2019 (12) TMI 742 - AT - Income Tax

Benami Property - Rights of a bona-fide purchaser as given in the section 27(2) of the PBPT Act, 1988 - burden of proof of proving transaction - Provisional Attachment Order passed u/s 24(4)(a)(i) of the PBPT Act, 1988 - HELD THAT - Burden of proof is on the I.O. at the initial stage to establish with cogent evidence that the purchase by the Appellant of the subject property is not bona-fide. Respondent in its rejoinder dated 27.12.2018 at has itself admitted that it was in the possession of the information and documents that the subject property had been sold/transferred to the Appellant by M/s Veena Industries Ltd. Even after coming into possession of such documents the Respondent had chosen not to give any opportunity to the Appellant to explain its case in the proceedings before the Respondent. Appellant had moved an application for intervention and as such the Adjudicating Authority has powers u/s 26(6) to add name of the party whose presence before the Adjudicating Authority may be necessary to enable it to adjudicate upon and settle all questions involved in the reference. Adjudicating Authority did not exercise it powers and did not implead the Appellant as a party to the proceedings even after application was made before it by the Appellant, and the Respondent had also admitted in its rejoinder to the impleadment application that there is no legal impediment in arraying the Appellant as a party to the proceedings before the Adjudicating Authority. Appellant is an incorporated entity which has a separate and distinct legal identity to that of M/s Veena Industries Limited. Appellant had acquired the rights and interest in the subject property in its own name after payment of adequate consideration from its own funds, stamp duty and all the applicable fees, taxes and duties. At the time of execution of the Agreement to Sale on 18.03.2013, there was no common director in the two entities i.e. M/s. Veena Industries Ltd. and Kavita Infrastructure Pvt. Ltd. Thus, the allegation made by the respondent of common management/shareholding factually has no substance. The impugned order is set-aside by allowing the appeal.

Issues:
1. Impugning the order of the Adjudicating Authority dated 28.03.2019.
2. Relief sought for quashing the impugned order and Provisional Attachment Order.
3. Failure of Respondent to investigate possession and title before issuing orders.
4. Compliance with prerequisites before making property attachment under Section 24(3) of PBPT Act.
5. Obligation of Initiating Officer to issue notice to the person in possession.
6. Alleged violation of principles of natural justice by Respondent.
7. Lack of investigation and communication by Respondent.
8. Failure to serve notice of attachment to the interested party.
9. Rights of bona-fide purchasers under Section 27(2) of PBPT Act.
10. Burden of proof on Initiating Officer to establish property acquisition not bona-fide.
11. Failure to provide opportunity for Appellant to explain its case.
12. Adjudicating Authority's failure to implead Appellant as a party.
13. Distinct legal identity of the Appellant entity from the seller.
14. Setting aside the impugned order without costs.

Analysis:

1. The appeal challenges the order of the Adjudicating Authority dated 28.03.2019, with the Appellant seeking relief to quash the impugned order and Provisional Attachment Order concerning property ownership at village Wake Budruk, Pune.

2. The Appellant alleges that the Respondent failed to fulfill its duty to investigate possession and title before issuing the orders, as required under Section 24(3) of the PBPT Act.

3. The mandatory prerequisites for property attachment under Section 24(3) include knowing the current possessor, confirming benami status, likelihood of alienation, and obtaining prior approval, which the Initiating Officer must strictly adhere to.

4. The Initiating Officer is obligated to issue a notice to the person in possession, as failure to do so violates natural justice principles, as seen in the Respondent's actions in this case.

5. The Respondent's lack of investigation and communication, as revealed in the RTI response, indicates a failure to comply diligently with the provisions of the PBPT Act.

6. The Respondent's failure to serve notice of attachment to the interested party and the violation of principles of natural justice further highlight the procedural errors in the case.

7. The rights of bona-fide purchasers under Section 27(2) of the PBPT Act are crucial, with the burden of proof on the Initiating Officer to establish any lack of bona-fide acquisition.

8. The failure to provide the Appellant with an opportunity to explain its case, despite possessing relevant documents, raises concerns about procedural fairness.

9. The Adjudicating Authority's omission to implead the Appellant as a party, despite the Appellant's application for intervention, indicates a disregard for due process.

10. The distinct legal identity of the Appellant entity from the seller, along with the evidence of bona-fide acquisition, supports the Appellant's claim for setting aside the impugned order.

11. In conclusion, the impugned order is set aside, with no costs imposed, emphasizing the importance of procedural regularity and adherence to legal principles in such cases.

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