2024 (1) TMI 203 - AT - Benami Property

Prohibition of Benami Property Transactions - transfer of shares prior to the Amending Act of 1916 - Adjudicating Authority has confirmed the Provisional Attachment Order - a contest was made for the respondents who submitted that if anyone is holding a property after the amendment by the Amending Act, 2016 though transfer of property is prior to 01.10.2016, such a transaction would fall in the definition of Benami Transaction as given under section of 2 (9) (A) of the Act of 2016 - HELD THAT - Detailed finding on each issue has been given. Thus, it is not correct to state that the respondent failed to prove benami transaction rather it is the appellant Companies failed to show and prove the financial sources or the source of inducement of finances after the year 2013-2014 other than by co-appellant. It is also submitted that appellant Companies rightfully invested in the shares of B.I.L. and otherwise they were investing in other shares also. The argument aforesaid was made without clarifying as to from where the finance came in the Companies because inducement of finance in the Companies in rightful manner could not be proved by the appellants to show their innocence, but they utterly failed in doing so. A company having no business activity could get corporate finance on higher premium. M/s Futurage Corporate Care Private Limited has shown wholesale business but had no activity of purchase and sale for wholesale to carry out the activities. No expenses were shown to have incurred towards salaries/wages, payment of indirect taxes, electricity, rent etc. They were mere paper companies. The clear conclusion from the survey and subsequent investigation was that control over the two appellant companies was acquired in the year 2014-15 and finances were infused into the companies at the instance of Shri Suresh Bhageria for the purpose of engaging in benami transactions in the shares of B.I.L. and other group companies of the Bhageria group. In fact, the two companies had no activity other than investment in B.I.L. and other Bhageria group companies. In view of the above, we do not find the respondent failed to prove Benami transaction as per the provision of PBPT Act. The appellant had disclosed the sources with relevant information and was accepted by the Tax Authorities. Thus, inducement of funds said to be in the shape of corporate shares on a higher premium could not have been questioned. We find that assessment of income by the income tax authority remain on different footing. They remain concerned about the income and tax payment. The Tax Authorities conducted survey subsequently to detect benami transaction. The assessment of income does not regularize benami transaction, rather it will take its own course. If income of someone is assessed and thereupon found to be out of benami transaction, the action under the Act of 1988 can be taken. All the facts on record are surrounding and pointing towards active role of Suresh Bhageria to first induce the funds into the Companies and then to get purchase of shares of B.I.L. apart from other companies of the group and thereby, it could not be inferred that Initiating Officer was predetermined to make out a case. The appellant had further referred to the statement of Director of Erstwhile shareholder of the company during course of survey. It was submitted by the counsel for the appellant that they ceased to be shareholder at the time of survey in December, 2018. Thus, their statements could not have been relied upon. According to the appellant, the statement of Erstwhile shareholder was irrelevant whereas, we find it be relevant. It is to find out the financials of the two appellant Companies from the year 2013-2014 onwards and to draw conclusion about the Benami Transaction. The statements of the then Directors were relevant and rightly relied by the respondents. In fact, the material available on record and perused by us is sufficient to show close connection between Suresh Bhageria, the promoter of B.I.L. group with M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited and reason of investment in shares of B.I.L. and other companies as benamidars. The appellant has failed to show any business activities of the appellant companies in the year 2013-14 and subsequently to get corporate shareholders on premium. The inducement of funds was itself through Benami Transactions, otherwise Corporate Share would not have been given on higher premium of a Company having no business activity. The money induced therein was used to purchase shares of BIL and other Companies. We are unable to accept the argument of the appellant that the inferences have been drawn on extraneous consideration. In the instant case, there was transfer of shares prior to the Amending Act of 1916, but such shares were held by the appellant Companies even after the amendment and therefore it would fall within the definition of Benami Transaction . In the instant case, the Director of appellant Company, i.e. M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited have denied knowledge about their shareholding or even interest in the Company and thereby the respondent have rightly applied section 2 (9) (A) (C ) of the Act. At this stage, it was submitted that initially show cause notice was not issued in reference to sub-section A rather it was under sub-section (B) and (C ) of section 2 (9). The show cause notice can be given by referring to a particular provision but after appropriate proceedings, if a case is made out under other provision then an order passed thereupon would not be illegal. Thus, we do not find any substance in any of the arguments. As further submitted that despite a mandate of section 24 (1) of the Act of 1988, the reasons to believe recorded in writing was not supplied to the appellant. We have gone through the record and find that a copy of the reasons to believe was not only supplied to the appellant but it has been enclosed with the appeal. In view of the above, the argument for alleged violation of Act is not made out. The argument has been raised that Rule 5 of Rules, 2016 was not complied for attachment. It provides the manner of attachment. We find arguments to be of no substance as the attachment of the property was made after following the rules and therefore the appellant failed to specify specific rule, alleged to have violated for attachment of the property. Thus, even the last argument raised by the appellant cannot be accepted.

Summary

Issues Involved:

1. Constitutionality and applicability of the Prohibition of Benami Property Transactions Act, 1988, and its 2016 Amendment.
2. Definition and interpretation of "Benami Transaction" under the amended Act.
3. Evidence and proof of Benami transactions in the hands of the appellant companies.
4. Alleged violation of principles of natural justice and procedural lapses in the attachment process.
5. Impact of income tax assessments on the determination of Benami transactions.

Issue-wise Detailed Analysis:

1. Constitutionality and Applicability of the Act:

The appeals challenge the order confirming the provisional attachment under the Prohibition of Benami Property Transactions Act, 1988, as amended in 2016. The appellants argued that the transactions in question occurred before the 2016 amendment, invoking the Supreme Court judgment in Ganpati Dealcom Private Limited, which declared certain provisions of the unamended Act unconstitutional and held that the 2016 amendment could not apply retrospectively. The Tribunal, however, noted that the transactions continued to be held after the amendment, thus falling within the scope of the amended Act.

2. Definition and Interpretation of "Benami Transaction":

The Tribunal focused on the definition of "Benami Transaction" under Section 2(9) of the 2016 Amendment, which includes both the transfer and holding of property where consideration is paid by another person. The Tribunal emphasized that the term "held" is crucial, meaning that if a property is held by a person after the amendment, it falls under the definition of a Benami transaction, regardless of when the transfer occurred.

3. Evidence and Proof of Benami Transactions:

The Tribunal found substantial evidence supporting the conclusion that the appellant companies were involved in Benami transactions. The directors of the companies lacked knowledge of business activities and admitted to acting on instructions, indicating they were 'dummy' directors. The Tribunal noted that funds were infused into the companies through share capital at high premiums from paper companies with no business activities, linking the transactions to the appellant Suresh Bhageria.

4. Alleged Violation of Principles of Natural Justice and Procedural Lapses:

The appellants alleged procedural lapses, including the failure to provide reasons to believe under Section 24(1) and non-compliance with Rule 5 of the Benami Rules, 2016. The Tribunal found these claims unsubstantiated, noting that the reasons to believe were provided and the attachment process followed the prescribed rules.

5. Impact of Income Tax Assessments:

The appellants argued that since the income tax authorities assessed the funds, the transactions should not be questioned. The Tribunal dismissed this argument, clarifying that income tax assessments focus on income and tax compliance, not the legality of the transactions under the Benami Act. The Tribunal maintained that the assessment does not regularize Benami transactions.

Conclusion:

The Tribunal concluded that the appeals lacked merit, affirming the provisional attachment orders. It held that the transactions fell under the amended definition of Benami transactions due to the continued holding of shares post-amendment and dismissed the appeals, validating the actions taken under the Prohibition of Benami Property Transactions Act, 1988, as amended in 2016.