Benami Property Transactions: Burden of Proof and the Search for the Beneficial Owner

ORDER

1. The present appeal u/s 46(1) of the Prohibition of Benami Property Transactions Act, 1988 is filed by the appellant Smt. Radhamani A. (alleged benamidar) against the order dated 29.05.2019 passed by the Adjudicating Authority u/s 26(3) of the PBPT Act, in reference No. R-828/2018, whereby the Provisional Attachment Order dated 15.05.2018 passed by the Initiating Officer u/s 24(4) of the PBPT Act was confirmed qua the following property of the appellant/alleged benamidar Smt. Radhamani A.:-

‘The land measuring 2.0 2 Acres (i.e. 202 Sq. Metre) in Block No. 6, Re-Survey No. 359 Old Survey No. of 58 of Kulanada village, Kozhenchery Taluk, Pandalam, Sub District: Pathanamthitta, District: Kerala’.

2. Facts & circumstances of the case as stated by the IO (from page 2 to 10 of the impugned order) “(A)*: Brief background:

This is one of the 7th benami property identified relating to the common beneficial owner, Sri. M K Rajendran Pillai in the name of Smt. Radhamani A. (in whose cases search was conducted in June 2017 by the DDIT (Inv.), Kollam).

The present property is recently acquired and registered on May 4th 2017.

The details of other properties identified for action under the PBPT Act and already initiated is as under:

In this case it is found from post-search investigation that the actual payments incurred towards the transaction/property and paid to the seller of the property is Rs.20,50,000/- (reg. value Rs.547800 only) in the case of one transaction (@ sl no 1) order u/s 24(4)(b)(i)/24(4) of the PBPT Act, 1988, has already been passed, and the Reference u/s 24(5) was also made to the Adjudicating Authority(AA), New Delhi. The Ref. No. of the AA, Delhi, is 204/2017.

The benamidar and the beneficial owner identified have filed writ petitions (WP) before the Kerala High Court, and the Court has vide it’s orders dated 15.02.2018 & 26.3.2018 granted interim stay/extended stay in respect of all the other 6 proceedings initiated. The only issue contested is on the retrospective applicability of the provisions of the PBPT Act, 1988, for transactions before 01.11.2016. In view of the Stay order of the High Court, no further action could be taken in respect of the other notices/benami properties already initiated by this office and the Adjudicating Authority, Delhi.

(B): Brief note of the Findings during and post-search operations in the case, of Sri M K Rajendran Pillai and Smt. Radhamani:

The investment options in Nagaland are quite limited-for sociopolitical and economic reasons. There is hardly any industry worth the name. Most government contracts are reserved for natives.

Mr Pillai garnered most of the lucrative contracts by using natives as mere name lenders. Outsiders are barred from owning landed property in the state. (the motive for benami investments investment in Kerala)

Other than in Kerala, he also owns residential apartments and commercial properties in Delhi and Bangalore, apartments at Chennai. Jewellery business in Bangalore was closed down few years back. Aluminium fabrication unit at Tirupur is functioning profitably: Mr. Pillai led Sreevalsam Group (SV) of concerns is today among the leading family owned business groups in Central Kerala. The group has jewelleries, textiles, bar attached hotels, automobiles dealerships/resorts, retail trading, schools, etc.

Examples of Manipulations by the beneficial owner (A Finding post search by the DDIT (Inv), Kochi)

Bogus persons/bogus confirmation letters produced by the Pillai group: (One example of a person from whose account amounts have been transferred to the sellers of properties purchased in the name of Radhamani). “There is no person by the name Tep Rengma or GT Rengma. The real name of the person is GK Rengma, but he uses the name Tep Rengma and GT Rengma to identify himself. In fact, he has taken PAN on all three names and opened bank accounts in all the three names. For each account he gives different specimen signatures. In the loan confirmation produced before the income tax authorities, (in previous instances) separate confirmations with different signatures have been produced before the department. This indicates the fraudulent intentions of the assessee. GK Rengma is made a director in Allebasi Builders Limited, whereas Tep Rengma is made a director in Vrindavan builders. Both the Companies are part of Sreevalsam group. The same person, on becoming Director in two companies is having two different DIN number.

The bank accounts used broadly talk into three categories.

(mode of operation)

Category A: These are accounts operated exclusively by Pillai or by people entrusted by him for the purpose. In most of these accounts, the linked mobile number is that of Pillai.

Category B: This includes accounts of concerns like PS enterprises, General Automobiles, Solo Enterprises etc. All these concerns have their own business activities. However, their bank accounts are often used for routing of funds from Category A accounts to various accounts of interest to Shri Pillai

Category C: Accounts through which funds were transferred only once or twice. Such accounts invariably shows less balance and very few transactions. However, fund transfer to Pillai’s accounts (or to accounts where Pillai has an interest) is preceded by cash deposit of an equivalent amount.

In response to the notices/communications from this office, the benamidar has filed written submissions on 2.5.18, and 105.18 From the information/details available on record in the case of Sri MK Rajendran Pillai, and the replies of the benamidar Smt. Radhamani, it is clear that:

This clearly shows that the transaction was a single transaction, the transaction was arranged as single transaction as the seller sold the plots of land to the SV group. The consideration is provided through accounts of 3 nagas and Arun-son of the Sri Pillai and paid directly to account.

It can be seen that the above transaction was not an isolated/single transaction the transaction was arranged as single transaction as the seller sold the plots of land to the SV group. The consideration is provided through accounts of 3 nagas and Arun-son of Sri Pillai, and paid directly Co seller’s account.

The seller has confirmed that a total amount of Rs. (2.02 Cr) 2,02,95,000/-was transferred to his bank accounts as above M/s Rajavalsam Motors Pvt Ltd., to whom her one property was leased, to pay Rs. 909000/ to the account of Fr. Abraham Thomas, the seller. The Co. sanctioned the lease rent advance, and transferred the amount to the seller’s account.

(Note: This property (247/2011) is also a benami property of Sri MKR Pillai, and notice has been issued in respect of the same. The source is again the consideration from the associates of Rajendran Pillai.)

In view of the above, it is held and concluded that the transaction/s/ is/are benami transaction/s, and Smt. Radhamani is held as the benamidar: The properties are held in the benami/ name of person other than those who have paid the consideration, these properties are benami property of Sri M K Rajendran Pillai. The transaction is an arrangement of Sri M K Rajendra Pillai, is a benami transaction.

As per Section 2(9)(A), Benami Transaction is any transaction or an arrangement;

As the property held in the name of Smt. Radhamanai is held as benami, in the name of persons other than those who have paid the consideration (MKR Pillai/his associates from the proceeds/source of SV group), the property is benami property of Sri M K Rajendra Pillai.

It was considered expedient and necessary to provisionally attach the property as mentioned above under section 24(4)(b)(i) of the Prohibition of Benami Property Transactions Act, 1988 till the passing of the order by the Adjudicating Authority under section 26(3), to protect from any charges or alienation. Accordingly, the proposal was put up to the Approving Authority, the Addl. CIT seeking approval for provisional attachment, and the same was approved by the Approving Authority on 15.5.2018.

The provisional attachment order u/s 24 is passed.”

Thereafter, the IO made reference vide no. R-828/2018 to the AA U/s 24(5) of the PBPT Act 1988, alongwith relied upon documents and statements. After receiving the said reference, the AA issued the notice to the Defendants to file their reply alongwith documents in their defence. After receiving the respective replies of the defendants and rejoinder filed by the IO and hearing the rival submissions, the

AA made the following observations in Para 18-20 of the impugned order:

“On perusal of the facts along with the rejoinder it is evident that :-

18. Sale consideration for the said property was not paid by D-1 and the same was paid/transferred to the bank accounts of the sellers from the bank accounts of Shri Arun Raj, son of the beneficial owner Sri. MK Rajendran Pillai. Further, the benamidar did not have sources to buy/ invest in the property, as she is having monthly salary of Rs.40,000/-from Sri. MK Rajendran Pillai [D2]. She had not been filing returns of Income which she did only after search proceeding in the case of Shri Pillai. In view of the aforesaid discussion and having considered the facts and circumstances of the case we hold D-1 to be the benamdiar of the property transacted.

19. The contention of the I.O. for holding D-2 as beneficial as under:-

“The claim of Advance Lease rent & unregistered Lease Deed dated 12.07.2012 has not been supported by the third-party material evidence. It is pertinent to note that the Benamidar Smt. Radhamani has not disclosed this alleged lease income in her return of income for the AYs. AYs. 2012-13 to 2017-18 till 30-11-2017. Further, D1 was asked to furnish the original Lease Deed dated 12.07.2012 and other relevant documents relating to the alleged lease through letter dated 03.05.2018, she has not furnished the same. On perusal of the xerox copy of the lease deed dated 12.07.2012, the following contradictions / discrepancies were noted:

20. Although we have held that the transactions in relation to the property under reference as benami property and have confirmed the attachment order, the IO has not made out a case conclusively for holding D-2, as beneficial owner as evident from the perusal of contents of the reference and rejoinder discussed above. The contention of the 10 that D-2 is beneficial owner cannot be accepted for want of conclusive material brought on record. The discrepancy pointed out in the lease deed submitted combined with the fact that son and father being a stake holder in the same group of the company alone do not make D-2 beneficial owner. Either the IO should have proved that the fund had gone from D-2 or his son had paid the consideration out the fund made available by D-2 and benefit derived from it. The IO need to further make out a case as to who out of the two is the beneficial owner. As of now there is not sufficient material to confirm D-2 as beneficial owner.”

Thereafter, the AA made the conclusions as under:

“Thus, having perused the facts and circumstances of the case, the contents of the reference under consideration including the nature of transacted property, submissions by defendants and rejoinders made thereto, arguments and rebuttal put forward by the both sides, the aforesaid discussions and on the basis of the same we hold that property under attachment is benami property which is subject matter of benami transactions. Provisional Attachment Order is hereby confirmed. However, the contention of the IO that D-2 is beneficial owner cannot be accepted for want of conclusive material brought on record.”

Aggrieved by the said order appellant filed the present appeal.

3. During the arguments, the Ld. Counsel for appellant submitted that the attached property was held as benami Property under the PBPT Act without appreciating the fact that the said property should be covered within the definition of benami transaction to qualify for the same. He pointed out that Section 2(9)(A) of the Act invoked by the Initiating Officer, which is reproduced as under:

“Benami Transaction” means 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;

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He pointed out that Ld. Adjudicating Authority failed to appreciate the fact that the transaction does not satisfy either limb of the definition and consequently the transaction is not a benami transaction and the said land is not benami property under the Act. He stressed that question of attracting Section 2(9)(A) of the PBPT Act does not arise in any manner, in absence of any beneficial owner. He pointed out that on one hand, the Adjudicating Authority held that respondent no.2 Shri Rajendran Pillai is not the beneficial owner, but on the other hand the present appellant is named as benamidar without appreciating the fact that she is the true owner of the flat purchased from own sources of funds. The said land is not in sole possession, control and enjoyment of the appellant, but the said land is not held by her for any immediate or future, direct or indirect for any other person. Hence the question of labelling her as benamidar does not arise. He strongly argued that the burden of proof to establish the transaction as a benami transaction and the land as a benami property lies on the Initiating Officer. The Initiating Officer miserably failed to discharge the said burden, but even then, the appellant is labelled as benamidar without any basis. He pointed out that the Adjudicating Authority wrongly concluded that the benamidar did not have source to buy/invest in the property, as she is receiving monthly salary of Rs.40,000/- from Shri M.K. Rajendran Pillai. He submitted that said conclusion reflects the total nonapplication of mind by the Adjudicating Authority. He submitted that ITRs filed by the appellant Smt. Radhamani A. were not considered on account of delay in filing the same, whereas Income Tax Department and its Assessing Officer has not raised any objection in the said ITRs. Ld. Counsel for appellant also pointed out the lease deed dated 20.07.2012 executed by Smt. Radhamani A. in favour of lessee Shri Arjun Raj Pillai, which reflects that since July 2012 she was receiving monthly lease of Rs.80,000/-. He contended that there is nothing on record to doubt the said lease deed. He also pointed out the copy of sale deed dated 03.05.2017 (Annx. ‘D’) at page number 136 to 144 and its translated copy at page number 141 to 153, which reflects that appellant Smt. Radhamani A. paid sale consideration of Rs.9,09,000/- which was transferred to the State Bank of Hyderabad of the vendor, Fr. Abraham Thomas (priest), in account number 5211 4874022, Branch Chegannur. Ld. Counsel for appellant submitted that the sale consideration of rupees 9,09,000/- for purchasing this property was obtained by appellant as advance rent from M/s. Rajavalsam Motors Pvt. Ltd. vide letter dated 25.04.2017 which is at page number 118 and 174. He has also drawn our attention to the ledger account of M/s. Rajavalsam Motors Pvt. Ltd. with respect to Smt. Radhamani A. and Lease Rent Advance at page number 175 to 177. He also pointed out Form 26AS at page No.178 regarding deduction of Rs.8,000/- P.M. as TDS on adjustment of Rs. 80,000/-already paid as advance rent during the period from May 2017 to December 2017.

Accordingly, he stressed that conclusion drawn by the Adjudicating Authority by not considering the lease rent of Rs. 80,000/-P.M. and the advance rent taken by the appellant, there is a clear perverse and contrary finding to the documents on record.

Aggrieved by the said order, the appellant Smt. Radhamani A., (alleged benamidar), filed the present appeal.

4. On the other hand, Ld. counsel for respondent controverted the submissions made by Ld. counsel for appellant on each and every issue, which will be reflected in our discussion and findings in the following paras.

5. After hearing the rival submissions, the following issues emerge:

Now, we will analyse the above issues in following paras.

6. Coming to issue no. (i) & (ii), the Appellant admitted that the sale consideration of Rs.9,09,000/- for purchase of the land in question was paid from the bank account of M/s. Rajavalsam Motors Pvt. Ltd. taken from its Managing Director, Sh. Arun Raj, son of Shri MK Rajendran Pillai. It is pertinent to mention here that the Appellant has not filed any ITRs for the AYs prior to 2013-14. However, for the first time on 30.11.2017, she filed the ITRs for the 5 years i.e.; for AY 2013-14; 2014-15; 2015-16; 2016-17; 2017-18, as reflected in para no. 02 above in Tabular form. The said ITRs were filed by the appellant only after the search proceedings were undertaken in the case of Shri MK Rajendran Pillai. The contention of the Appellant that the amount of sale consideration of Rs. 9,09,000/- was paid directly by Shri Arun Raj, the MD of M/s Rajavalsam Motors Pvt. Ltd. was against advance lease rent does not hold good, as there is nothing on record to controvert the submissions of the IO that the lease deed is a forged and fabricated document for the following reasons:

Moreover, the delay in filing returns of income by the Appellant further corroborates the case of the Respondent that the property in question is benami in nature and the belated ITRs were filed only to manufacture false evidence and to create defence. Fact remains that the Benamidar Smt. Radhamani has not disclosed this alleged lease income in her return of income for the AYs. 2012-13 to 2017-18, till 30-11-2017. Though, she claimed that TDS has been deducted on the Lease rent for the AYs 2017-18 & 2018-19, she has filed the return of income for the said AYs only on 30.11.2017 (i.e., after the search & seizure proceedings and the Benami proceedings in the case of Shri MK Rajendran Pillai). She has not at all produced any evidence in respect of the receipt of Lease Income for the period from the FY 2012-13 to 2015-16. Appellant has not produced the original lease deed till date. There is nothing on record as to when the company M/s Rajasalvam was incorporated and commenced its business and the initial office/business address at the time when it was incorporated. The appellant has also not filed her bank statement to show that she used to get monthly rent of Rs. 80,000, before she took the advance of Rs. 9,09,000/- for purchasing the impugned property vide sale deed dated 03.05.2017. During the arguments, Ld. counsel for the appellant was directed to produce the bank statement of appellant Smt. Radhamani, to check and verify that before receiving the said advance amount, she regularly received the monthly rent of Rs. 80,000/- after deduction of TDS, but he declined for the same on the pretext that it is the duty of the department. However, we are not satisfied with the contention of Ld. counsel for the appellant, as appellant was duty bound to produce the document/original lease deed as per section 19(2) of the PBPT Act. Further, any person in possession of any material/evidence in his possession is duty bound to produce the same, otherwise an adverse inference can be taken against him, as per Section 103 of the Indian Evidence Act, (now Section 106 of the Bharatiya Sakshya Adhiniyam) as only the concerned persons are aware of the special and particular facts on the said aspects. This corroborates the version of the IO regarding fabrication of the lease deed, in absence of corroborative evidence and we are satisfied with the said conclusion. Moreover, it is mandatory for registration of any lease deed for period of more than 11 months as per Section17(1) Indian Registration Act, 1908. During the arguments, Ld. Counsel for the respondent department pointed out that recovery of another lease deed for monthly rent of Rs. 8500, qua the same property and hence, he contended that the lease deed dated 20.07.2012 is false and fabricated document. However, without going into the in-depth discussion, it is pertinent to mention here that the IO has specifically stated that so called rented property claimed by the appellant Smt. Radhamani is also one of the benami property of Mr. MK Rajendran Pillai and hence, the question of leasing the said property by the appellant does not arise. Ld. Counsel for the respondent department also pointed out that Smt. Radhamani is the benamidar of 16 properties purchased by the beneficial owner in her name, however, issue of retrospective application of PBPT Act is involved qua the said properties. We are satisfied with the contention of the Ld. Counsel for the respondent department.

Hence, issues no. (i) & (ii) are decided against the appellant, as she has not explained the sources of funds for acquiring the impugned property; the ITRs of 5 years were filed 30.11.2017 as an afterthought strategy; original lease deed not produced; and the copy of the lease deed is a forged document, in absence of any corroborative evidence like her bank statement showing receiving the monthly rent of Rs. 80,000/-, before taking the alleged advance rent of Rs. 9,09,000/-.

7. Coming to issues no. (iii), the AA had reproduced the contention of the IO made in the rejoinder in sub para (g) to (i) of para 19 of the discussion part of the impugned order at Page 35 & 36 as under:-

g. Further, the contention of the Defendant no-2 that he is not connected with the said benami property in any manner is not correct. Sale consideration for the said property was not paid from the benamidar’s bank account and the same was paid/transferred to the bank accounts of the sellers from the bank accounts of Shri Arun Raj, son of the beneficial owner Sri. MK Rajendran Pillai. Further, as stated earlier the benamidar did not have sources to buy/ invest in the property.

h. The arrangement which makes it evident that loan given was only for the benefit of the beneficial owner as the same was adjusted against the lease of the property hired by the beneficial owner.

i. Though the D-2 is not the Director of Rajavalsam Group, the property was purchased by Benamidar Smt. Radhamani using the fund provided by Shri Arun Raj, son of Shri Rajendran Pillai (Beneficial Owner). Shri Arun Raj is MD of Rajavalsam Motors P Ltd., and one of the Directors of Sreevalsam Group.”

Thereafter, the AA made the following observation in para 20 of the discussion part of the impugned order:

20. Although we have held that the transactions in relation to the property under reference as benami property and have confirmed the attachment order, the IO has not made out a case conclusively for holding D-2, as beneficial owner as evident from the perusal of contents of the reference and rejoinder discussed above. The contention of the IO that D-2 is beneficial owner cannot be accepted for want of conclusive material brought on record. The discrepancy pointed out in the lease deed submitted combined with the fact that son and father being a stake holder in the same group of the company alone do not make D-2 beneficial owner. Either the IO should have proved that the fund had gone from D-2 or his son had paid the consideration out the fund made available by D-2 and benefit derived from it. The IO need to further make out a case as to who out of the two is the beneficial owner. As of now there is not sufficient material to confirm D-2 as beneficial owner.”

Thereafter, the AA made the conclusion (at page 36) as under:

“Thus, having perused the facts and circumstances of the case, the contents of the reference under consideration including the nature of transacted property, submissions by defendants and rejoinders made thereto, arguments and rebuttal put forward by the both sides, the aforesaid discussions and on the basis of the same we hold that property under attachment is benami property which is subject matter of benami transactions. Provisional Attachment Order is hereby confirmed. However, the contention of the IO that D-2 is beneficial owner cannot be accepted for want of conclusive material brought on record.”

However, we are not inclined to accept the observations recorded by Ld. AA regarding the doubt on the beneficial owner. As per the investigation conducted by the IO, the beneficial owner Sh. MK Rajendran Pillai amassed the huge wealth while working as Additional Superintendent of police in State of Nagaland and after retirement, he obtained the large number of contracts through the benamidars i.e.; local naga persons in order to procure contract, as only Nagas were entitled for the same. Thereafter, Sh. MK Rajendran Pillai, diverted the funds from the said Naga benamidars to his family members, friends and their companies/firms in the State of Kerala and other States, for building his empire and making the investments in various business activities including the company managed by his son Sh. Arun Pillai, MD of M/s Rajavalsam Motors Pvt. Ltd. (as mentioned in detail in para no.2 above). Therefore, technically, not only Sh. MK Rajendran Pillai is the beneficial owner, but his son and his company are also joint beneficial owners in the present transaction pertaining to impugned property, as the sale consideration was tendered by the appellant through M/s Rajavalsam Motors Pvt. Ltd.

However, the AA had already made the observation in para 20 at page 36 of the impugned order as under-

“–The IO need to further make out a case as to who out of the two is the beneficial owner. As of now there is not sufficient material to confirm D-2 as beneficial owner.”

Therefore, we leave this aspect to the IO for independent reinvestigation and filing the limited reference on this aspect before the AA.

Hence, issue regarding the beneficial owner is still open for investigation and it cannot be presumed in vacuum that there is no beneficial owner in the present case and make a wrong conclusion that Section-2(9)(A) of the PBPT Act is not attracted in any manner. Issue no. (iii) is decided accordingly.

8. Now coming to issue no. (iv) & (v), in view of our findings in issue no. (iii), the transaction is fully covered under Section 2(9)(A) of the PBPT Act even though the investigation qua the actual beneficial owner is still open for removal of doubts whether Sh. MK Rajendran Pillai, his son Arun Pillai, his company M/s Rajasalvam Motors Pvt. Ltd. or all of them are beneficial owners or not. Hence, question of releasing the property at this stage does not arise. Accordingly, the citation of this Appellate Tribunal in FPA-PBPT-206/MUM/2018 are not applicable to the facts of the present case. Issue no (iv) & (v) are decided accordingly in favour of Respondent department and against the appellant.

9. Coming to issue no. (vi), as to whether the order passed by the AA can be modified qua the finding pertaining to the beneficial owner, in absence of any appeal filed by the department. We are of the view that in view of Section 46(4)(e) of the PBPT Act, any modifications, variations can be done in the order passed by the AA to meet the end of justice, even in absence of any departmental appeal regarding the same. The same is reproduced hereunder:

“46. Appeals to Appellate Tribunal.—(1) Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal in such form and along with such fees, as may be prescribed, to the Appellate Tribunal against the order passed by the Adjudicating Authority under sub-section (3) of section 26, within a period of forty-five days from the date of the order.

(2) The Appellate Tribunal may entertain any appeal after the said period of forty-five days, if it is satisfied that the appellant was prevented, by sufficient cause, from filing the appeal in time. (3) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

(4) An Appellate Tribunal while deciding the appeal shall have the power—

This Appellate Tribunal can certainly modify the order wrt the findings qua the beneficial owner as per clause (e) of Section 46 of the PBPT Act. But since direction for re-investigation on the aspect of beneficial owner is already given by the AA to the IO, we are not inclined to modify the impugned order on this aspect at this stage.

Accordingly, the issue no. (vi) is decided accordingly.

10. In sequel to our findings on issue no. (i)-vi) in para no. 6-9 above, the present appeal filed by benamidar Smt. Radhamani is hereby dismissed being devoid of any merits.