Advocate Ashwani Taneja has analyzed the recent judgement of the Appellate Tribunal for Benami Transactions in Akashdeep, IO vs. Manpreet Estates LLP and identified the important principles of law emanating from it. The judgement provides important clarity as to the burden of proof and the role of the Evidence Act as well as the principles of general law concerning benami transactions
ANALYSIS OF THE HON’BLE APPELLATE TRIBUNAL’S JUDGEMENT IN THE MATTER OF: INITIATING OFFICER AND DY. COMMISSIONER OF INCOME TAX (BENAMI PROHIBITION) UNIT-2, MUMBAI VERSUS M/s MANPREET ESTATES LLP & ORS
INTRODUCTION
A landmark judgment has been passed by the Hon’ble Appellate Tribunal (PBPT and Benami Law), New Delhi wherein fine points of the New Benami Law have been decided by the Hon’ble Chairman of the Tribunal.
The note-worthy observations in the judgment have been summarized in the following points:-
BRIEF BACKGROUND
A. M/s Manpreet Estates LLP, (the Respondent Number -1 in the Appeal, described in short as R-1) which is part of the Mid-City Group, inter-alia engaged in Real Estate Development, had acquired 11 flats of the same building, with the intent to redevelop and construct new flats thereon. However the Initiating Officer (the Appellant in the Appeal) had considered the purchase of 10 flats by the R-1 to be a benami transaction and filed a reference before the Ld. Adjudicating Authority alleging therein and R-1 (i.e. M/s Manpreet Estates LLP) to be Benamidar and Respondent Number -2 namely M/s RKW Developers Pvt Ltd to be Beneficial Owner
B. The Initiating Officer had held R-1 (M/s Manpreet Estates LLP) as Benamidar and R-2 (M/s RKW Developers Pvt. Ltd.) as the Beneficial Owner mainly on the ground that the former had taken loan from M/s Dewan Housing Finance Limited (M/s DHFL) which was alleged as to be a related party of the latter and the loan was utilized for payment of consideration for immovable properties i.e. 10 flats of a building, by R-1 (M/s Manpreet Estates LLP) from the erstwhile sellers, who allegedly transferred the consideration to R-2 (M/s RKW Developers Pvt Ltd.).
The Initiating Officer also contended that R-1 (M/s Manpreet Estates LLP) is Benamidar as the actual benefits from the immovable property held by it accrued or would accrue to the R-2 (M/s RKW Developers Pvt. Ltd). The Initiating Officer tried to substantiate this allegation by stating that the immovable property (10 flats) were bought by 5 individual and the directors of 5 companies, wherein these directors were dummy owners of the properties and that these individuals and directors in whose names the immovable property has been purchased are the employees of the R-2 (M/s RKW Developers Pvt. Ltd.)
Consequently, the Initiating Officer (the Appellant) attached aforesaid Flats purchased by R-1 from ten different persons and declared R-1 (M/s Manpreet Estates LLP) is Benamidar and R-2 (M/s RKW Developers Pvt Ltd.) is the Beneficial Owner and thereby filed its Reference and Provisional Attachment Order with the Adjudicating Authority.
C. In the proceeding before the Adjudicating Authority, the R-1 (M/s Manpreet Estates LLP) defended its case and demonstrated that R-1 (M/s Manpreet Estates LLP) is the real and absolute owner of the aforesaid properties and not a Benamidar as alleged by the Initiating Officer and the aforesaid property is not Beneficial property even as per new provisions of the Benami Law.
The Adjudicating Authority agreed with the contentions of the R-1 (M/s Manpreet Estates LLP) and rejected the Reference of the Initiating Officer and released the Attachment Order passed by the Initiating Order on the following grounds:
(a) The show cause notice was vitiated and untenable as there were no reasons to believe provided by the Initiating Officer.
(b) The Initiating Officer failed to serve order u/s 24(4) of the PBPT Act, 1988 on the Beneficial owner, i.e R-2 (M/s RKW Developers Pvt Ltd.).
(c) The failed to discharge his burden of proof for proving that there was a Benami transaction.
(d) The transactions carried out by R-1 (M/s Manpreet Estates LLP) were bona-fide. The Initiating Officer failed to prove Benami transaction as per section 2(9) of the PBPT Act, 1988.
(e) No connection was established between R-2 (M/s RKW Developers Pvt Ltd.), the Beneficial owner and M/s DHFL (loan provider to the benamidar).
(f) Transactions were purchased by R-1 (M/s Manpreet Estates LLP) through genuine sources and for the purposes of re-development.
(g) Possession, control and enjoyment of the property is with R-1 (M/s Manpreet Estates LLP) as established by various statutory records/ permissions for the purposes of re-development.
(h) It was admitted by the Initiating Officer that there was no consideration paid by R-2 (M/s RKW Developers Pvt Ltd.) to R-1 (M/s Manpreet Estates LLP).
However, an appeal was filed by the Initiating Officer before the Appellate Tribunal contesting the aforesaid order passed by the Adjudicating Authority.
ISSUE DECIDED BY THE APPELLATE TRIBUNAL IN IT’S JUDGMENT IN THE APPEAL FILED BY THE INITIATING OFFICER AGAINST THE ORDER PASSED BY THE ADJUDICATING AUTHORITY:
The Appellate Tribunal upheld the order passed by the Adjudicating Authority and gave various significant observations as summarized hereunder:
1. It has been held that merely because the source of consideration paid by the alleged benamidar is funded by way of loan received form a party related with alleged beneficial owner, it cannot be ipso facto held that the consideration has been provided by the alleged beneficial owner and more so when evidences have been brought on record to show that the aforesaid loan was a genuine transaction and was done at arm’s length in normal course of business.
2. It has been further held that before treating the transaction as benami and before treating the property as benami u/s 2(9)(A) of the Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred as PBPT Act, 1988), it is mandatory under the law to determine that there is a beneficial owner (different from the benamidar) for the alleged benami property.
It was also held that unless it is shown that beneficial interest is held with the alleged Beneficial owner and the alleged Benamidar is holding the property ostensibly for the benefit of the Beneficial owner, the property cannot be treated as benami under the new law.
3. It has also been held that attachment of properties u/s 24(3) or 24(4) of the PBPT Act, 1988 is a punitive act and detrimental to the rights and interest of the title holder, therefore it has to be done strictly as per rules prescribed.
It has been held that Rule 5 of PBPT Rules 2016 makes it mandatory for the Initiating Officer to proclaim, the order of the attachment order at some place adjacent to the property attached, by beat of drum or other customary mode and also affix copy of affixation order on a conspicuous part of the property and on the notice board of the office of the initiating officer. Certificate of confirmation of affixture of the order on the notice board of the Initiating Officer was also not found enclosed with the reference, confirming that said mandatory step was not taken at the relevant point if time.
The Hon’ble Chairman observed that the initiating officer in the present case lapsed in the compliance of the procedure as prescribed for the attachment and hence the attachment was non-est.
4. With a view to uphold the validity of the sale/conveyance deed executed between the parties, support was taken of the provisions of section 91 and 92 of the Indian Evidence Act,1872 and it has been held that if a transfer has been done of an immovable property vide a written documentary evidences in the form of a registered sale deed.
The contradictory stand by way of oral evidence is not available unless the party concerned challenging the written documents are able to prove that those are sham documents and executed between the parties contrary to law.
5. With regard to the burden of proof, it was held that once it is shown by the parties to the alleged benami transaction that such transaction is done qua registered sale deed and valid loan agreements, the burden of proof would be shifted upon the Initiating Officer to prove the transaction as benami who is taking contrary stand within the meaning of section 91 and 92 of the Evidence Act, 1872.
6. It is also held that once the burden is shifted upon the I.O. the principles of general law concerning benami transactions available prior to the amendment would apply. The bench took support of the various judgments of the Supreme Court wherein inter alia it was held as follows:-
(a) In order to ascertain whether a particular sale is benami and apparent purchaser is not the real owner, the burden lies on the person asserting to prove so, such burden has to be strictly discharged based on legal evidence of definite nature.
(b) It is the intention of the parties which is to be ascertained, very often such intention is shrouded in a thick veil. It is not possible to pierce the veil easily. However, such difficulties would not relieve the person who asserts that the transaction is benami, of any part of onus that rests on him. The difficulty would not justify the acceptance of mere conjecture or surmise as a substitute of proof.
7. In this case, the bench also rejected the prayer of the department to refer the matter back and give fresh inning to the department to correct the infirmity and lapses committed by it in the proceedings and to implead a new party as an interested party
CONCLUSION
The aforesaid judgment shall go a long way to clarify the correct legal position of new provisions of Benami Law, which is being presently implemented all over the country, mostly in a non-thoughtful, causal and highly vague manner. The above judgment reiterates the position that Benami Law is quite harsh, therefore the Officers (relevant authorities) are expected to implement the law in a meticulous way and with fair and judicious approach. Further no person should now think of entering into any Benami transaction as the consequences are quite severe.
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Dear Advocate, after the amendment, the onus of proving a benami transaction rests entirely on the shoulders of the owner/ benamidar. Before amendment, the burden of proof was on the prosecution to prove the guilt of the Benamidar and beneficial owner. Once both are able to discharge their burden of proof as per amended law, then the burden of proof shifts to the prosecution. Once the burden shits upon the IO, the principles of general law available prior to amendment would apply. Therefore, in my humble view the following observations need to be Re looked into.
“4. With a view to uphold the validity of the sale/conveyance deed executed between the parties, support was taken of the provisions of section 91 and 92 of the Indian Evidence Act,1872 and it has been held that if a transfer has been done of an immovable property vide a written documentary evidences in the form of a registered sale deed.
The contradictory stand by way of oral evidence is not available unless the party concerned challenging the written documents are able to prove that those are sham documents and executed between the parties contrary to law.”
The new law is entirely opposite to the general law of transfer of property.
The Initiating Officer is required to prima facie come to his conclusion and thereafter the burden shifts on the concerned parties to prove otherwise.
Anyway, I may be wrong but this is my personal view taken cursorily on the issue.
Hari Om Maratha.
The Initiating Officer has to prove his case before the Adjudicating Authority and the burden of proof rests on him. What the present law provides is that he can attach the property provisionally and bring it before the AA for adjudication. The prosecution has to prove its case otherwise it falls.