2024 (6) TMI 1045 - AT - Benami Property

Benami transactions - attachment of the properties of the non appellants - Adjudicating Authority refused to confirm the order of attachment mainly on the grounds that the funds came to the beneficiaries as a loan or advances and were released by M/s Danodia Investments Finance Ltd. through bank or proper banking channel - HELD THAT - The Bank account of the transaction was supporting the aforesaid and thereby it cannot be said that M/s Danodia Investments Finance Ltd was a non-existing Company and otherwise the loan or advances was not by way of benami transaction. The finding aforesaid is in ignorance of the benami transaction. The Adjudicating Authority conveniently ignored as to how the fund came to M/s Danodia Investments Finance Ltd. The Adjudicating Authority even failed to analyse how the shares were issued at the premium of Rs. 990/- by a Company having no business at all, rather it was existing on papers to provide accommodation entries. The fact aforesaid was conveniently ignored by the Adjudicating Authority and tried to focus only on the period subsequent to the benami transaction by which money was injected in the accounts of M/s Danodia Investments Finance Ltd. We find that the subsequent transaction was out of the benami property defined under section 2 (8) of the Act of 1988, and was otherwise out of the benami transaction of M/s Danodia Investments Finance Ltd. Adjudicating Authority conveniently ignored the fact regarding non-existence of 79 entities or it was on papers and pumped in the money in the accounts of M/s Danodia Investments Finance Ltd. The funds came even subsequently in the year 2014-15 also by way of benami transactions and therefore only despite the notice, 79 entities did not respond to the notice. We find that the impugned order is based on surmises and conjectures. And thereby the Adjudicating Authority had ignored all the relevant facts available on record and even referred in the impugned order. Affidavit filed by the non-appellant which is common for majority of the entities. It is of Mr. Somnath Samanta who submitted the supporting affidavit for majority of the non-appellant Companies which includes M/s Danodia Investments Finance Ltd and even for few Square Four Group Companies and other entities. The exception may be for M/s Mahi Trading Private Limited and Micro Network Private Ltd. etc. For Square Four Assets Management, no separate contest has been made, rather the arguments and the representation is common. The affidavits otherwise reverberates the same and it would be relevant that said Mr. Somnath Samanta had filed the affidavit even for Square Four Housing Infrastructure and at the same time for M/s Danodia Investments Finance Ltd. His affidavit is seen even for Square Four Residency Private Limited. The only argument made now be in reference to section 2 (9) (D) defining the benami transaction as amended by the notification of 2016 with effect from 01.11.2016 - The facts available on record shows that transaction or the arrangement in this case is by non traceable or fictitious entities because 79 entities were found either on paper or not traceable, leaving few. The money was pumped in by layering or cash deposit by those entities which were not found traceable or were having no source to pump the money in the account of M/s Danodia Investments Finance Ltd. It is however to clarify that mere reference of a provision different than applicable would not wash the effect of other provision, if applicable. For all the reasons given above, we find force in the argument of the counsel for the appellant Department and find reason to cause interference in the impugned order, which is set aside. The order of the Adjudicating Authority is set aside and the order of provisional attachment is confirmed.

Issues Involved:
1. Confirmation of attachment of properties under the Prohibition of Benami Property Transaction Act, 1988.
2. Legitimacy of the funds and transactions involving M/s Danodia Investments and Finance Limited.
3. Determination of benami transactions as per Section 2(9)(D) of the Act of 1988.

Issue-wise Detailed Analysis:

1. Confirmation of Attachment of Properties:
The appeal was filed under Section 46 of the Prohibition of Benami Property Transaction Act, 1988 ("Act of 1988") against the order dated 28.02.2019 by the Adjudicating Authority, which refused to confirm the attachment of properties of the non-appellants and rejected the reference. The Department appealed against this decision.

2. Legitimacy of the Funds and Transactions:
The appellant argued that M/s Danodia Investments and Finance Limited, incorporated on 26.09.1994, had raised capital through shell companies, which were only on paper. The money received from these shell companies was used to advance loans and investments to various entities. During a search and seizure operation on 03.02.2017, it was found that loans amounting to Rs. 27,81,47,180/- were due from 20 entities. The investigation revealed that the funds were generated through the allotment of shares at a premium of Rs. 990/- per share by a company with no significant business. The Income Tax Department recorded statements from the directors of M/s Danodia Investments & Finance Ltd. and others, revealing that the company was managed by Square Four Group Companies. The funds were found to be from 79 shell companies, most of which were non-existent or had not filed IT returns for years.

3. Determination of Benami Transactions:
The appellant established that the money in M/s Danodia Investments & Finance Limited's account was from benami transactions. The Adjudicating Authority, however, refused to confirm the attachment, stating that the loan advances were made through proper banking channels and thus could not be considered benami transactions. The appellant argued that the Adjudicating Authority failed to consider the benami nature of the initial funds. The funds were generated through the issuance of shares at a high premium by a paper entity and were subsequently used for loans and advances.

The respondents argued that the transactions did not fall under the definition of "benami transaction" as per Section 2(9)(D) of the Act of 1988, as the loans were advanced by disclosed sources. They also contended that M/s Danodia Investments & Finance Limited was a separate entity with its own directors, and the investments made could not be considered benami transactions.

Judgment:
The Tribunal considered the rival submissions and the records. It was found that M/s Danodia Investments & Finance Limited was incorporated on 26.09.1994 and subsequently transferred to Kolkata. The company was served with a show-cause notice under Section 24(1) of the Act of 1988 on 31.10.2017, alleging benami transactions. Incriminating accounts of M/s Danodia Investments & Finance Limited were found during a search operation at the office of Square Four Group, Kolkata. The statements of the directors revealed that the company was sold to Square Four Group in 2014-15 and was managed by Ganesh Kumar Singhania. The funds in the company were largely unaccounted cash pumped in through layering by various companies.

The Tribunal found that the funds in M/s Danodia Investments & Finance Limited's account were from unknown sources or by cash deposit or layering by 79 entities, most of which were non-existent or not traceable. The advances or loans were out of the benami property. The Adjudicating Authority's finding that the funds came through proper banking channels was in ignorance of the benami transaction. The Tribunal concluded that the subsequent transactions were out of the benami property defined under Section 2(8) of the Act of 1988.

The Tribunal set aside the impugned order of the Adjudicating Authority and confirmed the order of provisional attachment. The appeal was allowed.

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