Seized Assets Deemed Benami Due to Concealment and Retracted Statements.

ORDER

1. This Order disposes of the Appeal No. FPA-PBPT-191/CHN/2018 which been filed by Deputy Commissioner of Income Tax (Benami Prohibition) Chennai (“Appellant”) under Section 46 of the Prohibition of Benami Property Transactions Act, 1988 (“PBPTA”) challenging Order dated 15.10.2018 (“Impugned Order”) of the Ld. Adjudicating Authority in Reference No R-155/2017. M/s SRS Mining (“Benamidar”) is the sole Respondent.

2. Ld. Counsel for the Appellant has stated that the present appeal has been preferred to challenge the Impugned Order dated 15.10.2018, whereby, Ld. Adjudicating Authority has not confirmed the Provisional Attachment Order (“PAO”) dated 27.09.2017.The Provisional Attachment order had held that the movable properties comprising of total cashof Rs. 98,93,34,581/- andtotal gold bullion weighing 166.27 kgare the Benami Property under Section 2(8) of the PBPTA.

3. Ld. Counsel for the Appellant pleaded that Ld. Adjudicating Authority erred in not taking into consideration that post the demonetization of currency notes of denomination of Rs. 500 & Rs. 1000 on 08.11.2016, aforementioned amount of cash comprising of both new and old denominationsalong with gold bullions were recovered from the Respondent Firm on 08.12.2016.

4. Ld. Counsel pleaded that the Respondent has failed to demonstrate the source of recovered cash and gold bullion. Ld. Counsel argued that the Respondent did not bring on record any evidence, documentary or otherwise, which could explain the large amount of cash and gold bullion recovered.

5. Ld. Counsel argued that Ld. Adjudicating Authority did not take into consideration thatthe Respondent Firmhad failed to maintain regular books of accounts andengage a regular accountant. Ld. Adjudicating Authorityfurther failed to take into consideration the detailed parallel cash books which recorded the unaccounted cash generated out of the business of the Respondent Firm, which was maintained byShri S Nagarathinam, employee of the Respondent.Ld. Counsel argued that the Respondent maintained parallel set of accounts. The first set of accounts reflected the income which was reported and the second set of accounts showed the unreported income. The Initiating Officer showed that as per the cash book of parallel set of accounts, the closing balance as on 07.12.2016, i.e. the day before the day of seizure was recorded as Rs. 36,08,16,369/- and that out of this amount, an amount of Rs. 32,64,00,000/- was in new denomination of Rs. 2000/- currency notes and the balance Rs. 3,44,16,369/-was in old denominations of Rs. 500 & Rs. 1000 currency notes. The case of the Initiating Officer is that out of the total cash seizure made, only Rs. 32,64,00,000/- in new currency notes and Rs. 3,44,16,369/- in old currency notesmaybe attributed to the unaccounted sand sales. The balance cash seized to the tune of Rs. 98,93,34,581/- remained unexplained with respect to the source of generation and was not even been reported in the parallel (second) set of accounts. The cash book maintained by Shri S. Nagarathinam has records for the purchase of gold bullion only to the extent of 11.7kg as against the total quantity of seizure made of 177.97kg. Therefore, the Initiating Officer has held that 166.27kg of seized gold bullion remained unexplained with respect to source of money for its purchase.

6. Sworn statements were recorded u/s 132(4) of the Income Tax Act, 1961 before the DDIT(Inv.) Chennai on 08.12.2016 and subsequently on 10.12.2016 of Shri J Sekhar Reddy, Managing Partner of the Respondent Firm, who stated that the entire cash seized was the unaccounted income of the Respondent firm generated out of sand sales and the seized gold bullion also belonged to M/s. SRS Mining (Respondent firm) which was purchased from its unaccounted income of the sandsales. The other two partners of the firm, Shri S Ramachandran and Shri K Rethinam had also given sworn statements on similar lines.

7. Subsequently on 23.03.2017, Shri J Sekhar Reddy retracted the earlier statements recorded from him between 08.12.2016 and 11.12.2016 and denied that the seized cash and gold bullion belonged to the Respondent firm, M/s SRS Mining. The other two partners also filed similar letters dated 29.03.2017 retracting their statements recorded earlier.

8. Ld. Counsel for the Appellant argued that the partners initially stated that the entire seized cash and gold bullion belonged to the Respondent Firm although without having given any basis to establish its source that the same were generated out of sand sales. The Initiating Officer observed that the unaccounted cash sales of the Respondent Firm were recorded in detail in the parallel cash book maintained by Shri S Nagarathinan. Ld. Counsel contended that theretractions of the statements made earlier by the partners and the non-reporting of the seized cash and gold bullion in the parallel set of accounts provide the basis for holding that the excess cash and gold bullion seized to the tune of Rs. 98,93,34,581/- and 166.27 kg respectively was beneficially owned by a third party/parties who remain unknown to the Appellant. The Respondent Firm, M/s SRS Mining was holding the same in the capacity of a benamidar.

9. Ld. Counsel pleaded that the observations and findings of Ld. Adjudicating Authority, are dehors of Section 2(9)(D) of the PBPTA. The reasoning of Ld. Adjudicating Authority is perverse to the provisions of Section 2(9)(D) of the PBPTA since the Appellant had failed to prove that the Benami properties were not held by the Respondent for its own benefit. Ld. Counsel further argued that the insistence by Ld. Adjudicating Authority that in the cases of Benami Property within the import of Section 2(9)(D) of the PBPTA, while there may not be the need to show that the consideration for such property was made by the beneficial owner, the requirement for proving that such property is held for the benefit of a person other than the Benamidar (Respondent Firm) cannot be dispensed with, is incorrect reading of law.

10. Ld. Counsel argued that Ld. Adjudicating Authoritywrongly relied on the Income Tax Returns (“ITRs”) filed by the Respondent to reject the confirmation of the PAO dated 27.09.2017.Ld. Adjudicating Authority failed to take into account that the ITRs were filed on 04.08.2017, i.e. subsequent to the search dated 08.12.2016and the Show Cause Notice dated 29.06.2017. Ld. Counsel argued that the Respondent filed the ITRs only to escape from the rigours of the PBPTA. Ld. Counsel further argued that since the purpose of filing ITRs under the Income Tax Act, 1961 is limited to assessment of tax liabilities, the same cannot be relied upon in proceedings under PBPTA, where the issue under consideration is the determination of Benami Transaction.

11. Ld. Counsel further stated that the Respondent had not filed the ITR for AY 2016-17 but had filed it on 04.08.2017 with inflated income only to circumvent the law. Further filing of the ITRs with inflated income on the same day for two years shows the intent of the Respondent of owning up the cash and bullion which were belonging to others. An analysis of the income as per the ITR of the Respondent filed during different Assessment Years (AY) shows that the Respondent did not have that much income as was shown in the ITR for AY 2016- 17 and 2017-18. The chart showing the income of the Respondent is as follows:

Table

The analysis clearly shows that the Respondent was adjusting someone else’s illegitimate wealth into his business for the future benefit of that untraceable beneficial owner.

12. Ld. Counsel submitted that the notice was issued by the Income Tax Department for the payment of the tax u/s 140 of the Income Tax Act, 1961. Every assessee is bound to pay the selfassessment tax as declared by him at the time of filing of the ITR. The Assessing Officer, Income Tax Department has not assessed the ITR of the respondent and the demand raised is not the demand after assessment but of the self-assessmentas declared by the Respondent itself. The demand letter issued by the Assessing Officer to the Respondent would not tantamount to making the seized cash and gold bullion to be of the Respondent. The benami property would still remain to be a benami property.

13. Ld. Counsel pleaded that the relied upon documents had been furnished to the noticees of the Show Cause Notice, including the relevant extracts of the parallel accounts as maintained in the Diary. Ld. Counsel for the Appellant pleaded to allow the appeal and set aside the Order of Ld. Adjudicating Authority whereby, the Provisional Attachment Order dated 27.09.2017 was not confirmed.

14. The Respondentdid not make an appearance for the finalhearings. We are constrained to limit the arguments to the Written Replydated 14.08.2019filed by the Respondent Firm. The Respondent contended that the Ld. Adjudicating Authority issued a well-reasoned order based on proper application of mind. Ld. Adjudicating Authority was correct in concluding that the movable propertiescomprising of total cash of Rs 98,93,34,581/- and total gold bullion weighing 166.27 kg were not Benami Property within the import of Section 2(8) of the PBPTA.

15. The Respondent contended that it is a partnership firm which is into the business of leasing equipments on hire and purchase& sale of sand, gravel, filling sand and brick earth. The Respondent owns a large number of tippers and excavators.Hence, the Respondent generates huge amount of cash through its businesses.

16. The Respondent contended that the movable properties which are the subject matter of the present proceedings, are the unaccounted income of the Respondent Firm. TheRespondent contended that it stands by the initial statement of Shri J Sekhar Reddy, Managing Director of the Respondent Firmwhich were recorded on 08.12.2016 & 10.12.2016. Shri Reddy had admitted that the entire cash seized was the unaccounted income of the Respondent Firm generated from sale of sand. Further, the seized gold bullion wasbought by the Respondent Firm from the unaccounted income.The Respondent contended that even though the said statements were subsequently retracted, the initial statementsrepresent the correct version of the events, and therefore, Ld. Adjudicating Authority was correct to rely upon the initial statements.

17. The Respondent contended that Ld. Adjudicating Authority correctly took the ITRs filed by the Respondent Firm into consideration. The ITRs filed by the Respondent prove that seized cash and gold bullion belonged to the Respondent Firm only. The Respondent contended that the Initiating Officer had failed to prove that the seized cash and gold bullion were being held by the Respondent Firm for the benefit of some unknown or fictitious beneficial owner.Therefore, it was pleaded to dismiss the Appeal and not to intervene with the Impugned Order.

18. We have considered the rival submissions and the material on record. The following three important questions need to be answered so as to dispose of the Appeal:

19. The very purpose of inserting the Sub-Section 2(9)(D) of PBPTA is to comprehensively cover within the meaning of Benami Transaction, a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious. In contrast the provisions of Sub-Section 2(9)(A) is as follows:

“2 (9) “benami transaction” means,—

(A) a transaction or an arrangement—

Therefore, the requirement of Clause (b) of Sub-Section 2(9)(A) does not exist in Sub-Section 2(9)(D).

20. The definitions of Benamidar and of Beneficial Owner given in Sub-Sections 2(10) and 2(12) respectively are following:

“2(10) “benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name;

2(12) “beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar;”

21. The definition of Benamidar includes a person who lends his name to the Benami Property. We find that the Respondent herein under the facts and circumstances of the present case is the one which has lent its name to the Benami Property. This is not even disputed. However, the Respondent has claimed that the properties belong to it. The investigation has revealed corroborative evidences and attendant circumstances for the inescapable inference that the attached/seized movable properties are those for which the Respondent has lent its name for the benefit of unknown Beneficial Owners. The facts of not reporting even in parallel cash book the seized cash and gold bullion, such cash and gold bullion being in excess of what had been „entered’ into the parallel set of accounts a day before the recovery and the seizure having been made in a month’s time of demonetization reflect the attempt of the Respondent to protect the interest of unknown parties.Even the meaning of Beneficial Owner under Sub-Section 2(12) of the PBPTA does not impose the additional burden to show with proofs that such properties were held for the benefit of untraceable Beneficial Owner(s). The circumstantial evidences as emanating from the sequence of events are sufficient to hold that the impugned movable properties were not held for the benefit of Benamidar.

22. Based on the perusal of the documents, we observe that the ITRs for AYs 2016-17 & 2017-18 were filed on 04.08.2017, that is subsequently to the search and seizure dated 08.12.2016 and the issuance of Show Cause Notice under Section 24(1) of the PBPTA dated 29.06.2017.It is obvious that the Respondent Firm opted for filing returns for two Assessment Years on the same date so as to report the recoveries of huge amount of cash and gold bullion as its income, so as to escape the rigours of the PBPTA. It is significant to note that the Respondent Firmhad failed to bring on record even in its parallel set of accounts the recovered cash and gold bullion. We also note from the Table presented by Ld. Counsel for the Appellant as cited in paragraph 11 of this Order that the income reported by the Respondent for the AYs 2016-17 & 2017-18 far exceeds those reported for the previous two years.

23. The Hon’ble Supreme Court in the case of State of Karnataka v. SelviJ.Jayalalitha (2017) has held that:

“I.T. returns and the orders passed in the IT Proceedings would not by themselves establish that such income had been from Lawful source as contemplated in the explanation to section 13(1)(e) and that independent evidence would be required to account for the same.

Income-tax returns and orders would not ipso facto either conclusively prove or disapprove the charge of disproportionate assets (acquisition of assets disproportionate to known sources of income) and can at best be pieces of evidence which have to be evaluated along with the other materials on record.

The court further held as follows:

The income tax returns and the appendices thereto as well as the orders of the income-tax authorities are neither decisive nor binding on the criminal court.

The Facts narrated therein, if fall for scrutiny in a criminal proceeding, have to be essentially addressed by adducing evidence to prove or disprove the same, as the case may be.Correspondingly, the court would be legally obliged to undertake an incised scrutiny thereof on its own to record its deduction there from.

The scrutiny in an assessment proceeding is directed only to quantify the taxable income and the orders passed therein do not certify or authenticate that the source(s)thereof to be lawful and are thus of no significance vis-a-vis a charge under section 13(1)(e) of the Act. “

It is obvious that the Respondent has relied upon the Income Tax Self-Assessment and issuance of the notice by the Income Tax Department u/s 140 of the Income Tax Act, 1961 to nullify the proceedings under the PBPTA. The Judgment (supra) makes it clear that the Income Tax proceedings would not make the source of income as lawful. Ld. Counsel for the Appellant has clarified that the Income Tax Department has not assessed the ITR of the Respondent and the demand which has been raised has arisen from the self-assessment as declared by the Respondent itself. We therefore observe from the Judgment (supra) and the facts of the case that the reliance placed by Ld. Adjudicating Authority on the demand notice raised under the Income Tax Act, 1961 would make the provisions of the PBPTA otiose and redundant, since, every detection under the PBPTA can be nullified by opting for the assessments under the Income Tax Act, 1961.

24. The circumstances under which the statement or its retraction is to be accepted or rejected need to be evaluated by the Tribunal/ Court. The Hon’ble Supreme Court in a FERA, 1973matter of Vinod Solanki v. Union of India the judgment dated 18.12.2008 [(2008) 16 Supreme Court Cases 537]has given useful pointers. The Hon’ble Court has examined in paragraph 15 of the judgment;

“15. The questions which would arise for our consideration are: (1) whether the appellant had made bald statement at the time of retraction alleging threat and coercion so as to shift the burden of proof from him to the Enforcement Directorate; and (2) whether consolidated penalty could have been imposed only on the basis of such retracted confession”.

25. The Hon’ble Court has gone on to explain in paragraphs 37 and 38 of the judgment (supra), as to when to accept or reject the retracted statement as evidence.

“37. With a view to arrive at a finding as regard the voluntary nature of statements or otherwise of a confession which has since been retracted, the court must bear in mind the attending circumstances which would include the time of retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors. Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the court as such.

38. In the instant case, the investigating officers did not examine themselves. The authorities under the Act as also the Tribunal did not arrive at a finding upon application of their mind to the retraction and rejected the same upon assigning cogent and valid reasons therefor. Whereas mere retractation of a confession may not be sufficient to make the confessional statement irrelevant for the purpose of a proceeding in a criminal case or a quasi-criminal case but there cannot be any doubt whatsoever that the court is obligated to take into consideration the pros and cons of both the confession and retraction made by the accused. It is one thing to say that a retracted confession is used as a corroborative piece of evidence to record a finding of guilt it is another thing to say that such a finding is arrived at only on the basis of such confession although retracted at a later stage.”

26. We observe that the Shri J Sekhar Reddy, Managing Director recorded his statements on 08.12.2016 & 10.12.2016. Shri Reddy subsequently retracted his statements on23.03.2017.We also note that the other two partners of the Respondent Firm, namely,Shri S Ramachandran and Shri K Rethinam took similar position of initially accepting the recovered cash and gold bullion as that of the Firm and then retracting from their earlier position. Subsequently, yet again they went against the retractions. These very circumstance of working in unison among the three partnerswhile shifting their positions at the time of tendering statements and retractions, which are supposed to be true and voluntary, cast doubt on the veracity of their narrations. The recovery of huge cash and gold bullion of substantial amount and quantum cannot be overlooked. The seizure was made by the Appellant only of that amount of cash and the quantum of gold which was not even explainedin the parallel books of account, besides, no mention thereof in the regular books of account. The reason stated by the Respondent that Shri S Nagarathinam could not have kept record of these recoveries because the Respondent undertook sand sale at many places cannot cut much ice in view of the Firm having established businesses which how could not even keep regular accounts. It is not convincing that the Firm wasclueless of its business activities so as to maintain its record even in informal accounting.It cannot also be ignored that the detection and the recovery of unaccounted cash and gold bullion happened within a months’ time of the demonetization. The rush by the Respondent as reflected in the filing of the ITRs for the seizures effected under the PBPTA on the same date for the AYs 2016-17 & 2017-18 cannot but show their attempt to bypass the provisions of the PBPTA. It, therefore, appears to us thatthe seized cash and gold bullion are Benami Properties for which the Respondent lent its name rather disclose the name of the Beneficial Owner(s).

26. In view of the aforementioned discussions and analysis, we find that the transactions or the arrangements relating to seized movable propertiesare Benami within the import of Sub-Section 2(9)(D) of the PBPTA. We, therefore, set aside the Impugned Order dated 15.10.2018 as being devoid of merit and allow the Appeal No. FPA-PBPT-191/CHN/2018. The pending applications are accordingly disposed of.