Statement Of Contractor Without Supporting Material Not Enough To Declare Transaction Benami: Allahabad HC Quashes Benami Transaction Proceedings

The Allahabad High Court has held that mere statement of the contractor doing construction work cannot be relied upon to declare such construction as benami transaction under the Prohibition of Benami Property Transactions Act, 1988. The Court held that “reasons to believe” in Section 24(1) of the Act must be based on cogent and relevant material.Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 provides that where based on material in his possession, the Initiating Officer has reason to believe that any person is a benamidar in respect of a property, he may record reasons in writing and issue 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.The Court held that for invoking jurisdiction under Section 24(1) of the Act, there are two essential conditions:“ (i) The Initiating Officer should have material in his possession and; (ii) the material should be sufficient to cause a reason to believe.”The Court observed that basis of the statement given by the contractor was not asked nor verified by the Department prior to issuing the show cause notice. It was also observed that no other evidence was relied upon by the Department in the show cause notice. The bench comprising of Justice Vivek Chaudhary and Justice Om Prakash Shukla relied on Calcutta Discount Co. Ltd. v. Income Tax Officer & others, CST v. Bhagwan Industries (Pvt.) Ltd. and Madhya Pradesh Industries Ltd v. ITO, where the Court had held that “the words "reason to believe" are stronger than the words "is satisfied" or "reason to suspect" and the Constitutional Courts have consistently held that the Officer cannot record his satisfaction for "reason to believe" on an arbitrary or irrational basis. The same has to be recorded based upon reasons supported by relevant material.”Case BackgroundThe property in question was purchased by the petitioner on 23.04.2014 and the Act was amended on 25.10.2016. Petitioner challenged the show cause notice issued under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 by which the respondent authorities sought to declare the construction raised on property in question a benami transaction as it was being carried out by the petitioner for his son-in-law. The subsequent provisional attachment order passed under Section 24(3) of the Act was challenged by the petitioner. Petitioner argued that there was no material with the respondent authorities and the notice was issued based merely on the statement of the contractor. The Court observed that in Union of India v. Ganpati Dealcom Ltd. & others, the Supreme Court held that criminal prosecution or confiscation cannot be initiated for transactions which took place before the Act came into force from 25.10.2016 and all such prosecutions and confiscations shall stand quashed. The Respondent Authorities that no action was being taken against the sale of the property but against the construction that was being raised on the property by the petitioner when his son-in-law was the beneficiary of the construction. High Court VerdictThe Court relied on the decision of a coordinate bench of Allahabad High Court in Indra Prastha Chemicals (P) Ltd. v. CIT wherein it was held that under Article 226, the High Court cannot into sufficiency of material, but can adjudicate upon the relevancy of material which forms the “reason to believe” for initiation proceedings under Section 147/148 of the Income Tax Act. The Court observed that since the assessment proceedings with respect to petitioner's income tax return were underway, the Department could have claimed that her earnings of the that year were beyond the known sources of income. The Court further observed that the material sought to be relied on by the counsel for department at the time of hearing of the writ petition was never mentioned in the show cause notice issued to the petitioner. The Court held that mere statement of the contractor without any material backing it cannot form the reason to believe for initiation of proceedings under Section 24(1). Section 24(3) provides for provisional attachment of property where the Initiating Officer under Section 24(1) believes that the alleged benamidar will alienate the property in his possession during the period specified in the notice. However, the same must be done with the previous approval of the Approving Authority. The Court held that no material was available with the respondent authorities to show that property in question was likely to be sold by the petitioner to pass an order of provisional attachment under Section 24(3). Accordingly, the notice initiating proceedings under Section 24(1) as well as the provisional attachment order under Section 24(3) were quashed. Case Title: Meera Pandey Thru. Her Attorney vs. Union Of India, Ministry Of Finance Deptt. Of Revenue (Cbdt) , New Delhi And Others 2024 LiveLaw (AB) 271 [WRIT TAX No. - 11 ...

Statement Of Contractor Without Supporting Material Not Enough To Declare Transaction Benami: Allahabad HC Quashes Benami Transaction Proceedings

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Statement Of Contractor Without Supporting Material Not Enough To Declare Transaction Benami: Allahabad HC Quashes Benami Transaction Proceedings

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