TMI Blog2021 (10) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... view, therefore, the enquiry contemplated at the stage of initial investigation is only preliminary, based upon prima facie reasons and conclusions. A detailed verification of the evidences as regards whether the transactions were benami or otherwise can, and must only be undertaken in the course of adjudication and not at the stage of preliminary enquiry. The thrust of the petitioner's case is the alleged insufficiency of materials as well as the fact that the evidences gathered are unreliable. However, and at the risk of repetition, the enquiry conducted under Section 24 is only a preliminary enquiry and the use of the phrase 'reason to believe' only indicates a prima facie satisfaction that all was not well as regards a particular transaction. In the present case, the trajectory of events as has been noticed by me in the preceding paragraphs of this order do not lead to the conclusion that the respondents had no reasons at all to justify the invocation of Section 24. Denial of opportunity to cross examine the parties at the stage of investigation - As regards this, the respondents deny that such opportunity was sought for by all petitioners. In any event, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full opportunity to put forth all contentions before the adjudicating authority who shall take note of the same and pass speaking orders in accordance with law. Connected Miscellaneous Petitions are closed and the order of interim protection, if any, stands vacated forthwith. No costs. - W.P.Nos.8146 to 8150, 2813 to 2815, 2817, 2818, 2820, 8540, 8352 and 3641 of 2020 And WMP. Nos.10321, 10023, 3258, 9685, 9682, 9683, 9684, 3253, 4289, 3252, 9677, 9678, 9680, 9681. 10322, 9676, 3255, 3256, 3257 and 9679 of 2020 - - - Dated:- 25-10-2021 - Honourable Dr. Justice Anita Sumanth For the Petitioner in W.P.Nos.8146 to 8150, 2813 to 2815, 2817, 2818, 2820 3641 of 2020 : Mr.R.V.Eashwar Senior Counsel For Mr.R.Sivaraman For the Petitioner in W.P.No.8540 of 2020 : Mr.M.R.Venkatesh For the Petitioner in W.P.No.8352 of 2020 : Mr.N.V.Balaji For the Respondents in the above W.Ps : Mr.R.Sankaranarayanan Addl. Solicitor General of India Assisted by Ms.Sheela Senior Standing Counsel COMMON ORDER This batch involving fourteen Writ Petitions was heard on different dates and thereafter clubbed for the reason that the alleged beneficial owner in all the matters was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressure and commenced negotiations for sale. A price of Rs.192.50 crores was agreed upon. At that juncture, demonetization was announced, notwithstanding which the negotiations for sale went full steam ahead. The petitioners were forced to sign a Memorandum of Understanding (MoU), which, according to them, contained several blank fields. No consideration was received at the time of signing of the MoU. 8.On 16.12.2016, the petitioners allege that a sum of Rs.130 crores was received in demonetized currency after the middleman deducted Rs.8 crores towards his share of the commission. Out of the remaining amount of Rs.119.82 crores, the amounts due to the co-owners was paid to them and the balance retained by the company. Nothing further was paid as, ostensibly, the parties awaited better times when funds could be arranged through regular banking channels. 9.The transaction came to light in the course of a search conducted in the premise of the company consequent upon a search conducted in the premises of VKS. The respondents concluded that the transaction was a benami transaction as defined under the Prohibition of the Benami Property Transactions Act, 1988 (in short PBPT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the avowed understanding that the same will be supplied to them in the course of proceedings for adjudication. 15.The petitioners submit that the show cause notices issued under Section 24(1) hardly indicate any reason to believe or independent application of mind to the facts and circumstances of the respective cases and whether the transactions in question constituted benami transactions, and merely adopt the identical contents of the communication of the forwarding authority. 16.The forwarding authority, who is the Deputy Commissioner of Income Tax, Benami Prohibition, refers to the search and seizure action in the case of VKS, and vide communication dated 14.05.2019, refers to the search conducted and evidences found in her premises. He comes to the conclusion, on the basis of certain papers / documents and cash found in the course of search as well as material found in the mobile phone of her niece, that as on 08.11.2016, VKS was in possession of substantial cash that had been advanced to various entities towards financial consideration for purchase of their assets that she had not been in a position to explain or justify. 17.The notices sent to the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from the lessees to whom space had been leased in the Mall and such transactions were conducted through normal banking routes. The rental income was being offered by the company to income tax regularly. 23.The petitioners rely upon the decisions in the cases of (i) Andaman Timber Industries V. Commissioner of Central Excise, Kolkata - II (62 Taxmann.com 3) (ii) Thilagarathinam Match Works Vs. Commissioner of Central Excise, Tirunelveli (46 taxmann.com 382) (iii). Automotive Tyre Manufacturers Association V. Designated Authority and others (2011 (2) SCC 258) and (iv) Sri Meenakshi Mills Ltd. V. CIT (AIR 1957 SC 49). Facts and legal submissions in Batch -II (W.P.Nos . 8146 to 8150 of 2020) 24.The second sub-batch of Writ Petitions involve various entities that are constituents of the Marg group. A search was conducted in the premises of VKS in November, 2017 and in the course of search, documents were found, impounded and seized and sworn statements, recorded. Entities of Marg group had received notices under the provisions of the Income Tax Act, 1961 (in short I.T. Act ) calling for return of income for various assessment years. 25.The petitioners appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al facilities, term loans had been sanctioned by ICICI Bank for settling of the petitioners dues with Oriental Bank of Commerce as well as to meet other financial obligations. The petitioner was however unable to service the term loans and the loan accounts were thus classified as NPAs in or around the middle of 2016. 32.The petitioner also faced SARFAESI action and had to defend O.A.No.540 of 2016 before the Debt Recovery Tribunal - II at Chennai. On 17.04.2017, a garnishee order had been passed by the Tribunal attaching any remittances received from the property towards the repayment of the bank loans. In view of the financial difficulties, the petitioner intended to dispose the immovable asset and started scouting for good offers. 33.Demonetization had been announced in the first week of November, 2016 when according to the petitioners one Mr.Senthil, Advocate had approached the promoter of the Marg Reality Group. He claimed to represent the former Chief Minister of Tamil Nadu and her associates and negotiated the purchase of equity shares of the petitioners. Pressure was applied upon the promoters to part with the shares under threat of dire consequences, if they were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose to transfer their equity shareholding in the first party company to the 11th party. The parties also confirm receipt of a sum of Rs.115 crores in lumpsum from the 11th party, who agrees to pay the balance of Rs.55 crores on or before 30.04.2017. 40.The petitioners point out that since the subject of the MoU was only the equity shares, there is no question of attachment of Marg Square as it does not figure anywhere in the MoU. The immovable property is an asset, different and distinct from the equity shares and the two must not be confused. Thus, what had transpired between the petitioners and the vendor was a pure commercial transaction and it does not answer to the definition of a benami transaction under the PBPT Act. 41.That apart, the term consideration defined under the PBPT Act connotes full consideration and not part consideration. In the present case, admittedly the petitioner has received only part consideration of Rs.115 crores as against total consideration of a sum of Rs.170 crores. In such a case, the provisions of the PBPT Act cannot be invoked. The burden of proving, since that the petitioner does not answer to the term 'benamidhar' and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose batches. The consideration was fixed at a sum of Rs.168 crores. The facts relating to demonetisation and that too, in part settlement of the total consideration as in the other cases, are identical in the present group as well, as the amount received was a sum of Rs.135.25 crores as against the consideration fixed at a sum of Rs.168 crores. 47.These petitioners would also state that an incomplete MoU was executed by them wherein the name of the purchaser was left blank. At the time of execution of MoU, share certificates had been handed over to the representatives of VKS. The submissions advanced by these petitioners to the effect that the transaction is commercial is the same as argued by the other petitioners. 48.In all the cases, the consideration has been added as income from other sources under Section 156(20(9) of the I.T. Act and those assessments are under challenge before the appellate authorities. Common defence of the respondents 49.The respondents raise a preliminary objection that the Writ Petitions are not maintainable. According to the respondents, sufficient materials were gathered in the course of the search of the premises, both that of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicating Authority Vs Kundan Trading Co. (R/Letters Patent appeal No.748 of 2019 dated 02.04.2019) vi. Tulsiram Ors. Vs ACIT (BP) (W.P.(C) No.3819 of 2019 dated 15.01.2019) vii. VPC Co. Vs Adjudicating Authority Anr . (W.P.No.25406 of 2018 dated 23.10.2019) viii. Mohammed Ibrahim Sait Vs The Deputy Director, Directorate of Enforement and Ors. (W.P.(MD) No.17114 of 2019 dated 15.10.2019) ix. Simmant Kohli Vs Union of India Ors. (w.P.Nos.3957 and 3963 of 2019 dated 17.12.2019) x. Tulsiram Ors. Vs ACIT (BP) (W.A.No.29 of 2020 dated 06.02.2020) 53.The respondents also advance submissions in regard to the merits of the matter pointing out that the PBPT Act does not make any differentiation between a commercial transaction vis-a-vis any other kind of transaction. Thus, any transaction which results in the property of a beneficial owner being camouflaged as one belonging to a benamidhar would come within the sweep of the PBPT Act. 54.As to the argument that only part consideration as per MoU has been received, the respondents would state that there is no necessity for the Department to await completion of the transaction in full and in fact, doing so wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other 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 person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual; (iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or (B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or (C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; (D) a transaction or an arrangement in respect of a property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below: 24. Notice and attachment of property involved in benami transaction .- (1) Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to the person to show cause within such time as may be specified in the notice why the property should not be treated as benami property. (2) Where a notice under sub-section (1) specifies any property as being held by a benamidar referred to in that sub-section, a copy of the notice shall also be issued to the beneficial owner if his identity is known. (3) Where the Initiating Officer is of the opinion that the person in possession of the property held benami may alienate the property during the period specified in the notice, he may, with the previous approval of the Approving Authority, by order in writing, attach provisionally the property in the manner as may be prescribed, for a period not exceeding ninety days from the date of issue of notice under sub-section (1). (4) The Initiating Officer, after making such inquires and calling for such reports or evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(9), that defines a benami transaction. There are certain exclusions that are set out in Section 2(9)(A) (b) and those exclusions are admittedly not applicable in the present case. 63.A transaction, to stand outside the scope of benami transaction, should be one where the consideration has been paid by the one purporting to purchase the property and in whom ownership to the property will vest. 64.No doubt there is a class of transaction wherein, property may vest in one person, whereas consideration flows from another, such as instances when the purchase of a property is by way of financial accommodation. However, it is for the parties concerned to establish with evidence that the transaction in question is a business transaction simplicitor, with all parameters being transparent and fully disclosed. 65.The nature of the transactions in question have to be established by the petitioner before the authorities upon the respondents discharging the initial burden cast upon them to furnish the primary evidences available with them to the effect that the property is benami in nature. This is a rebuttable presumption and the effectiveness of the rebuttal will depend on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sought an opportunity of cross-examination, denial of the same would result in violation of the principles of natural justice. The challenge in that case was to a demand raised in the Central Excise Act, 1944. The demand was challenged all the way to Tribunal which confirmed the same, rejecting the petitioner's request for cross examination stating that the same was unnecessary as it would not bringforth any new material and the burden lay upon those assessees to establish their stand. 71.However, the Hon'ble Supreme Court differed with the High Court stating that where the statements of witnesses are the basis of adverse action, then not allowing the party to cross examine the witness would be a serious flaw that would render that order a nullity. In that case, the assessee had wanted to discredit testimony of the buyers and establish that the goods have been sold to them at prices that were at variance with the price list. Notably, there was no other evidence on the basis of which the demand could have been confirmed and since that opportunity had been denied, the demand had been set aside. 72.In the present case, the testimony of the parties is one among other m ..... 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