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TMI Blog2024 (1) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urage 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort BIL ) and part of Bhageria Group of Companies. A survey was conducted under section 133 A of the Income Tax Act, 1961 on Bhageria Industries Ltd. It was alleged that there is benami purchase of shares of B.I.L. by Benamidars, M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited. 3. It was also alleged that the financials of M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited are not administered with the credentials of their Directors. It is also found that Directors of above two Companies were not drawing any benefits from the Company. They were the employees of B.I.L.. More than 50% of shareholding of M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited was held by two other Companies, i.e. M/s Wayforward Trade Private Limited and M/s Accelerate Tradestar Private Limited. The financials of M/s Wayforward Trade Private Limited and M/s Accelerate Tradestar Private Limited were also not commiserating with the credentials of the Directors. The companies had no business activities. The funds in the companies were not matching with the credentials of the Directors. They were having no means to infu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Futurage. 8. On a show cause notice, the appellants submitted their response. The provisional attachment order was, however, confirmed and is being challenged by these appeals. Before going further into the facts, it would be relevant to refer the only issue raised by the counsel for the appellant to challenge the order of Adjudicating Authority. It was in reference to the Judgement of the Apex Court in the case of Ganpati Dealcom Private Limited Versus Union of India, 2020 SCC online SC 1064. It was submitted that the Benami Transaction involved in this case is prior to the amendment in the Act of 1988. The amendment was brought by the notification dated 25th October, 2016 to amend certain provisions of the Act, 1988. The amendment by the Amending Act of 2016 was subject matter of challenge before the Apex Court in the case of Ganpati Dealcom (Supra). 9. After elaborate discussion of the issues raised before the Apex Court, it was held that section 3 (2) of the unamended Act of 1988 is unconstitutional. Section 3 (2) of the Act of 2016 was also declared unconstitutional. It was further held that forfeiture provision under section 5 of unamended Act of 1988, prior to Amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act of Amending Act of 2016 was given and is quoted hereunder:- Section 2. Definitions. In this Act, unless the context otherwise requires, (9) benami transaction means, (A) a transaction or an arrangement (a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by (i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family; (ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose; (iii) any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid issue was not argued by the counsel for the appellant in reference to word held rather they prayed for quashing of the orders in the light of the Judgement in the case of Ganpati Dealcom Private Limited (Supra). 20. The reference of paragraph nos. 69, 90, 91, 92, 93, 96, 98, 117, 120, 127, and 130 were given to support the arguments. 21. Those paras are quoted hereunder for ready reference:- 69. From the above, Section 3 (criminal provision) read with Section 2(a) and Section 5 (confiscation proceedings) of the 1988 Act are overly broad, disproportionately harsh, and operate without adequate safeguards in place. Such provisions were stillborn law and never utilized in the first place. In this light, this Court finds that Sections 3 and 5 of the 1988 Act were unconstitutional from their inception. 90. With respect to the first line of argument, our discussion above can be summarized as under: (a.) Section 3(1) of 1988 Act is vague and arbitrary. (b.) Section 3(1) created an unduly harsh law against settled principles and Law Commission recommendations. (c.)Section 5 of 1988 Act, the provision relating to civil forfeiture, was manifestly arbitrary. (d.) Both provisions wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Constitution. However, Article 20(1) mandates that no law mandating a punitive provision can be enacted retrospectively. Further, a punitive provision cannot be couched as a civil provision to bypass the mandate under Article 20(1) of the Constitution which follows the settled legal principle that what cannot be done directly, cannot be done indirectly . 117 From the above discussion, it is manifest that the Courts have read down the provisions of civil forfeiture to be dependent on the underlying criminal prosecution to temper the harsh consequences envisaged under such provisions. No doubt, such reading down was mandated to ameliorate harsh consequences of confiscatory laws which otherwise would have allowed the State agencies to take over the property without seriously pursuing the criminal prosecutions. At this stage, we can only recommend that the utility of independent provisions of forfeiture, distinct from criminal prosecution, needs to be utilised in a proportional manner, looking at the gravity of the offence. Few examples which may pass the muster of proportionality for having such stringent civil forfeiture, may relate to crimes involving terrorist activities, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Convention, in particular his right to be presumed innocence [sic]. The court does not accept that view. In its opinion, the forfeiture order was a preventive measure and cannot be compared to a criminal sanction, since it was designed to take out of circulation money which was presumed to be bound up with the international trade in illicit drugs. It follows that proceedings which led to the making of the order did not involve 'the determination ... of a criminal charge (see Raimondo v Italy [1994] 18 EHRR 237, 264, at para 43; and more recently Arcuri v Italy (Application No 52024/99), inadmissibility decision of 5th July 2001... 130. In view of the above discussion, we hold as under: a) Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution. b) In rem forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary. c) The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions. d) In rem fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly, we hold that the Judgement of Apex court in the case of Ganpati Dealcom Private Limited (Supra) would apply taking into consideration whether the benami transaction falling under section 2 (9) is of a period prior to the Amending Act, 2016 or it is even subsequent to it. 28. The learned counsel for the appellant has made reference of the judgement of the Apex Court in the case of Commissioner of Wealth Tax, (CWT) Versus Suresh Seth, (1981) 2 SCC 790. 29. It was submitted that once the transfer of property took place prior the Amending Act 2016, then subsequent holding of the property cannot be considered to be a continuance offence. 30. Reference of para 11 of the Judgement (Supra) was given to submit that a wrong or a default of any nature would not continue after its completion and accordingly it was urged that the case in hand involves a transaction prior to the Amending Act, 2016. 31. The learned counsel has made a further reference of the Judgement of the Apex Court in the case of C.I.T Vs. Vatika Township Private Limited (2015) (1) SCC (1). It is to submit that the legislation is presumed to be prospective in nature unless it is made retrospective. The idea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty to a person of which consideration was paid or provided by another person. The second part has been separated from first part by putting word or in between. Under the second part of definition, if the property is held by a person whose consideration has been provided or paid by another person then also it would be a Benami Transaction . 37. The appellant has referred to the definition only by taking the first part, i.e. transfer of shares ignoring the second part of the definition regarding holding of property. If a person is holding a property as on the date of the amendment or subsequent to it, whose consideration was paid or provided by another person, then it will fall under the definition of Benami Transaction . The consideration of definition of Benami Transaction by dividing it into two parts was not made earlier. 38. In the case of Nexus Feeds Limited Others (Supra), we do not find a specific argument in reference to holding of property by a person of which consideration was paid or provided by another person. 39. For the aforesaid purpose, we refer para 69, 69.1, 70, 71, 73 and 93 of the said judgement and are quoted here under. 69. We have already noted above as to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the unamended 1988 Act, we find that there is a subtle but significant difference in the later definition even at this stage itself. As per the amended definition, the property need not be transferred by 'another person'. The property can be transferred to by any person or held by a person on behalf of any person. But the consideration for such property is provided or paid by the 'another person'. The amended definition proceeds further; such transferred property must be held for the immediate or future benefit of the person who has provided the consideration and such benefit may be direct or indirect. It is equally significant to note that under the unamended 1988 Act there was no definition of 'benamidar' and 'beneficial owner'. These two expressions are defined under the Amendment Act of 2016 and must be read in conjunction with the new definition of benami transaction as provided in Section 2 (9). Benamidar is the person, real or fictitious, in whose name the benami property is transferred or who holds such benami property; this would include a person who lends his name to such transfer or holding of benami property. Again, beneficial own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two provisions cannot be applied to a transaction which took place prior to 01.11.2016. Admittedly, in the present case, the transaction in question is dated 14.12.2011. That being the position, we have no hesitation to hold that the show cause notice dated 30.12.2019, provisional attachment order dated 31.12.2019 and the impugned order dated 30.03.2021 are null and void being without jurisdiction. Consequently, the impugned order is set aside and quashed. 40. The Hon ble High Court, no doubt propounded a ratio of prospective operation of the Amending Act of 2016 and even refers to the definition of Benami Transaction . But, the specific argument in reference to holding of the property by a person whose consideration was paid or provided by another person was not raised rather emphasis was in regard to the transfer of the property prior to the amendment by the Amending Act of 2016. The specific argument aforesaid was not raised even before us in any of the appeals decided by this Tribunal earlier rather the decision therein was based on the admission of the counsel for the respondents that Benami Transaction involved therein was of the period prior to 01.11.2016. The orders w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was provided or paid by another, then it would fall under the definition of Benami Transaction . The emphasis was made even in regards to the transfer of the property held immediately or for future benefit of the person who has provided the consideration. It would also fall in the definition of Benami Transaction . 48. According to the Division Bench of the High Court, the two expression words, transfer and held under the amended provision need to read in conjunction and conclusions have been drawn in para 71 in the case (Supra) that Benamidar is a person, real or fictional, in whose name the Benami property is transferred or who holds such Benami property. 49. The conclusion therein are against the appellants who referred subsequent paras, which are literally based on the admissions of the party where it was agreed that the Benami Transaction was of the period prior to the amendment by the Amending Act, 2016. That being the position, the judgement supra, does not support the appellant. 50. The appellants have referred to the judgement of the Apex Court in the case of Suresh Seth (Supra). It is to submit that there cannot be a continuous offence. If the offence is committed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so stated that M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited were not holding majority share of BIL, rather it was only 4% to 5% of the total share of the B.I.L. It is also that they purchased shares of other Companies also other than of B.I.L. 56. In view of the above, the respondents failed to prove Benami transaction in the hands of any of the appellants and thereby the Initiating Officer had drawn conclusions based on surmises and conjectures. 57. Merely for the reason that the email ID for the bank accounts of the appellant Companies were the same and having reference of Bhageria therein could not have resulted in a conclusion about Benami transaction. It could not have been even in reference to the employees of B.I.L to be the Directors of the appellant companies and thereby the learned Initiating Officer failed to conduct a fair, impartial and proper investigation in the matter. 58. The appellant has even alleged violation of principle of natural justice in passing the Provisional Attachment Order. It is for the reason that initially the attachment was initiated in reference to section 2 (9) ( C) and (D) of the Act of 2016 but finally, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Directors of the two companies namely Rohit Vinod Lohiya and Sapna Lohiya were recorded. They had no knowledge of the business activities of the appellant Company and admitted that no benefit from the Company was drawn. They were signing the documents on the instructions. They accepted themselves to be Dummy . The same was the position for M/s Futurage Corporate Care Private Limited because its Director was also employee of B.I.L. and had no knowledge about business activity of the Company. 65. Rohit Vinod Lohia of M/s Prism Scan Express Pvt. Ltd. admitted that he is working as Manager, Sales in B.I.L. and was getting salary of Rs. 56,000/- per month. In the same manner, Shri Murari Lal Gupta, Director of M/s Futurage Corporate Care Private Limited had admitted himself to be the Manager, Sales in B.I.L. and was getting salary of Rs. 53,000/- per month. He was not getting any benefit from M/s Futurage Corporate Care Private Limited rather used to sign the documents on the instructions having no knowledge about the business. 66. Another Director, Sunita Gupta of M/s Futurage Corporate Care Private Limited admitted that she is not drawing any financial benefit from the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are as under :- Both companies are managed and controlled by Shri Suresh Bhageria. Both benamidar companies have directors who are employees of beneficial (employee of Mr. Suresh Bhageria) were appointed in March 2014. Neither of the companies had any funds till FY 2013-14 , and after acquisition of these companies, funds have been infused for making investment from FY 2014-15. The sources of funds in both the companies are by way of share capital on huge premium from corporate shareholders. The persons providing consideration in both the companies are same that is corporate shareholders. Both benamidar companies have applied the funds received into investment in share mainly listed companies whose promoter is Shri Suresh Bhageria. Same Authorized Representative has represented for both benamidar companies. The submissions and the clarification to the statement on oath filed by the both companies are similar. 72. The Adjudicating Authority further considered that Directors in their statement stated about the investment by others. The summons were issued to all those who said to have contributed for the financials of the Companies, but none appeared to make statement, rather det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the Income Tax Department. The Corporate shareholding and share premium on a higher rate was disclosed in the Income Tax Return of 2015- 2016 and 2016-2017 and the specific question, whether the funds received in the form of share premium are from disclosed sources and have been correctly offered for Tax has been decided. 78. 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. 79. 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. 80. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted when the transaction or arrangement in respect of the property is denied by the owner of the property or he denies knowledge of such ownership. 86. The initial notice and even show cause notice was in reference to section 2 (9) (B) (C ), however, the order was passed in reference to section 2 (9) (A) and (C) of Amending Act of 2016. It needs to be clarified that even if the initial show cause notice was not given in reference to section 2 (9) (A) of the Amending Act of 2016, the respondents were not precluded from passing the order in reference to provision attracted on the facts of the case. It is necessary to add that mere reference of an incorrect provision of law would not frustrate the proceeding if a case is made out on facts and under the relevant provision. We otherwise find that section 2 (9) (C ) applies to the facts of case even independent for which notice was earlier served. The transaction or an arrangement in respect of the property where the owner of the property is not aware of or denies knowledge of such ownership on the date of survey or a show cause notice, even if the transfer of property is prior in time. It is the settled law of land that proceedings can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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