2019 (11) TMI 534 - AT - Benami Property

Jurisdiction of the Initiating Officer to initiate the investigation - Benami transactions - Section 26 (3) of the Prohibition of Benami Property Transactions Act, 1988 - Standard Operating Procedure (SOP) - CBDT Notification S.O. 1621(E) dated 18.05.2017 - HELD THAT - This SOP was issued prior to the issue of Show Cause Notice under Section 24(1) of the PBPT Act, 1988. In the said SOP at Para No.4 the jurisdiction of I.O., Approving Authority and Administrator has been defined. It is on record that at this point of time the address of the Benamidar i.e. M/s. DSIPLwas at Ghaziabad which is coming under the jurisdiction Joint Commissioner of Income-Tax/Additional Commissioner of Income-Tax, (Benami Prohibition), Kanpur. It is undisputed that the properties are situated in Noida, Greater Noida, in the District of Ghaziabad within the jurisdiction of the same authority. It is clear that the I.O. had no territorial jurisdiction to issue the Show Cause Notice to any of the parties. The Competent Authority is the I.O. under the JCIT/Additional CIT, BPU Unit, Kanpur as per the areas defined under the said notification of CBDT. In the present case none of the criteria prescribed in Para 4 of the SOP is fulfilling. The Ld. Adjudicating Authority appears to have not considered this in proper prospective and hence passed the impugned order. In view of the aforesaid two documents and on the basis of foregoing reasons stated above, we are of the considered view that the I.O., Mumbai ought not to have issued show cause notice and taken up enquiry/investigation in the matter. The Competent Initiating Officer, having jurisdiction, is at liberty to initiate appropriate proceedings in accordance with law - the appeals are not decided either on merit or on any other issues except the territorial jurisdictional authority of Initiating Officer issuing show cause notice and subsequent actions on the basis of said notices - appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the Initiating Officer under the PBPT Act.
2. Legitimacy of the transactions and entities involved.
3. Validity of the actions taken by the Respondent.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Initiating Officer under the PBPT Act:
The primary issue addressed by the Tribunal was whether the Initiating Officer (I.O.) in Mumbai had the territorial jurisdiction to investigate and refer the matter to the Adjudicating Authority. The appellants contended that the properties and entities involved were located in Uttar Pradesh, falling under the jurisdiction of the Joint Commissioner of Income-Tax/Additional Commissioner of Income-Tax (Benami Prohibition), Kanpur. The Tribunal referred to the CBDT notification dated 18.05.2017, which defined the territorial jurisdiction of the Joint Commissioner of Income-Tax/Additional Commissioner of Income-Tax (Benami Prohibition), Unit-1, Mumbai, as within the limits of the Municipal Corporation of Greater Mumbai and Navi Mumbai. The properties in question were situated in Ghaziabad, and the address of the Benamidar (M/s. DSIPL) was in Ghaziabad at the time of the investigation. Therefore, the Tribunal concluded that the I.O. in Mumbai had no jurisdiction to issue the Show Cause Notice and conduct the investigation, rendering the actions taken by the I.O. non-est in the eye of law.

2. Legitimacy of the Transactions and Entities Involved:
The Respondent's case was based on the allegation that M/s. DSIPL made significant investments in real estate projects of four entities, all part of the ACE group of companies, using funds sourced from shell companies. The Respondent argued that M/s. DSIPL was a Benamidar, and the appellants were the Beneficiaries. The examination of bank statements and financial profiling of the creditor companies revealed that these entities were shell companies with no genuine business activity. The funds received by M/s. DSIPL from these shell companies were used to invest in the projects of the ACE group. The Tribunal, however, did not delve into the merits of these allegations, as the jurisdictional issue was deemed sufficient to decide the appeals.

3. Validity of the Actions Taken by the Respondent:
The appellants challenged the actions of the Respondent on the grounds of lack of jurisdiction and procedural irregularities. They argued that the notice issued under Section 24(1) and subsequent orders were void and non-est due to the lack of territorial jurisdiction. The Tribunal agreed with the appellants, stating that the I.O. in Mumbai had no authority to issue the Show Cause Notice or conduct the investigation. The Tribunal emphasized that the Standard Operating Procedure (SOP) issued by the CBDT required the jurisdiction to be assumed by a BPU when any of the three limbs (benami transaction/property, benamidar, or beneficial owner) fell under its assigned territorial jurisdiction. In this case, none of the criteria were met for the I.O. in Mumbai to assume jurisdiction.

Conclusion:
The Tribunal set aside the impugned order on the grounds of lack of territorial jurisdiction by the Initiating Officer in Mumbai. The Tribunal clarified that the appeals were not decided on merit or any other issues except the "territorial jurisdictional authority of Initiating Officer." The Competent Initiating Officer with jurisdiction was granted the liberty to initiate appropriate proceedings in accordance with the law.