TMI Blog2024 (1) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellants Suresh Bhageria, is a promoter and Director of M/s Bhageria Industries Limited (In short 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prism and Futurage is accounts.mumbai@bhageriagroup.com . (viii) The Headquarters of the Bhageria Group were located in the same geographical area as a bank accounts of Prism 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent to the amendment. 17. In the light of the aforesaid, they were involved in the benami transactions even subsequent to the amendment. A reference of the definition of Benami Transaction under section 2 (9) of 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out payment of consideration rather it was paid or provided by another person. Since it has come on record that on the date of survey, subsequent to amendment by the Amending Act 2016 and even show cause notice, the shares were held by the appellant Companies, it would fall in the definition of Benami Transaction under the Amending Act of 2016. 19. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... punitive in nature. Therefore, it does not attract the prohibition contained under Article 20(1) of the Constitution. Meaning thereby, that if this Court holds that the civil forfeiture prescribed under the 2016 Act is punitive, only then will the prohibition under Article 20(1) apply. If not, then the prohibition does not apply. 98 It is well settled that the legislature has power to enact retroactive/retrospective civil legislations under 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 agencie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dan Dan Chen, [2004] EWHC Admin 3021, where Collins, J. had stated thus: 52. In Mudie, at page 1254, in the judgment of Laws LJ, who gave the only reasoned judgment, there is set out the citation from Butler which reads, so far as material, as follows: It is the applicant's contention that the forfeiture of his money in reality represented a severe criminal sanction, handed down in the absence of the procedural guarantees afforded to him under article 6 of the 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) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of Benami Transaction and such property is not held by the benamidar as on the date of the amendment or subsequent to it, then the Amending Act of 2016 would not be applicable to such a transaction. 26. In other case, where though transfer of the property is prior to the Amending Act 2016, but it is still held by the benamidar even subsequent to the amendment, it would be a benami transaction under the Amending Act, 2016. 27. The clarity of the issue has been made in the light of the contest by the respondents for the first time 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey by the Income Tax Department for the year 2018.-19. 36. The appellants were holding the shares on the date of initiation of action and it could not be disputed by the appellants. The perusal of the definition of Benami Transaction not only makes a reference of transfer of property to fall in the definition of Benami Transaction but even its holding section 2 (9) (A) of Amending Act, 2016 has two parts to consider a transaction to fall within the purview of Benami Transaction, as defined under section 2 (9) (A) of the Act. The first is about the transfer of the property 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty 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 barring the four exceptions carved out with which we may not be concerned. 71. Thus, as per Section 2 (9) (A), there must be a transaction or an arrangement; as per such transaction or arrangement, a property is transferred to or is held by a person; the consideration for such property is provided or paid by another person. Pausing here for a moment, on a comparative analysis of this definition with the definition of benami transaction 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 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mended by the Amendment Act of 2016, then it will attract the stiffer penalty under Section 3 (3). 93. From the conspectus of the discussions made above, it is apparent that Section 2 (9) (A) and Section 2 (9) (C) are substantive provisions creating the offence of benami transaction. These two provisions are significantly and substantially wider than the definition of benami transaction under Section 2 (a) of the unamended 1988 Act. Therefore, Section 2 (9) (A) and Section 2 (9) (C) can only have effect prospectively. Central Government has notified the date of coming into force of the Amendment Act of 2016 as 01.11.2016. Therefore, 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 operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Ganpati Dealcom Private Limited (Supra) but with clarity that if a person holds the property even after the amendment then even if transfer was prior to 01.11.2016, such a transaction would be a Benami Transaction under the Amending Act of 2016 and it would apply to such a transaction. 46. In the case of Nexus Feeds Limited Others, the Division Bench of Telangana High Court has recorded admission of the respondents about the Benami Transactions of a period prior to the Amending Act 2016. 47. The perusal of para 71 otherwise makes it clear that if the property is transferred to any person or held by a person on behalf of any other person of which consideration 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. 52. The learned counsel for the appellant has filed written arguments wherein issues have been raised even in reference to the facts of this case. The learned counsel submitted that no evidence was brought by the respondents to show any Benami Transaction in the hands of the appellant Companies and involvement of Suresh Bhageria, the other appellant. 53. It alleged that side opposite has failed to prove that the finance brought in M/s Prism Scan Express Pvt. Ltd. and also in M/s Futurage Corporate Care Private Limited was by the appellant Suresh Bhageria. 54. The respondent failed to show that the corporate capital brought in the appellant Companies, was at the instance or by Suresh Bhageria. 55. It was also 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 surmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B.I.L. 63. We find that aforesaid factual aspects were considered by the Adjudicating Authority. It was found that the two appellant companies, namely, Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Pvt. Ltd. were not having any funds till 2013-14 and after the companies were acquired, funds have been infused for making investments in financial year 2014-15. The sources of funds in both companies are by way of share capital on high premium. The same was infused by paper companies which were not having any business activity. The Directors of the two appellants were the employees of M/s B.I.L. According to the appellant, finance in the companies was induced after the year 2013-14 but failed to show the source for it. 64. The statements 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of Director of M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited. The same was the position of Suresh Bhageria. Thus, in their statements recorded during the survey, the Directors of the two appellant companies and other connected persons admitted that they were working on the instructions of Shri Suresh Bhageria. The another connecting material was the email I.D. having name of Bhageria Industries though M/s Prism Scan Express Pvt. Ltd. and M/s Futurage Corporate Care Private Limited were shown to be the separate Companies. 71. The Companies were shown to have offices at the residences. The Adjudicating Authority recorded certain facts to show brief financial profiling of Benamidar Companies and following common features were found which 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es/wages, payment of indirect taxes, electricity, rent etc. They were mere paper companies. 75. 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. 76. In view of the above, we do not find the respondent failed to prove Benami transaction as per the provision of PBPT Act. 77. The counsel for the appellant further submitted that inducement of finances in the two Appellant Company could not have been questioned once they were assessed 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to purchase shares of BIL and other Companies. 84. In the light of the aforesaid, we are unable to accept the argument of the appellant that the inferences have been drawn on extraneous consideration. 85. The another argument pressed while referring to the written arguments was as to whether proceedings could have been initiated for alleged Benami transaction under two sub section (A) and ( C) of Section 2(9) of the Act of 2016. The argument was even that section 2 (9) (A) (C ) are in conflict with each other and therefore entire action became illegal. The argument has been raised without going through the provision and the facts available on the record. Section 2 (9) (A) (a) was attracted in view of holding of shares as on the date of amendment by the Amending Act of 2016 and even subsequent to it and so far as section 2 (9) (C ) is concerned, it would be attracted 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 ..... 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