment then such a Benami Transaction would not be affected by the Amending Act 2016. 44. However, if transfer of property took place prior to 01.10.2016 and property is "held" by the person even subsequent to the date aforesaid who has not paid the consideration, rather it was paid or provided by another person, then irrespective of the date of transfer of the property, its holding would be a "Benami Transaction". 45. We cannot ignore the word, "held" for giving proper interpretation of the definition of "Benami Transaction". Accordingly, while we rely upon the Judgement of Hon'ble Apex Court in the case of Ganpati Dealcom Private Limited (Supra) but with clarity that if a person holds the property even after the amendment then even if transfer was prior to 01.11.2016, such a transaction would be a Benami Transaction under the Amending Act of 2016 and it would apply to such a transaction. 46. In the case of Nexus Feeds Limited & Others, the Division Bench of Telangana High Court has recorded admission of the respondents about the Benami Transac....
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....sferee as on the date of the amendment, then the amended provision would not apply but after transfer of the property prior to the amendment if it is held by the Benamidar as on the date of the amendment or subsequent thereto, it would fall within the definition of "Benami Transaction" and registration of case for that would not be considered to be a continuous offence but becoming an offence in reference to the amended definition of "Benami Transaction". Accordingly, the judgement in the case of Suresh Seth (Supra) would not apply to the case. 51. The first issue is accordingly decided against the appellant and in the favour of the respondents because property was "held" even after the amendment by the Amending Act of 2016. 52. The learned counsel for the appellant has filed written arguments wherein issues have been raised even in reference to the facts of this case. The learned counsel submitted that no evidence was brought by the respondents to show any Benami Transaction in the hands of the appellant Companies and involvement of Suresh Bhageria, the other appellant. 53. It alleged that side opposite has failed to prove that the finance brought in M/s Prism Scan Expres....
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.... case, it was not followed and therefore the attachment of the bank accounts and demat suffers from illegality and accordingly the impugned order deserves to be set aside. 61. We have considered the arguments made by the appellant in reference to the facts though while making oral arguments, none of those issues were raised. However, it has been raised in the written arguments and accordingly we would be dealing with it. 62. It is submitted that a case of "Benami Transaction" could not be proved by the respondent. The findings have been recorded based on inferences. The Initiating Officer based on his own imagination found that the benamidar Companies were working at the behest of Shri Suresh Bhageria, promoter of M/s B.I.L. 63. We find that aforesaid factual aspects were considered by the Adjudicating Authority. It was found that the two appellant companies, namely, Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Pvt. Ltd. were not having any funds till 2013-14 and after the companies were acquired, funds have been infused for making investments in financial year 2014-15. The sources of funds in both companies are by way of share capital on high premium. The ....
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....s. 25,000/- per annum. 69. The another Director of the said company Tej Singh Ramola was from a very poor background. He denied knowledge about his Directorship or shareholding in the company. He was not getting any financial benefit from the company except Rs. 25,000/- cash per annum. Mr. Rajkumar Saraf was the Director of M/s Wayforward Trade Private Limited had admitted that he has no knowledge about M/s Wayforward Trade Private Limited. The statement of Ms. Manju Rajkumar Saraf, Director of Wayforward Trade Private Limited was also recorded. She was the housewife and having no income. 70. The statement of Rakesh Bhageria, the Sales Head of Bhageria Industries Ltd were also recorded. He did not comment on the statements of Director of M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited. The same was the position of Suresh Bhageria. Thus, in their statements recorded during the survey, the Directors of the two appellant companies and other connected persons admitted that they were working on the instructions of Shri Suresh Bhageria. The another connecting material was the email I.D. having name of Bhageria Industries though M/s Prism Scan Expres....
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....ce of inducement of finances after the year 2013-2014 other than by coappellant. 74. It is also submitted that appellant Companies rightfully invested in the shares of B.I.L. and otherwise they were investing in other shares also. The argument aforesaid was made without clarifying as to from where the finance came in the Companies because inducement of finance in the Companies in rightful manner could not be proved by the appellants to show their innocence, but they utterly failed in doing so. A company having no business activity could get corporate finance on higher premium. M/s Futurage Corporate Care Private Limited has shown wholesale business but had no activity of purchase and sale for wholesale to carry out the activities. No expenses were shown to have incurred towards salaries/wages, payment of indirect taxes, electricity, rent etc. They were mere paper companies. 75. The clear conclusion from the survey and subsequent investigation was that control over the two appellant companies was acquired in the year 2014-15 and finances were infused into the companies at the instance of Shri Suresh Bhageria for the purpose of engaging in benami transactions in the shares of B....
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....ransaction. The statements of the then Directors were relevant and rightly relied by the respondents. 83. In fact, the material available on record and perused by us is sufficient to show close connection between Suresh Bhageria, the promoter of B.I.L. group with M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited and reason of investment in shares of B.I.L. and other companies as benamidars. The appellant has failed to show any business activities of the appellant companies in the year 2013-14 and subsequently to get corporate shareholders on premium. The inducement of funds was itself through Benami Transactions, otherwise Corporate Share would not have been given on higher premium of a Company having no business activity. The money induced therein was used to purchase shares of BIL and other Companies. 84. In the light of the aforesaid, we are unable to accept the argument of the appellant that the inferences have been drawn on extraneous consideration. 85. The another argument pressed while referring to the written arguments was as to whether proceedings could have been initiated for alleged Benami transaction under two sub section (A) and ....