2021 (7) TMI 1106 - HC - Income Tax

Benami transactions - Power/authority to allow encashment of the FDRs - petitioners-Deepika Oberoi and Hina Oberoi who were minor at the time of filing this petition under Articles 226/227 of the Constitution of India have sought a writ of certiorari etc. for setting aside the impugned action of the respondent Nos. 1 to 3-Union of India/Income Tax Department whereby they have encashed 4 FDRs. of the petitioners in the denomination of ₹ 20,000/- each made on 6.5.1996 - whether father/mother of the petitioners were having any source of income for creating 4 FDRs. of huge amount in the denomination of ₹ 20,000 each way back in the year 1996? - HELD THAT - The pleadings of the petitioners are blown away from the statement of their own mother and guardian-Kavita Oberoi wife of deceased Shanti Nath recorded on 6.1.1997 vide Annexure R-2/1 before the Income Tax Authorities. In her statement, she clearly stated that neither she nor her deceased husband had any bank account/locker in any bank in India. She further stated that she had 3 children and her husband was employed as a Munshi with Raj Pal Anand getting ₹ 600/- to ₹ 700/- per month. She also stated that they were living hand to mouth. After the death of her husband, she had rental income of ₹ 300/- per month and was sustaining herself with great difficulty. She also stated that she does not have any jewellery to be kept in anybody's locker and even in her own home. There is nothing on record to show that either the mother or father of the minor petitioners was having any other source of income to invest such huge amount for making 4 FDRs. in the denomination of ₹ 20,000 each made way back in the year 1996. The source of money from the father/mother of the petitioners is not at all traceable since there is no cogent material such as Income Tax Returns on the record of the present case either filed by their father/mother or their relatives to show that the petitioners were having any other known sources of income so that it appears to be convincing and containing grain of truth that there was any other income from any lawful source which had been duly intimated while filing Income Tax Returns in the past years before the said FDRs. were made. We are astonished to observe that 4 FDRs. in the denomination of ₹ 20,000 each made in the year 1996 belonged to the petitioners alongwith others who were not even having account in any bank and were living in penury. As a sequel to our above discussions, we have no hesitation in holding that it was only a 'benami transaction' made by the employer in the name of his employee (driver), namely Shanti Nath. It is not a case of the petitioners that their mother/father had been continuously filing ITRs. showing such income and that it is also not the case of the petitioners that the previous years' ITRs. of the father/mother of the petitioners showing the requisite income for making such FDRs. have not been taken into consideration by the Assessing Authority. The Assessing Authority has rightly acted by assessing and encashing the said FDRs. The petitioners have no locus standi to claim the said FDRs. as they were made as a 'benami transaction'.

Summary

Issues:
1. Encashment of FDRs by Income Tax Department.
2. Allegation of benami transactions.
3. Lack of disclosed income source for FDRs.
4. Claim of FDRs as 'benami transactions.'

Issue 1: Encashment of FDRs by Income Tax Department
The petitioners, who were minors at the time, sought a writ of certiorari to set aside the action of the Income Tax Department in encashing 4 FDRs in the denomination of ?20,000 each made on 6.5.1996. They also sought a writ of mandamus to direct the respondents to return and restore the FDRs to their original status with damages and interest. The FDRs were encashed by the Income Tax Department, as part of a search and seizure operation, leading to the petitioners challenging this action in 1997.

Issue 2: Allegation of Benami Transactions
The respondents, in their written statements, claimed that the FDRs were benami transactions made by Sanjay Anand, a partner in certain firms. The Income Tax Department discovered these transactions during assessment proceedings and held that the FDRs rightfully belonged to Sanjay Anand. The Tribunal also upheld this decision, stating that no third party claimed ownership of the FDRs, reinforcing the benami nature of the transactions.

Issue 3: Lack of Disclosed Income Source for FDRs
The petitioners argued that the FDRs were made from funds received as help from relatives and friends after the accidental death of their father. However, the Senior Standing Counsel for the Income Tax Department contended that the petitioners failed to provide evidence of the source of income for creating the FDRs. The counsel dismissed the petitioners' claims as an afterthought and a concocted story, emphasizing the absence of disclosed income sources for the FDRs.

Issue 4: Claim of FDRs as 'Benami Transactions'
After evaluating the submissions of both parties, the Court focused on determining whether the parents of the petitioners had a legitimate source of income to create the FDRs in 1996. The Court found discrepancies in the statements provided by the mother of the petitioners, indicating a lack of financial stability and disclosed income sources. Consequently, the Court concluded that the FDRs were part of a 'benami transaction' orchestrated by the employer in the name of the employee, leading to the dismissal of the petition and the application for release of the FDRs.

In conclusion, the Court dismissed the petition, stating that the FDRs were rightfully assessed and encashed by the Income Tax Department due to being 'benami transactions.' The lack of a credible income source for the FDRs led to the rejection of the petitioners' claims, emphasizing the benami nature of the transactions and the absence of disclosed income sources.