TaxTMI 
TaxTMI 
2026 (8) TMI 439
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.... 32 A. Issues/ Questions involved 32 B. The Statutory Framework 33 C. The Material Relied Upon by the Initiating Officer 38 D. The Assessment Order dated 27.03.2026 39 E. Legal Position on Untested/Retracted Statement 42 F. Overlapping/Contradictory Findings of the IO and the AO 50 G. The Cumulative Infirmities 52 7. Findings 54 8. Answers to the questions of law 55 9. Conclusion/Order 56 JUDGMENT REPORTABLE PER: ARUN MONGA, J. I. INTRODUCTORY:- 1. Appellant company, engaged in the business of real estate development and sale/purchase of the properties, is before us, assailing, inter alia, an order dated 01.04.2026 passed by Appellate Tribunal under Section 46 of the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act for short) whereby the Tribunal affirmed the order dated 30.08.2024 passed by the Adjudicating Authority under Section 26(3) of the PBPT Act holding 79 immovable properties purchased by the appellant to be benami properties. 2. The adjudicating authority (AA-for short) vide its order dated 30.08.2024 in turn upheld the final provisional attachment o....
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....ose assessment findings, in respect of the very same properties, the Appellant relies upon in its favour. More of it in greater details in the subsequent part at appropriate stage. II. FACTS IN CHRONOLOGICAL ORDER 7. The financial spine of the appellant's case reaches back to FY 2006-07, by which year the company's share capital of approximately Rs. 1.00 crore and reserves of approximately Rs. 8.95 crore, shareholders' funds of roughly Rs. 10 crore in aggregate, stood recorded in its books. It is not in dispute that these figures remained substantially stable thereafter. 7.1. In FY 2016-17, the shareholding of the two intermediary holding companies changed hands and the Lunia family entered the structure. Significantly, both sides rely on the same subsequent fact for opposite purposes. 7.2 In FY 2017-18, the appellant purchased 79 immovable properties at Jodhpur for a total consideration of Rs. 11,16,06,000, each payment made through banking channels. According to the appellant, the purchases were funded by the recall and redeployment of short-term loans and advances (Rs. 10.61 crore as on 31.03.2017), a conversion of one asset class into another, not an infusion of fre....
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.... final attachment order under Section 24(4)(a)(i) was passed continuing the attachment. The said attachment order continuing the proceedings initiated under PBPT Act, reflecting the mind of the initiating officer, as to what he understood and noted, for seeking the reference before the adjudicating authority, is extracted as under: "2. A Search & Seizure action u/s 132 of the I.T. Act, 1961 was conducted on 16.06.2022 by the DDIT(Inv.)-1, Jodhpur in the case of Maharani Group, Jodhpur of which Shri Mahaveer Lunia is the founder and main promoter. Further, relevant documents seized during the course of the search action related to benami transactions in respect of the above group were received in this office through the office of the DGIT (inv.), Rajasthan, Jaipur. 2.1 Based on the factual matrix of the matter which stands fortified from the information and credible material shared by the Investigation wing as above, a Show Cause Notice u/s. 24(1) of the PBPT Act, 1988 was issued on 28.04.2023. The materials analyzed to form "the reasons to believe" are as follows: I. Income-tax Returns of M/s Alishan Complex Pvt. Ltd. II. A detailed list of vario....
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....lender and earns unaccounted interest income also. The unaccounted cash is then utilized for making purchase of immovable properties and also to buy shell/paper companies namely (1) Alishan Complex Pvt. Ltd., (2) Swagatama Enclave Pvt. Ltd. and (3) Principal Dealers Pvt. Ltd. etc., earlier managed and controlled by the entry operators. These companies have large amount of security premium reserve in it, which is further utilized to buy immovable properties. These shell companies have been purchased by the group making investment out of the cash generated through bogus purchases. The unaccounted cash generated through bogus purchases were routed by the group through Sh. Anil Sanklecha, CA (Mumbai based and also covered u/s 132 of the I.T. Act., 1962 with the group) for purchasing the shell companies. These facts have been verified from the documents/details found during the course of search action and the statement of Sh. Anil Sanklecha, СA. 5. Acquisition of Kolkata based Shell Companies (Benamidars) by the Group. 5.1 On the basis of documents seized during the course of search, investigation and post search enquiries conducted in the group, the DDIT(Inv.)-1....
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....g FY 2017-18 purchased the various immovable properties as described in Annexure A as aforesaid out of the funds of the company being the capital and reserves including the loans and advances given to various parties and received back during the year. The details of the properties purchased during FY 2017-18 are given in the foregoing reply/explanation of the Company. The said properties have been alleged to be Benami Properties by Ld. IO in Impugned reference before Your Honour. 3. The Company regularly files its returns of income, accounts and audited finances to Registrar of Companies (hereinafter referred to as "ROC") and income tax department which has been accepted by the ROC and income tax department. 4. The Company has always been operated and managed by the same shareholders namely Surpati Packaging Pvt Ltd., and Upward Commerce Pvt. However, in FY 2016-17, the shareholders of Surpati Packaging Pvt Ltd., and Upward Commerce Pvt changed to new shareholders and thereby the ultimate individual shareholders of the Company changed to new shareholders i.e., the Lunia family. 5: It is submitted that the shareholding pattern of Alishan Complex Private Li....
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....he purchase of the Said Immovable Properties are given in the foregoing reply/ explanation of Company. 22. It is pertinent to mention here that the Assessee company is regularly filing its income tax return and balance sheet, wherein the purchases of the Said Immovable Properties were duly disclosed in the assets of the Company, and the same has been accepted by the Income Tax Department. It is submitted that the fact that the Income Tax Department has never assumed jurisdiction and thereupon initiated proceedings against the Company with respect to the alleged transactions clearly goes to show that the allegations levelled by the Ld. I.O. are absolutely baseless and devoid of any merit. It is further submitted that when the income tax department has itself not doubted the genuineness of these transactions, then the Ld. I.O., had no jurisdiction to declare the Company as shell company and accordingly it is not justified to hold Company as Benamidar of its own properties purchased from its own funds 23. Furthermore, shareholders of the Maharani Group were searched u/s 132 of the IT Act on 16.6.2022 and the same has resulted in initiation of re-assessment proceeding....
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....purchases of the said lands/immovable properties in the names of D-1 to D-3 are "Benami Transaction" within the meaning of Section 2(9)(A) of the PBPT Act, 1988. Benamidar (1) M/s Alishan Complex Pvt. Ltd. (D-1) (2) M/s Principle Dealer Pvt. Ltd. (D-2) (3) M/s Swagatama Enclave Pvt. Ltd (D-3) Beneficial Owners (1) Shri Mahaveer Lunia (D-4) 5.7 Further, the defendants contended that the order passed by the IO does not satisfy any of the six parameters prescribed by Hon'ble Supreme Court in the case of Valiammal V. Subraaniam, AIR 2004 SC 4187. The Hon'ble Supreme Court in the case of Valiammal V. Subraaniam, AIR 2004 SC 4187 laid down following parameters, while examining a benami transaction: (i) the source from which the purchase money came; (ii) the nature and possession of the property, after the purchase; (iii) motive, if any, for giving the transaction a benami colour; (iv) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (v) the custody of the title deeds after the sale; and (vi) the conduct of the parties concerned in dealing with....
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.... 6.1 I, Rajendra Kumar, in view of the above findings and in exercise of the powers conferred on me by virtue of Section 7 read with Section 26 of the PBPT Act, 1988 (as amended), hereby confirm the Provisional Attachment Orders u/s 24(4) of the PBPT Act dated 28.07.2023 of the Initiating Officer thereby holding the properties specified in Para 1.1 of this order to be Benami Properties, title holder thereof i.e., D-1, D-2 & D-3 to be Benamidars, D-4 to be Beneficial Owner and further direct that the properties specified in Para 1.1 of this Order shall not be transferred or otherwise dealt with, in any manner, except with the prior permission of the undersigned. The Reference nos. R-0271/PBPT/DLI/2023, R-0272/PBPT/DLI/2023 and R-0273/PBPT/DLI/2023 are allowed. 6.2 This is an appealable order and any party hereto, if aggrieved by this order may appeal in term of section 46 of the PBPT Act, 1988 to the Appellate Tribunal for Forfeiture of Property, 4th Floor, Lok Nayak Bhavan, Khan Market, New Delhi-110003, within 45 days from the date of the order. C. Appellate Tribunal 10. The above order passed by the adjudicating authority was challenged before the learned ....
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....s" amounting to Rs. 1,72,15,000/- as against Rs. 1,02,10,000/- in the preceding year, the assessee has furnished party-wise details of the liabilities along with confirmations and copies of ITR acknowledgements of the concerned parties. Details furnished have been examined carefully. It is observed that the liabilities are duly recorded, in the regular books of account and are identifiable with specific parties. The assessee has furnished confirmations and basic details establishing the identity of the creditor land, therefore, such liabilities cannot be considered non-genuine or represent unexplained income of the assessee. The assessee has further established that all transactions in the bank accounts are duly recorded in the regular books of account and are relatable to disclosed business and investment activities. The assessee reply has been examined and test check and it is noticed that the bank transactions are duly reflected in the books of account. Therefore, the assessee's reply is accepted. Thus, the assessee has satisfactorily explained all the issue on which explanation with supporting documents and hence, no adverse inference is drawn and ret....
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.... purchases. The unaccounted cash generated through bogus purchases was routed through Shri Anil Sanklecha, CA, a relative of Shri Mahaveer Lunia for purchasing the shell companies. Those companies were operated by Shri Neeraj Khemka and Shri Praveen Agarwal (dummy Director) at the time of share allotment, wherein Shri Praveen Agarwal accepted that these companies are shell companies/paper companies used by him for providing accommodation entries in lieu of cash payment. 4. The allegation was for operation of those entities from Kolkata and Mumbai with the help of Shri Anil Sanklecha, Chartered Accountant, a relative of Shri Mahaveer Lunia. He remained instrumental in facilitating the transactions where approximately Rs.40 to 42 Crores was transacted in cash through Hawala Operators (Angadias), as admitted by the witnesses in his statements The modus was to induce cash in the shell companies (appellants no. 1 to 3) and thereupon to acquire various properties in the name of those companies and accordingly 79 properties were purchased in the name of the appellant M/s Alishan Complex Pvt. Ltd. while 50. properties in the name of the appellant M/s Principle Dealer Pvt. Lt....
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.... Section 132 of the Income Tax Act could not have been relied. It is along with other material collected during the course of search and subsequently. 22. It was further submitted that the statements recorded behind the back had no evidentiary value. The issue has been linked with the issue of denial of cross-examination of the witnesses. 23. We may first clarify the issue of right of cross-examination of the witnesses which is not inbuilt under the Act of 1988. The right of cross-examination depends on the nature of the proceedings. The issue aforesaid has been dealt with by Madhya Pradesh High Court in the case of Harivallabh Mohanlal Joshi Vs. Union of India in Writ Petition (C) No. 16633/2018 decided by the order dated. 13.08.2018. The judgment of the Apex Court was taken into consideration to hold that cross-examination is not an integral part of the principle of natural justice. However, it is open for the competent authority to examine the available circumstances and if deems fit, the opportunity to cross-examination can be provided, but not as a matter of right. The same view was taken by the Madras High Court in the case of M/s Marg Realities Ltd. Vs. Dy.....
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....nil Sanklecha, CA in response to question numbers 50, 55 in his statement recorded on oath u/s 132(4) of the 1.T Act, 1961 stated on 17.06.2022/18.06.2022 and admitted that he has received cash from Mahaveer Lunia to the tune of Rs. 40-42 crores (approx.) through Angadia (Hawala operator) in Mumbai, which was routed in the shell entities. He also stated that his servant Mr. Suresh Mukhia was one of the Directors in those companies earlier. In order to verify the veracity of said submission, list of current and previous directors was perused from the records, wherein it is seen that Shri Suresh Mukhia was director in past. It is also noticed from material on record that one company was having two shareholders namely M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd, with shareholding of 49.99% each. It is also seen that Mahaveer Lunia and his family members were having 50% shareholding in both M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd. Similarly, M/s Shivaasha Mercantile Ltd. is having 99.98% shareholding in other companies, in which Mahaveer Lunia and his family members were having 58.24% shareholding. Likewise, M/s Mahavir Agency Pvt. Ltd. and....
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....se of benami transaction has been made has already been discussed thus it is not required to be repeated, however, element of benami transaction, if made out, would not be effected by subsequent assessment of income. 41. The next question is co-related to the last issue. The counsel for the appellants submitted that the cash transaction cannot be taken to be the basis for the benami transaction. It is nothing but admission about the involvement of cash in the transaction though with the qualification that mere involvement of cash would not make out a case of benami transaction. The proposition taken by the counsel for the appellant may be correct and we may endorse that each cash transaction may not involve a benami transaction rather it cannot be only on an allegation to make out a case under Section 2(9)(A) of the Act of 1988. If the involvement of cash transaction results in benami transaction, it cannot be nullified only on the ground that involvement of the cash would make out a case of benami transaction. However, if no allegation is made out then even involvement of cash would not make out a case of benami transaction. It depends on the facts of the case. In the ins....
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....light of the discussion made above, the appeals would fail and are dismissed." IV. THE CASE OF THE APPELLANT A. Arguments on behalf of the Appellant 11. Mr. Ashwani Taneja, argued broadly on the lines of the grounds pleaded in the appeal. Basis thereof, case of the appellant is crystallized on following seven heads. 12.1 First, independent financial capacity: shareholders' funds of roughly Rs. 10 crore have been maintained consistently since FY 2006-07, predating the Lunia family's entry by a decade. The purchases were made entirely through banking channels, funded by the repayment and redeployment of loans and advances already appearing in the books, a conversion of assets, not an infusion. On this footing, no external consideration entered the transactions at all. 12.2 Second, the twin conditions of Section 2(9)(A) are said to be unmet: the company paid from its own corpus, and it holds, possesses and enjoys the properties itself. There is, on the appellant's submission, no identified person who provided the consideration and for whose benefit the properties are held, and both limbs must be affirmatively established before the definition is attracted. 12.3 Third....
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.... Assessing Officer when those very findings exculpate the appellant on the source and banking trail of the same investments. 12.7 Seventh, the evidence is tainted and uncorroborated. The case rests on the retracted statement of CA Anil Sanklecha; the retraction, by affidavit of 27.06.2022, within nine days, alleging some 65 hours of continuous questioning, was not belated, and accords with the CBDT's own instructions dated 10.03.2003 and 18.12.2014 discouraging confessions during search. The maker of the statement was never summoned or examined in the benami proceedings, and cross-examination, though sought, was never granted. The findings, it is urged, amount to borrowed satisfaction from investigation reports without independent inquiry by the Initiating Officer. B. Further Submissions on behalf of the appellant (i) Submissions of the appellant on the Statement of Shri Anil Sanklecha 13. During the search, the statement of CA Anil Sanklecha (Mumbai) was recorded under s.132(4), Income Tax Act, on 17-18.06.2022; it was never supplied to the Appellant. 13.1 In answers to Q.50 and Q.55, Sanklecha allegedly stated he received cash of about Rs.40-42 crores from Shri Mah....
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....e (without admitting), it contains no reference to cash infusion into the Appellant or use for acquiring the properties; being uncorroborated, untested and retracted, it establishes no nexus, rendering the Respondent's case unsustainable under the Benami Act. 13.10 Tribunal wrongly discards the retraction as made "after expiry of considerable period," When the affidavit dated 27.06.2022 came within nine days of the search -a prompt retraction that could not be summarily brushed aside, given the original statement was allegedly coerced and untested by cross-examination. (ii) Submissions of the appellant on the Findings of the Assessing Officer (Income Tax) 14. That the same Income Tax Department, the very Department under the CBDT that houses the Benami Prohibition Unit and the IO - has, through its Assessing Officer (DC, Central Circle 1, Jodhpur), conducted full-fledged scrutiny assessments of the Appellant for five assessment years (AY 2018-19 and AY 2020-21 through AY 2023-24), all consequential to the very same search and seizure operation of 16.06.2022 that gave rise to the present benami proceedings and has arrived at diametrically opposite findings on the very....
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....sion of the assessee and the details and documents available on record, the return income is accepted as such.' No addition was made in any year. 14.3 That the significance of these Assessment Orders, particularly the Assessment Order for AY 2018-2019, cannot be overstated. The Impugned Order's core finding, that the Appellant is a 'shell company' whose properties were purchased from 'unaccounted cash of Shri Mahaveer Lunia', has been directly and specifically negated by the same Department's own Assessing Officer, who after examining the very same properties, the very same bank statements, and the very same source of funds, has recorded that the investment is duly recorded, reconciled, supported by banking channels and registered sale deeds, and that the source is satisfactorily explained. These are not tangential findings; they go to the heart of the benami allegation. 14.4 That the issue regarding acquisition of the subject properties and the source of funds has already been duly examined by the Assessing Officer under the Income-tax Act, 1961 during the course of assessment proceedings. The Assessing Officer had raised specific queries with respect to the acquisition of p....
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....l (photocopies, without originals) into benami proceedings via Section 60 PBPT Act, yet at Para 40 dismisses the same Department's Assessment Orders accepting the source as irrelevant. Evidence from the same statutory source must be treated with parity - if the income tax machinery can inculpate, it must equally exculpate. The Tribunal cannot approbate and reprobate the same process; this legal error vitiates the Order. 15.4 The Tribunal's finding (Para 33) that no legitimate documents disclosed the source of loans, reserve capital and share premium is squarely contradicted by the Assessment Order for AY 2018-19 dated 27.03.2026, which, after examining audited financials, bank statements, ledgers, confirmations and counterparties' ITRs, held the investments duly recorded, banked, reconciled, and the creditors' identity, creditworthiness and genuineness established. 15.5 Even Section 164 CrPC statements are not automatically admissible without proof before the Magistrate and cross-examination; statements before other authorities stand on weaker footing. 15.6 Neither copies of the statements were furnished to the Appellant nor cross-examination allowed, a clear breach of nat....
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.... infirmity. Illegality would arise only after that when no opportunity was given to the assess to cross examine the witnesses. 16.4 In CIT vs. Indrajit Singh Suri (2013) 33 taxmann.com 284 (Guj.), the Assessing Officer made additions in the basis of the statements of some parties without giving an opportunity to the assessee to cross examine them. The additions were deleted. 16.5 In Strapted (India) P. Ltd. V. Dy. CIT (2003) 84 ITD 320 (Mumbai), while dealing with penalty under section 271D, it was held that the statement of one person cannot be utilized against another person unless the other person is given an opportunity to cross examine the first person. In the absence of cross examination, the evidence would remain untested and would lose its evidentiary value. The penalty was deleted. 16.6 In V. Mahes Gulabrai Joshi V. CIT (2005) 95 ITD 300, the sale of a diamond to one "V" by the assessee was held to be bogus and the amounts introduces in the books were added to the assessee's income on the basis of statement of "V". the Tribunal held that although the burden of proof lies on the assessee in such matters, but when the assessee depended on the Assessing Officer for e....
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....settled rule of evidence that unless a retracted confession is corroborated in material particulars it is not prudent to base the decision on the confessional statement alone, (A.I.R. 1953 SC 459). V. CASE OF THE RESPONDENTS A. Submissions/Arguments on behalf of the respondents 17. Based on the written submissions and per arguments of Mr. K.K. Bissa, learned counsel representing respondent, the respondents' case, briefly speaking, can be summed up under five discrete heads. 17.1 First, the limited scope of this appeal: Section 49 confines the Court to substantial questions of law. Facts stand concurrently examined by the Adjudicating Authority under Section 26(3) and by the Tribunal; dissatisfaction with findings of fact does not render an order perverse, and the appellant's grounds, properly read, are said to be an invitation to reappreciate evidence. 17.2 Second, beneficial ownership rests on control, not percentage. The case was never one of arithmetical shareholding; it rests on cumulative evidence of effective control, management, fund-routing and ultimate beneficial interest since FY 2016-17. Shri Lunia's directorship from 06.01.2020 is characterised not as an ....
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.... The proceedings were not founded merely on third-party statements; the IO independently examined the entire material gathered in the Section 132 search and under the PBPT Act. 18.4 The retraction plea is meritless - the Tribunal rightly held it was made after considerable lapse of time and lacks credibility. In any event, Shri Mahaveer Lunia is the promoter of the Maharani Group, and the incriminating statements of Shri Sanklecha and others identify him as the beneficial owner who conceived and executed the benami arrangement. 18.5 The Appellants' reliance on the AO's acceptance of returned income and book-recorded investments, with no adverse inference, is misconceived and does not advance their case. 18.6 The ground ignores the material findings in the benami proceedings. The companies justified acquisitions by funds in their accounts but failed to explain the genuine source and genesis of such funds, claiming repayment of earlier advances without any evidence of when the advances were made, from what legitimate source, or on what terms. 18.7 Absent supporting material, the "repayment of advances" was rightly treated as a layering mechanism: the beneficial owner's ca....
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....order discloses an impermissible asymmetry in the use of the income-tax record vis a vis PBPT record ? and (iii). Whether the impugned order records entity-specific and property-wise findings qua the appellant's 79 properties and Rs. 11.16 crore investment, or proceeds on collective figures and generic reasoning, and if the latter, with what consequence. ? B. The Statutory Framework: Section 69 of the Income-tax Act and Section 2(9)(A) of the PBPT Act. 21. Because so much of the argument turns on the coexistence of the assessment order with the benami findings, the relationship between the two provisions is required to be looked into. "69. Unexplained investments: Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing Officer], satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial....
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....e names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or -x-x-x-x-x- 21.2 A cumulative reading of above two sections of Income Tax Act and the PBPT Act reveals that the decisive structural difference lies in the burden architecture. Once triggered, Section 69 casts the burden on the assessee to explain. Section 2(9)(A) places the initial burden on the Initiating Officer to establish the twin conditions affirmatively, with no deeming fiction doing the work for him. A clearance under Section 69 therefore cannot mechanically become a benami clearance: the assessee cleared Section 69 by discharging a burden that fell on him, whereas under the PBPT Act the burden was never primarily his. By the same token, however, the assessment order is a fact in the record which the Initiating Officer must overcome, not a nullity he may ignore. 21.2 At this stage, section 24(1) of PBPT be seen, which is as below :- Section 24(1) of PBPT Act: "24. Notice and attachment of property involved in benami ....
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....or future benefit of that person, remains on the IO through provisional attachment under 24(4), the reference under 24(5), and its adjudication under Section 26. 21.5. In fact, we are of the view that in proceedings under section 24 of the PBPT Act, 1988, the burden of proof operates as a shifting burden rather than a fixed one. The Initiating Officer must first possess credible and cogent material to justify issuance of the show-cause notice and any order of provisional attachment. The statutory scheme does not permit action on mere suspicion or mechanical application. Once such material is disclosed and the notice is issued, the affected party, typically the person in possession or the recorded owner, bears the burden of rebutting the allegation by explaining the source of funds, the nature of the transaction, and the bona fides of the ownership. If the party furnishes a satisfactory explanation supported by documents, the ultimate burden to establish that the transaction is benami shifts back to the revenue/Initiating Officer, who must then prove the benami character by evidence. 21.6. Once a party shows that the transaction was legitimately funded and explains the arrange....
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....facts of each case. Nevertheless, the source from where the purchase money came and the motive why the property was purchased benami are by far the most important tests for determining whether the sale standing in the name of one person, is in reality for the benefit of another. We would examine the present transaction on the touchstone of the above two indicia." (emphasis is ours) 21.6. Taking the debate further on the stand taken by the respondent i.e. the 'source of the source' inquiry pressed by the Revenue to ascertain if it is tainted. In principle, such recourse is, no doubt open to it, but it is a licence to inquire, not a licence to presume. The authority must prove that the source is tainted; it may not assume it. To reason that 'the company lacked creditworthiness, therefore the money must have been the beneficiary's cash' is to reverse the statutory burden by the back door. The existence of unaccounted cash somewhere in a group is not proof that these properties were funded by that cash: a business group may genuinely generate huge cash and, separately, a company within it may genuinely hold pre-existing reserves and redeploy repaid advances into property. B....
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.... Bank Book/Ledger book of the company for the period of 01.04.2012 to 31.03.2022. VI. Documents available on the database of Ministry of Corporate Affairs. VII. Statements of Shri Praveen Agarwal recorded under section 132(4) of the Income Tax Act, 1961 dated 10/11.02.2015, 15.02.2014 & 18.11.2014. VIII. Statements of Shri Pramod Ramdeen recorded under section 132(4) of the Income Tax Act, 1961 dated 10.11.2012. IX. Statement of Sh. Rakesh Kumar Agarwal recorded u/s 131 of the I.T. Act, 1961 on 21.11.2014 by the Investigation wing of Kolkata." 22.1 From perusal of the above, it is borne out that except at serial number VI, (Documents from database of MCA viz. ROC returns etc.) rest of the material is nothing but what was provided by the income tax officials during the raid carried out by them under section 132 of the income tax act. Thus, predominantly it's the same material being relied upon by income tax authorities, and parallel by the initiating officer under the PBPT act who is also an income tax official under the income tax act and is simultaneously exercising ex officio powers as initiating officer under the PPT act. D. The Assessme....
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....tement of the witness (the Chartered Accountant) recorded during the raid qua alleged cash receipts, a statement that was subsequently retracted, and in respect of which the appellant's request for cross-examination was given short shrift, it does appear that the appellant has been denied a fair opportunity to defend itself, apart from resulting in an impermissible shifting of the onus from the Initiating Officer under the PBPT Act on to the appellant. 23.3 From the importance given to the statement of the CA, it appears to be rather foundational, and not merely corroborative. The alleged benami character of the transactions rests on one factual premise, that unaccounted cash of the Lunia family was routed into these companies, and Sanklecha's Section 132(4) statement (Q. 50 and 55) is the only direct evidence of that premise anywhere in the record. Everything else the IO and Tribunal invoke, shareholding pattern, family control, the property list found in the search, the "shell company" characterisation, is circumstantial, and each of those circumstances is equally consistent with lawful corporate ownership unless the cash story is given overriding acceptance. That's why the Tr....
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....dings under the Prohibition of Benami Property Transactions Act, 1988 ("PBPT Act"). The entire edifice of the proceedings initiated by the Ld. Initiating Officer ("IO") rests upon the statement of one witness recorded under Section 132(4) of the Income-tax Act, 1961. The said statement has since been unequivocally retracted by its maker. Despite a specific and reasoned request by the Respondent, the IO has neither summoned the witness nor afforded any opportunity to examine or cross-examine him. PROPOSITION 1: 25. Where the statement of a witness forms the basis of the order, denial of cross-examination despite request renders the order a nullity 25.1 Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II (2016) 15 SCC 785 : (2015) 324 ELT 641 (SC), - The Hon'ble Supreme Court held that where the statements of witnesses were made the basis of the impugned order, not allowing the assessee to cross-examine those witnesses, despite a specific request, is a serious flaw which makes the order a nullity, inasmuch as it amounts to violation of the principles of natural justice. The Court further held that it was not open to the adjudicating authority to unilatera....
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....3) 9 SCC 549, para 25 - Even this decision, ordinarily cited against cross-examination, expressly holds that it is only when a deposition "goes through the fire of cross-examination" that a court or statutory authority is able to determine and assess its probative value; that using an untested deposition may amount to using evidence which the party has had no opportunity to question; and that such refusal may amount to violation of the rule of fair hearing. The Supreme Court sustained the denial in that case only because the statements were merely corroborative of undisputed documents seized from the appellants' own premises, which were disclosed and never disputed, and hence no prejudice arose (para 28). 26.2 The distinction is decisive. In Telestar, the documentary evidence was primary and undisputed; the statements were peripheral. Here, (i) the statement is foundational, and (ii) far from being undisputed, it has been retracted by its own maker. Both conditions on which Telestar excused cross-examination are absent. Telestar, properly read, therefore supports the Respondent. 26.3 For the same reason, Vallabh Textiles v. Additional Commissioner, Central T....
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....ntal policy itself recognizes the frailty of the very species of evidence upon which the entire proceeding here has been erected. PROPOSITION 4: 28. The PBPT Act statutorily arms the authorities with the power to summon and examine witnesses, refusal to exercise it, despite request, is an abdication of statutory duty 28.1 Section 19(1)(b) of the PBPT Act confers upon the authorities the powers of a civil court under the Code of Civil Procedure, 1908, in respect of summoning and enforcing the attendance of any person and examining him on oath. Section 26(3) obliges the Adjudicating Authority to provide the parties an opportunity of being heard and to consider all relevant materials before passing an order. 28.2 Where a specific request is made to summon the sole material witness, whose statement is both foundational and retracted, the refusal to exercise the statutory power under Section 19 is not a matter of discretion but a refusal to perform a duty cast by the statute in aid of natural justice. The standard of proof for establishing a benami transaction is settled to be strict, the burden resting on the party alleging benami: Jaydayal Poddar v. Bibi Hazra (1974) 1 SCC....
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....e finding, given that there is no provision under the PBPT Act to provide an opportunity to the appellant to cross examine the witnesses at the preliminary stage under section 24. Section 26(3) requires the Adjudicating Authority to give the affected person a reasonable opportunity of being heard before passing an order of confiscation. While the PBPT Act does not explicitly mention "cross-examination," the right to a fair hearing under Section 26(3) necessarily includes the right to test adverse evidence, especially when the order relies on third-party statements (in present case recorded under Section 131/32 of the Income-tax Act during search/survey). Thus, denial of cross-examination at the Section 26 stage, where the Authority decides rights, appears to be a fatal flaw in present case in light of the retraction of the confessional statement made before third party by the witness. SUMMATION 29. The tests laid down by the line of authority relied upon by the Department, Telestar Travels, K.L. Tripathi, and Vallabh Textiles, are conditional: cross-examination may be declined only where (i) the statement is merely corroborative of independent, undisputed material, and (ii) n....
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....rds already forming part of the record before both the Respondent authorities and the Income Tax Department. The said Assessment Order has substantial relevance in the present proceedings, in as much as it contains specific findings regarding the genuineness of the transactions, source of funds, and banking trail pertaining to the acquisition of the subject properties. Accordingly, we feel that the matter warrants fresh consideration by the Ld. Initiating Officer/Respondent in light of the aforesaid subsequent findings recorded by the competent Income Tax Authority on the same set of facts and material. 30.2 Pertinently, the Initiating Officer, BPU / Respondent does not hold primary jurisdiction to hold findings with regards of sources and genuineness of acquisition of subject properties. Therefore, he cannot blindly disregard and contradict the order of the primary jurisdictional authority i.e. Assessing Officer nor can he ignore the Assessment Order for AY 2018-19 dated 27.03.2026 as well as entire material in his possession including factual and legal pleadings as maybe raised during the proceedings in the light of findings recorded by the Income Tax Department. 30.3 As re....
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....id down in Valliammal v. Subramaniam (2004) 7 SCC 233 : AIR 2004 SC 4187 (Supreme Court if India), as applied by the Adjudicating Authority at para 5.7 of its order (para 9.2 above), and again relied upon by the Tribunal at para 42 of its order (para 10 above), rests substantially on the statement of Sh. Anil Sanklecha recorded during the search on 17/18.06.2022 (Item III, para 3 above). It is not in dispute that this statement was subsequently retracted, and that the appellant's request to cross-examine Sh. Sanklecha was declined at the stage of adjudication. It is well settled that where an adverse finding is founded substantially on the statement of a witness, the denial of an opportunity to cross-examine that witness, more so where the statement stands retracted, constitutes a serious infirmity going to the root of the matter and renders the resultant finding vulnerable, being in breach of the principles of natural justice. (See M/s Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II (2016) 15 SCC 785, Supreme Court of India, decided on 02.09.2015, where it was held that failure to allow cross-examination of witnesses whose statements are relied upon to pass....
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....not been specifically dealt with at any stage. The Adjudicating Authority's finding that D-1 to D-3 "did not have creditworthiness or wherewithal" (para 5.6) and the Tribunal's finding that the appellant "could not support the source of funds" (para 42) do not engage with this specific chronological point: namely, that the bulk of the reserves said to fund the purchase had already existed for roughly a decade before Sh. Mahaveer Lunia's family had any shareholding interest in the company at all. Under Section 24 of the PBPT Act, it is for the Initiating Officer to record "reasons to believe" on credible material, and once the noticee furnishes a specific, document-backed explanation of source, that explanation must be specifically examined and either accepted or rejected with reasons, it cannot simply be treated as discharged by requiring the noticee to additionally establish the ultimate origin, years earlier, of monies since repaid and reflected in audited accounts accepted year after year by the Registrar of Companies and the Income Tax Department (para 5, points 3 and 22 above). VII FINDINGS 32. To sum up, the cumulative discussion leads us to the following findings : ....
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....n opportunity of cross-examination in the PBPT proceedings, do not advance the case of the revenue. The substantial questions of law are answered accordingly: i.e. answer to the question (a) is in the affirmative and question (b) is in the negative. IX. CONCLUSION / ORDER 34. As an upshot, we are of the view that the proper course is to remand the matter to the Initiating Officer, the authority statutorily entrusted the functions under Section 24 of the PBPT Act for recording the "reasons to believe" and conducting the necessary inquiry in the first instance, for a fresh and reasoned determination in accordance with law. 35. In view of the foregoing, we pass the following order: (a) The order dated 01.04.2026 passed by the learned Appellate Tribunal under Section 46 of the PBPT Act, 1988, and the order dated 30.08.2024 passed by the Adjudicating Authority and consequently the final attachment order dated 28.07.2023 are set aside with a direction to the Initiating officer (IO) to proceed afresh . (b) The matter is thus remanded to the Initiating officer (BPU) at the stage of passing of provisional attachment order dated 01.05.2023 under section 24(3) of th....