Partly allowed

FPA/PBPT/24/CHN/2018 of S. Arivazhagan v/s Sh. K. Visakh Dy. Commissioner of Income Tax, Chennai

ATFP17 Oct 2018FPA/PBPT/24/CHN/2018

Case brief

AI extract

What is this about?

The Tribunal allowed appeals filed by two college employees challenging their provisional attachment under the Benami Act. They acted as money carriers for a tuition collection/disbursement. The court set aside the lower authority's order, holding that no benami property existed in their hands and the attachment was contrary to facts.

What did the court decide?

Impugned orders set aside, properties released forthwith, appeal and pending application disposed of.

FPA/PBPT/24/CHN/2018 of S. Arivazhagan v/s Sh. K. Visakh… — Writ and Judicial Review | ATFP (2018)

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS, PBPT Act

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AT NEW DELHI

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Date of decision : 17^th October, 2018

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1. FPA/PBPT/15/CHN/2018

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P. Ezhilpandian …. Appellant FPA/PBPT/24/CHN/2018 S. Arivazhagan …. Appellant

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2. FPA/PBPT/24/CHN/2018

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Vs.

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Sh. K. Visakh … Respondent Dy. Commissioner of Income Tax, Chennai

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Advocates/Authorized Representatives who appeared

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For the Appellants : Sh. Anirudh Bakhru and Sh. Sudhir Chandra, Advocates

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For the Respondent : Sh. Anish Dhingra, SPP for Initiating Officer (Respondent )

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CORAM

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JUSTICE MANMOHAN SINGH : CHAIRMAN

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JUDGEMENT

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FPA/PBPT/15 & 24/CHN/2018

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By this Order, I propose to decide the above-mentioned 02 appeals filed by the appellants under Section 46 of the Prohibition of Benami Property Transactions Act,1988 against the Order dated 27.03.2018 passed by the Adjudicating Authority, New Delhi.

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St. Joseph College of engineering and St. Joseph institute of technology are two colleges run by two trusts. Mr Babu Manoharan is the Chairman of both, the trusts and the engineering colleges. The Initiating Officer by virtue of his order dated 13.03.2017 u/s 24(4)(a)(i) of the Act has held the chairman to be the beneficial owner and 49 employees of these colleges as benamidars thereafter attaching the salary bank accounts of these employees up to the value of the alleged “ benami ” property. The adjudication proceedings in all 49 cases are in respect of such bank accounts. The adjudicating authority by virtue of its order dated 27.03.2018 u/s 26 (3) of the Act confirmed the aforesaid order.A search action by the Income Tax Department commenced on

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FPA-PBPT-15 & 24/CHN/2018

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Page 1 of 9

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17.11.2016. During the course of this search, from the office computer of the accountant, details of disbursement of amounts to various Department Heads for further disbursements were found.The statement of the Chairman was recorded during the course of search wherein he stated that salary advance was given to employees of two colleges as salary advance for their personal purposes. This was given only to interested employees, who gave their consent for the same. The employees in their statements also agreed to having received such money. He also said that he would pay tax on the entire amount mentioned in the list of disbursement, as income of the trusts. The trust accordingly honored the Chairman‟s commitment and paid taxes on income of Rs 8.18 Crores, availing the scheme of PMGKY.

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The disbursed amounts can then be divided into 5 cases:

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a. In 28 cases ( Number PB 16 to 23, 25, 27, 29, 33 to 39, 45 to 50, 54, 57, 61 and 64 ), the entire salary advanced was returned back to the management of the trusts within 10 days.

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b. In 3 cases (Number PB 28, 40 and 51 ), part of the salary advance was consumed and part was returned back.

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c. In 7 cases (Number PB 30, 31, 53, 55, 59, 60 and 63 ), the entire salary advance was consumed.

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d. In 9 cases (Number PB 26, 32, 41 to 44, 52, 56 and 62 ), the salary advance was partly consumed, partly deposited in the bank from where withdrawn and consumed.

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e. In 2 cases (Number PB 15 and 24 ), the Appellants were mere carriers of money for further disbursal.

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The facts and legal issues in both the appeals are common so as the impugned order. Therefore, in one single order, both the appeals are being disposed of.The relevant facts taken in appeal no. 15/2018, are given below:-

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i) The appellant is employed as a Librarian-cum-Sports Co-ordinator with St. Joseph‟s Engineering College since the year 2002 and is drawing salary of Rs. 98,228/- p.m. The said college is run by St. Joseph Educational Trust (in short “Trust”), whose Chairman is Shri B. Babu Manoharan. The appellant is filing his Income tax returns regularly. He has a bank account No. 482947133 with

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FPA-PBPT-15 & 24/CHN/2018

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Page 2 of 9

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Indian Bank, Chennai in which there was a credit balance of Rs.15,913/- on the date of attachment.

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ii) The Appellant had received from the Trust an amount of Rupees 15 Lakhs for the purpose of organizing College Sports Tournament, which amount after receiving he gave to Mr. Sugumaran, Honorary Secretary, Chennai Football Association.

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iii) On 17/11/2016, a search action u/s 132 of the Income tax Act, 1961 was conducted in the case of the Trust. During the course of search, sworn statement of the appellant was recorded on 19.11.20-16 by the Income Tax authorities.

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The appellant in his sworn statement deposed the receipt of Rs.15 Lakhs and its remittance to the Chennai Football Association, as explained in the pleadings.

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As per directions of the Income Tax Department, on 19.11.2016, the appellant collected back Rs.12 Lakhs from Mr. Sugumaran, Honorary Secretary, Chennai Football Association and handed it over to the Income Tax Department. The appellant was merely a carrier of the said amount who following the directions of Income Tax Department

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The detailed chart which is provided by the learned counsel for the respondent during the course of hearing of the appeal, the facts of which are not denied by the counsel for the respondent, the same is reproduced here below:-

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S Tribunal’s Employment details Money received for Entire money disbursed On the insistence of Bank
N Reference further disbursal (as directed by Trusts) Income tax, money Property Balance
& collected back and held on
Appellant returned back to the Benami 25.01.17
’s Name Income tax by the IO (Date of
Post Since Salary Date Amount Date Amount Date of Amount attach-
Year PM(Rs. Rs. Rs. collecting Rs. ment)
disbursed to back the comprisin
money and g past
handing it salary
over to the savings
Income tax
Department
1 PB Librar- 2002 98,228 14.11.16 15,00,000 15.11.16 15,00,000 to 12,00,000 15,00,000 15,913
. 15/2018 ian/ Chennai 19.11.16 (balance
P Ezhil Sport Co-ordinator Football 3,00,000
Pandian Association were spent
in
Purchas-
ing Sports
items)
2 PB Prof- 1995 131718 14.11.16 3,00,000 14.11.16 3,00,000 to 2,00,000 13,585
. 24/2018 essor Faculty
S. Members of --- ---
Arivazha- his
gan Department

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FPA-PBPT-15 & 24/CHN/2018

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Page 3 of 9

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The Appellant received a show cause notice dated 14/12/2016 from the Initiating Officer (IO). The said show cause notice was not accompanied with any relied upon documents.

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The show cause mentions as under:

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“ The list ofpersons to whom the said cash of Rs.8.18 crores was distributed contains your name Shri/Smt. Shri P Ezhilpandianwhich shows that you have received the cash amount of Rs.15,00,000/-.

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You also under sworn statement taken on 19/11/2016 has stated that you have received the cash amount of Rs.15,00,000/-. This clearly establishes the fact that you have held the cash amount and also lent your name.”

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It was the case of the appellant that show cause are contrary to the factual position as it was pointed out by the Appellant in his sworn statement that the amount of Rs. 15 Lakhs was given to him to organize a Football tournament, which amount in turn was handed over by him to Mr. Sugumaran, Honorary Secretary, Chennai Football Association

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In answer to question No. 12 of his statement, the Appellant stated as under:

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“As directed by the Chairman and Managing Director, Mr. Babu Manoharan, I have collected Rs.15 Lakhs from Mr. Murali, Accountant and given to Mr. Sugumaran, Honorary Secretary, Chennai Football Association for organising S. Joseph’s Football League Tournament for the years 2015-16 and 201617. I will furnish the receipt (Page no……..of the paper book) for the same shortly. Usually the sponsorship amount is paid in cheque, this time we have paid the amount in cash.”

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In his reply dated 30.12.2016 to the show cause notice, the Appellant again unequivocally clarified that the amount of Rs 15 Lakhs was handed over to him by the Trust to in turn hand it over to Mr. Sugumaran, Honorary Secretary, Chennai Football Association for organizing College Sports Tournament.

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The appellantclarified that on the directions of the Income Tax Department, on 19/11/2016 he collected back Rs.12 Lakhs from Mr. Sugumaran, Honorary Secretary, Chennai Football Association and handed it over to the Income Tax Department.

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FPA-PBPT-15 & 24/CHN/2018

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Page 4 of 9

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The definition of Section 2(5), 2(9) and 2(10) of the Benami Act is read as under:

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2(5) “attachment “ means the prohibition of transfer, conversion, disposition or movement of property, by an order issued under this Act;

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2(9) “ benami transaction ” means, -

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(A) a transaction or an arrangement—

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(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

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(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—

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(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;

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(ii) a person standing in a fiduciary capacity for the benefit of another 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;

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(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;

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(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

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(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

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(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;

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(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

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Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53-A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,—

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(i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;

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(ii) stamp duty on such transaction or arrangement has been paid; and

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(iii) the contract has been registered.

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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;

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FPA-PBPT-15 & 24/CHN/2018

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Page 5 of 9

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Thus, every cash transaction cannot be termed as a “ benami ” transaction. As per section 2(9) A of the Act, the following twin conditions need to be satisfied- 1) the property being held by a person who has not provided the consideration, 2) the property is held by that person for the immediate or future benefit, direct or indirect of the person who has provided the said consideration.

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The Appellant‟s role in this case was simply that of a Carrier-collecting sum of Rs.15 Lakhs from the Trust and handing it over to Chennai Football Association. Other than this, no cash at all had been received by the Appellant. The said factual position is not denied by the respondent in its reply or even during the course of hearing of two appeals. Therefore, the question of any benami property lying with the Appellant did not arise at all.

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It is not denied by the respondent that the said amount was not ever deposited in the bank, the IO went ahead and issued a Provisional Attachment order under sub-section (3) of section 24 of the Act for provisionally attaching the aforesaid Indian bank account of the Appellant by completely disregarding the facts recorded in the sworn statement of the Appellant and his reply to the show cause notice.

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The Provisional Attachment Orderdated 25/01/2017 reads as under:

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“The sum of Rs.15,00,000/is due from the Benamidhar, thiru. P Ezhilpandiyan on account of Benami transactions (Prohibitions) Amendment Act, 2016. The savings bank account held by the Benamidhar in your branch is SB A/c No.482947133. You are hereby required u/s 24(3) of the Benami Transactions (Prohibitions) Amendment Act, 2016 to pay to provisionally attach any amount due from you to or held by you o r…………….”

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Before the Adjudicating Authority the statement of his Indian Bank account from November 2016 to March 2017 which completely nullifies the assumption of the I.O that Rs. 15 Lakhs of cash was deposited in the said account and is lying there.

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FPA-PBPT-15 & 24/CHN/2018

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Page 6 of 9

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There is no denial from the side of the respondent that in his reply dated09/02/2017to theProvisional Attachment orderreiterated the factual position as aforesaid and requested the IO to withdraw the ProvisionalAttachment order.The IO completely ignoring the replies given from time to time by the Appellant, passed the Attachment order dated13/3/2017 under section 24(4)(a)(i) of the Actcontinuing the provisional attachment of the property already made under sub-section (3) of section 24 of the Act.

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Para 6 of IO‟s order reproduces a part of the Appellant‟s statement as under:

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“As directed by the Chairman and Managing Director, Mr. Babu Manoharan, I have collected Rs.15 Lakhs from Mr. Murali, Accountant and given to Mr. Sugumaran, Honorary Secretary, Chennai Football Association for organising St. Joseph’s Football League Tournament for the years 2015-16 and 201617. I will furnish the receipt for the same shortly. Usually the sponsorship amount is paid in cheque, this time we have paid the amount in cash.”

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However, in Para 4 ofthe IO‟s order, he writes as under:

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“In response to the notice, the Benamidar had filed a reply, stating that the sum received by cash from through Shri Babu Manoharan, (beneficial owner) are his salary advance. His reply is not acceptable, because in the sworn statement recorded before the Assistant/Deputy Director of Income tax (Inv), during the course of the search, it has been stated by him that he has received the said amount as loan”.

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The IO has given a wrong finding that „the statement before DDIT (Inv) and the submissions made before Initiating Authority are contradictory. Hence their reply in response to the show cause notice issued is only an afterthought.‟

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The IO has not even cared to put on record as to whereexactly in his opinion is the alleged contradiction and which portion of reply is an afterthought.

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24. The IO has held, as under:

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“This shows that ThiruBabu Manoharan has forced his employees to distribute, deposit and retain his own money in

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FPA-PBPT-15 & 24/CHN/2018

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Page 7 of 9

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demonetized currency in the guise of loan received, which has to be repaid after some time in new currency as per his convenience.”

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On the face of record, the order passed by the IO under sub-section (4) of section 24 of the Act dated 13-03-2017 is contrary to law and facts as it relates to a property, which does not exist at all. The Adjudicating Authority has also understood the facts and legal issues involved in the matter.

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The Adjudicating Authority has passed the order dated 27.3.2018 under sub-section(3) of Section 26 of the Act upholding the order passed by the IO under sub-section (4) of the Act dated 13.03.2017 by concluding that :

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“ The I.O. has shown by sufficient material that the properties involved are benami properties. Consequently the property is declared to be a benami property in the hands of the benamidars and the attachment order is required to be confirmed and is hereby confirmed.

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The attachment order passed under section 4 of PBPT Act dt. 13.03.2017 is hereby confirmed. The properties are declared to be benami properties. The reference no. 3 of 2017 is allowed.

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It is not disputed by the learned counsel for the respondent that these two appellants have not received any salary being advance amount. As a matter of fact, it was admitted by them that the money was received by them for further disbursal. There is no denial that the appellants were mere carriers. Even in the reply to the appeals, it was admitted that they were mere carriers and were not involved in benami property.

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It is imperative that the investigating officer must form a reason to believe based on application of mind and appreciation of the material on record ( ACIT v. Dhariya Construction Co.(2010)328 ITR 515 & CIT v. Kelvinator India Ltd (2010) 320 ITR 561 ).

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These statements would show that the money in question was no longer with the appellants and could not have been attached at the hand of appellants who were merely carriers of the amount, the said fact has not been denied either in the reply or during the course of hearing.

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FPA-PBPT-15 & 24/CHN/2018

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Page 8 of 9

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The Notice would show that it is mechanical in nature. In fact, all notices are identical except for the amount mentioned. It shows a lack of application of mind, thus making the jurisdiction assumed under section 24 is invalid. The ordinary citizens who are not involved under Benami Act cannot be harassed in this manner. The Authority must be aware that end of law, criminal liability is

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involved, thus, the authority must be very careful being sensitive matters.

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The existence of the “ benami ” transaction has to be proved by the authorities i.e. the person who alleges the transaction ( Sitaram Agarwal v. Subrata Chandra, (2008) 7 S.C.C. 716 ). The authorities have failed to discharge the burden of proof. The authority has purely gone on the premise that cash is transferred from one person to another, with an object to defeat ,demonetization. This is insufficient to establish a “ benami ” transaction.

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Under these circumstances, the impugned order in two appeals are setaside. The attached properties are released forthwith. The appeal and pending application are disposed of.

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