Shell Companies as Front: Tribunal Upholds Benami Attachment of 143 Properties in ₹75 Cr Layering Case

Swagatma Enclave Pvt. Ltd. Vs Initiating Officer (Appellate Tribunal Under SAFEMA Delhi)

The Appellate Tribunal under SAFEMA dismissed the batch of appeals and upheld the provisional attachment of 143 immovable properties under the Prohibition of Benami Property Transactions Act, 1988, holding that the transactions clearly constituted benami arrangements. The case arose from an Income Tax search on the Maharani Group, where it was found that unaccounted cash generated through bogus purchase bills and hawala routing (₹40-42 crore) was infused into shell companies and used to acquire properties in their names.

The Tribunal noted (as seen from the detailed shareholding structure on page 15) that although the properties were in the name of companies, Mahaveer Lunia and his family exercised indirect control through layered shareholding, effectively making them the beneficial owners, while the companies acted as benamidars. The explanation that properties were purchased from company reserves, capital and loans was rejected since the source of such funds, advances and share premium remained unexplained and unsupported by documents.

It was further held that statements recorded during Income Tax search can be validly used in benami proceedings, and absence of cross-examination is not fatal. The Tribunal clarified that benami character is not negated merely because transactions are recorded in books or assessed under the Income-tax Act, and even disclosed income can form part of a benami transaction.

Finding a clear pattern of cash infusion, layering through shell entities, and acquisition of properties to conceal real ownership, the Tribunal held that all ingredients of Section 2(9)(A) were satisfied. Accordingly, the attachments were confirmed and all appeals were dismissed.

FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

By batch of these appeals under Section 46(1) of the Prohibition of Benami Property Transaction Act, 1988 (in short `the Act of 1988’), a challenge has been made to the order dated 30.08.2024 passed by the Adjudicating Authority confirming the Provisional Attachment Order while answering the reference.

2. The case in hand was initiated after a search conducted under Section 132 of the Income Tax Act on 16.06.2022 on Maharani Group of company founded by Shri Mahaveer Lunia. The office of the IO received information along with relevant documents from DGIT (Inv.), Rajasthan, Jaipur. Shri Mahaveer Lunia was shown to be the founder and main promoter of the Maharani Group. The group is mainly engaged in the business of handicraft items viz. clothes, wooden handicraft, various metal handicraft items, for retail sale thereof to local as well as foreign tourists. The business generated huge margin of profit as tourists pay handsome price for choice items. To reduce the profit margin and also to manage cash for the requirements of the group for making further investment in purchase of lands and immovable properties, the firm debited huge bogus purchase bills managed from jewelers of Jodhpur. Payment was made to these jewelers through banking channels against the bogus purchases and cash was received back. Apart from this, Shri Mahaveer Lunia also worked as a money-lender and earns unaccounted interest income. The unaccounted cash was utilized for making purchase of immovable properties and also to acquire shell/paper companies namely (1) M/s Alishan Complex Pvt. Ltd., (2) M/s Principal Dealers Pvt. Ltd., and (3) M/s Swagatama Enclave Pvt. Ltd., earlier managed and controlled by entry operators of Kolkata and Mumbai. Those companies were having security and premium reserves, which was utilized to buy immovable properties. These shell companies were acquired by the group by making investment out of the cash generated through bogus purchases. The unaccounted cash generated through bogus purchases was routed through Shri Anil Sanklecha, CA, a relative of Shri Mahaveer Lunia for purchasing the shell companies. Those companies were operated by Shri Neeraj Khemka and Shri Praveen Agarwal (dummy Director) at the time of share allotment. wherein Shri Praveen Agarwal accepted that these companies are shell companies/paper companies used by him for providing accommodation entries in lieu of cash payment.

3. The shareholding pattern of those companies along with data related to current and previous directors were analyzed by the IO and found that Shri Mahaveer Lunia and his family members have full control and management of these companies since F.Y. 2016-17. No significant changes in financial position or status of these companies before and after their acquisition by the Lunia family were noticed. During the search conducted on 16.06.2022, a detailed list of various immovable properties purchased in the name of three companies was found at the residence of Shri Mahaveer Lunia. It was found that cash was channelized through the shell companies controlled by Shri Mahaveer Lunia and his family members.

4. The allegation was for operation of those entities from Kolkata and Mumbai with the help of Shri Anil Sanklecha, Chartered Accountant, a relative of Shri Mahaveer Lunia. He remained instrumental in facilitating the transactions where approximately Rs.40 to 42 Crores was transacted in cash through Hawala Operators (Angadias), as admitted by the witnesses in his statements. The modus was to induce cash in the shell companies (appellants Nos. 1 to 3) and thereupon to acquire various properties in the name of those companies and accordingly 79 properties were purchased in the name of the appellant M/s Alishan Complex Pvt. Ltd. while 50 properties in the name of the appellant M/s Principle Dealer Pvt. Ltd. and lastly 14 properties in the name of appellant M/s Swagatma Enclave Pvt. Ltd. making it in all 143 properties. The money involved therein was found to be Rs.40 Crores, Rs.18 Crores and Rs.17 Crores respectively in the entities named above. Finding a case of benami transaction, notice was issued to the appellants under Section 24(1) followed by notice under Section 24(3) of the Act of 1988. The provisional attachment order was caused thereupon. It was followed by adjudication by the Adjudicating Authority on a reference by IO. After hearing the parties, the Provisional Attachment Order was confirmed and aggrieved by the aforesaid, these appeals have been preferred by the appellants.

Arguments of counsel for the appellants:

5. The learned counsel for the appellants submitted that initiation of proceedings by the respondents was on an erroneous presumption of benami transaction in the hands of the appellants where three entities were taken to be benamidar while Mahaveer Lunia to be the beneficial owner. It was in ignorance of the fact that Mahaveer Lunia was not the shareholder of the companies, rather he was the founder and the main promoter of Maharani Group. He holds shares of the appellant companies to a very limited extent. It was alleged that Shri Mahaveer Lunia used his unaccounted monies to buy shell companies, namely, M/s Swagatama Enclave Pvt. Ltd., M/s Alishan Complex Private Limited and M/s Principle Dealers Private Limited, which were earlier managed and controlled by the entry operators at Kolkata and Mumbai. These companies were having large amount of security and premium reserve in it, thus could not have been considered to be shell companies. The appellant companies purchased the immovable properties out of their own reserve funds and accordingly no element of benami transaction was existing.

6. The respondents were otherwise under an obligation to prove the case of benami transaction in the hands of the appellants. It could not have been based on inferences or presumption. When the appellant companies were having their own funds, presumption of benami transaction could not have been drawn. It is even if it involved cash transactions unless proved to have been induced for benami transaction.

7. The appellant companies had disclosed the properties in their income tax return and for that appellant M/s Swagatam Enclave Pvt. Ltd. was initially operated and managed by M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd. while appellant M/s Alishan Complex Pvt. Ltd was operated and managed by M/s Shivasha Mercantile Pvt. Ltd. and appellant M/s Principal Delux Pvt. Ltd. by M/s Jagdamba Dealer Pvt. Ltd. and M/s Midland Financial Advisory Pvt. Ltd. The shareholding of those companies changed in the Financial Year 2016-17. Despite the changes in shareholding, there was no significant alteration in the companies’ business operation and even funds. The companies were having sufficient funds to purchase the properties but ignoring their financial status, the impugned order was passed to show involvement of benami

8. The learned counsel referred to the income-tax returns of the appellant companies to show their financial capacity to purchase the properties under Provisional Attachment Order. The learned counsel for the appellants was fair enough to state about the filing of a writ petition before Rajasthan High Court to challenge initiation of benami The writ petition was dismissed, however, leaving issues open for the Authority to consider it on merits and accordingly issues in reference to the facts of the case have been raised.

9. The learned counsel for the appellants submitted that the companies have used DIN No. which further shows genuine transactions, however, IO assumed jurisdiction ignoring all relevant facts of the case.

10. The learned counsel for the appellants further submitted that the impugned order has been passed based on the statements recorded during the course of the proceedings on a search under Section 132 of the Income Tax Act. It is without an independent inquiry by the I.O. and collection of material as a consequence thereof.

11. The counsel for the appellants further submitted that the show cause notice under Section 24(1) of the Act of 1988 was issued on 28.04.2023 for filing of reply by 15.05.2023. However, before expiry of the period, the impugned order was passed on 01.05.2023 itself thus the appellants was not provided proper opportunity of hearing and thereby the whole proceedings should be sacked on the aforesaid ground itself.

12. The learned counsel further submitted that the appellant Mahaveer Lunia said to be holding three appellant companies ignoring the fact that he was not a shareholder of the company. The difference should have been made otherwise between the corporate and the shareholder. The allegation was made against Mahaveer Lunia for introducing cash in the appellant shell companies for purchase of immovable properties. The allegation could not be substantiated by the IO despite burden of proof on him thus on the aforesaid ground also the impugned order deserves to be set aside.

13. The counsel for the appellants further submitted that the IO did not cause independent inquiry for recording reasons to believe for provisional attachment of the property alleged to be involved in benami The proceedings were based on the material collected by the Income Tax Department out of search and seizure operation. In the light of the aforesaid, the IO failed to discharge its obligation to prove the case of benami transaction.

14. The learned counsel for the appellants did not raise any other issue despite an opportunity and even called upon by the Tribunal to raise any other factual or legal issues. The counsel for the appellants recorded her satisfaction to the arguments referred to above and accordingly closed her submissions.

Arguments of counsel for the respondents:

15. The learned counsel for the respondents contested the appeals. Elaborate arguments were made to show a case of benami transaction in the hands of the appellants. The arguments of the respondents would be referred while recording finding on each issue raised by the appellants. It is to avoid repetition of one and the same facts and for the sake of brevity.

Finding of the Tribunal:

16. The brief facts of the case have been given involving purchase of a number of landed properties by the appellant companies. The money for purchase of the properties is alleged to have been induced by Mahaveer Lunia and accordingly notice was issued to the appellants before provisional attachment of the properties.

17. The case of the IO is that on 16.06.2002. a search under Section 132 of the Tax Act, 1961 was conducted on Maharani Group, a business founded by Shri Mahaveer (or Mahavir) Lunia, which specializes in handicrafts. The business was generating huge margin as the tourists were paying handsome price for choice items. The investigation uncovered and found that the group is engaged in fraudulent practices, including inflating expenses through bogus purchase bills from jewelers in Jodhpur. The payments for fake purchases were made via banking channels with introduction of cash and utilizing the same for buying land and immovable properties. The cash was funneled into shell companies controlled by Shri Mahaveer Lunia and his family members. The companies were previously managed by entry operators from Kolkata and Mumbai. The Chartered Accountant (CA) Shri Anil Sanklecha (relative of Shri Mahaveer Lunia) was instrumental in facilitating these transactions. The CA handled approximately Rs. 40-42 crores in cash of Shri Mahaveer Lunia through hawala operators (Angadias) as admitted by him in his statement. This cash was introduced into the shell companies which had huge share premium reserve. It was used to acquire various properties in names of the shell companies. A significant number of properties (79 in name of M/s Alishan Complex, 50 in name of M/s Principle Dealer Pvt. Ltd. and 14 in name of M/s Swagatma Enclave Pvt. Ltd. totalling 143 properties in all) were purchased in name of appellant entities, with the investment of over Rs. 40 crores, Rs. 18 crores, and Rs. 17 crores respectively in different properties from the fiscal years 2017-18 to 2020-21. Following the search proceedings, an independent inquiry was conducted by the IO. Show Cause Notices u/s 24(1) of the Act were issued to the parties on 28.04.2023 for reply by 15.05.2023. However, the I.O. issued Provisional Attachment Order under Section 24(3) of the PBPT Act on 01.05.2023, after just three days of the show cause notice. This was done without waiting for the appellants’ response or providing a fair opportunity of hearing, making the provisional attachment order procedurally improper.

18. The appellants raised the aforesaid issue in Civil Writ Petition No. 16732/2023, 14527/2023 & 15074/2023 before the High Court of Judicature for Rajasthan, seat at Jodhpur. The High Court held as under:

“17. So far as argument of the learned counsel for the petitioners to the effect that the provisional attachment order passed by the Initiating Officer under Section 24(3) of the PBPT Act is illegal as the petitioner were asked to submit response/reply to the notice under Section 24(1) and (2) of the PBPT Act up to 15.05.2023 but without waiting for reply, the initiating Officer passed the provisional attachment order on 01.05.2023 is concerned, from bare perusal of the provisions of Section 24 of the PBPT Act, it is clear that the Initiating Officer is not required to wait or consider the response/reply filed pursuant to the notice under Section 24(1) & (2) of the PBPT Act before passing the provisional attachment order. The only requirement for the Initiating Officer is to seek approval of the approving authority before passing the provisional attachment order under section 24(3) of the PBPT Act and from the provisional attachment order dated 01.05.2023, it is clear that prior approval of the approving authority was obtained by the Initiating Officer. Hence, the said argument of the learned counsel for the petitioner being bereft of merits is rejected.”

19. Aggrieved by the aforesaid order, appellants filed Review Petition (D.B. Review in Petition (Writ) No. 20/2024) before High Court of Judicature for Rajasthan, Jodhpur, which was also dismissed by Hon’ble High Court vide order dated 09.04.2024. In view of above, the issue does not survive.

20. One of the argument of the appellants is that statements of different persons recorded by the Income Tax Department, behind their back could not have been relied upon.

21. We have considered the aforesaid issue also. The statements recorded under one statute can be used in proceedings under another statute, if the provisions and purposes of the statutes align and there is no express prohibition against it. In the case at hand, statements were recorded under section 132(4) of the Income Tax Act, 1961 and the same have been used for the proceedings under the PBPT Act. Therefore, it becomes necessary to examine whether Income Tax Act and PBPT Act can be construed together. It cannot be denied that the purpose of both the Income Tax Act and the PBPT Act is to ensure transparency and legality in financial transactions and asset holdings. The PBPT Act, like many other legal frameworks, allows for the use of statements and evidence that are relevant to the case, regardless of where or under which Act they were originally recorded. Section 60 of the PBPT Act clarifies “Applications of other laws not barred”. The provisions of the Act of 1988 shall be in addition to, and not, save as hereinafter expressly provided, in derogation of any other law for the time being in force. It is evident from above that the PBPT Act empowers and enables Authorities to use application of other laws. In view of above, the statements recorded under the Income Tax Act, 1961 could have been used for the proceedings under the PBPT Act, 1988. The appellants failed to explain as to why the statements recorded under Section 132 of the Income Tax Act could not have been relied. It is along with other material collected during the course of search and subsequently.

22. It was further submitted that the statements recorded behind the back had no evidentiary value. The issue has been linked with the issue of denial of cross-examination of the witnesses.

23. We may first clarify the issue of right of cross-examination of the witnesses which is not inbuilt under the Act of 1988. The right of cross-examination depends on the nature of the proceedings. The issue aforesaid has been dealt with by Madhya Pradesh High Court in the case ofHarivallabh Mohanlal Joshi Vs. Union of India in Writ Petition (C) No. 16633/2018 decided by the order dated 13.08.2018. The judgment of the Apex Court was taken into consideration to hold that cross-examination is not an integral part of the principle of natural justice. However, it is open for the competent authority to examine the available circumstances and if deems fit, the opportunity to cross-examination can be provided, but not as a matter of right. The same view was taken by the Madras High Court in the case of M/s Marg Realities Ltd. Vs. Dy. CIT (Benami Prohibition)  reported in 448 ITR 574 (Mad)(HC) to hold that there is no provision under the Act of 1988 to provide an opportunity for cross-examination.

24. It is to further clarify that the initiation of proceedings by the IO or the subsequent order passed by the authority is not based on the statement of witnesses alone but the material collected during the course of proceedings under the Income Tax Act, 1961 and the Act of 1988. The authority concerned has analyzed the plea taken by the appellants regarding availability of the funds in the account of the appellant companies. It was in the form of security capital and loan amount. It further analyzed that no source for securing the advances/loan by the appellant companies could be given. It is coupled with the fact that no material was revealed for repayment of loan or advances thus it was rightly taken to be a case of accommodation entities. Otherwise, the necessary documents for taking advance/loan could have been available or would have been produced by the appellants but no such material could be revealed during the course of inquiry/investigation.

25. Detailed finding in that regard has been recorded, thus, the impugned order has not been passed merely on the statements of the witnesses but other material to prove the case of benami At this stage, we may further refer to the retraction of the statement by Sh. Anil Sanklecha, CA, relative of Mahaveer Lunia. The retraction was made by an affidavit after expiry of the considerable period and it is not that the statement of Sh. Anil Sanklecha, CA was recorded by the Income Tax authorities under duress or coercion. Retraction for the sake of it and with the delay is not acceptable. It is otherwise a fact that the impugned order has not been passed only based on statements, rather it was with corroborative evidence and the material and, therefore, rightly relied upon by the respondents.

It may be that stand-alone statements indeed may lack evidentiary value, if they are not corroborated or supported by other evidence. However, if these statements are consistent with other evidence or provide essential context to understanding a transaction or arrangement covered under the PBPT Act, they can carry significant weight.

26. In the case at hand, it is observed that the IO has not relied only on the statements of third persons like Sh. Anil Sanklecha, CA etc. but duly analyzed the shareholding pattern as well as current Directors in these companies and after analyzing all financials, found that Shri Mahaveer Lunia and his family members are now having full control and management of three companies since F.Y. 2016-17. Moreover, during the search conducted on 16.06.2022, detailed list of various immovable properties purchased in names of these three companies were found at the residence premises of Shri Mahaveer Lunia. These facts show that the statements were corroborated and supported by other evidences. Therefore, the contention of the defendants that statements recorded behind their back have no evidentiary value, cannot be accepted. They could not otherwise question truthfullness of the statements. There is no provision to record statement in the presence of the benamidar or beneficial owner.

27. It was urged that Shri Mahaveer Lunia is not a shareholder in the appellant Companies. He holds shares of the shareholding company, that too of limited extent. The appellant companies purchased immovable properties out of their own funds and those properties become the properties of the company and shareholders do not become the owners of the properties of the Company. The IO has committed serious error in holding that the company has purchased the immovable properties for immediate future benefit, direct or indirect for Shri Mahaveer Lunia. It is not in dispute that the properties under question have been acquired in the names of appellant companies but was out of unaccounted cash of Shri Mahaveer Lunia and utilized for purchase of immovable properties. It was first to buy shell/paper companies namely (1) M/s Alishan Complex Pvt. Ltd., (2) M/s Principal Dealers Pvt. Ltd and (3) M/s Swagatama Enclave Pvt. Ltd. etc., earlier managed and controlled by the entry operators of Kolkata and Mumbai. It had reserve share premium and then to purchase the landed properties.

28. The submission of the appellants is that Shri Mahaveer Lunia is not shareholder in the appellant Companies and in fact he holds shares of the shareholding company, that too of limited extent. The appellant M/s Swagatma Enclave Pvt. Ltd. were having two shareholders namely M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd. with shareholding of 49.99% each. It is also seen that Shri Mahaveer Lunia and his family members are having 50% shareholding in both in M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd. Similarly, M/s Shivaasha Mercantile Ltd. is having 99.98% shareholding in M/s Alishan Complex Ltd. in which Mahaveer Lunia and his family members are having 58.24% shareholding. Likewise, M/s Mahavir Agency Pvt. Ltd. and M/s Jagdamba Dealer Pvt. Ltd. are having 49.98% each shareholding in M/s Principle Dealer Pvt. Ltd. Further, M/s Jodhana Buildmart Pvt. Ltd. and M/s Marudhar Landcon Pvt. Ltd. were having 50% each shareholding in M/s Mahavir Agency Pvt. Ltd. Shri Mahaveer Lunia and his family members were having 100% shareholding of M/s Jodhana Buildmart Pvt. Ltd. and M/s Marudhar Landcon Pvt. Ltd. The shareholders along with their shareholding and subsequent shareholders are given in the following table:-

29. It is evident from above that Shri Mahaveer Lunia and his family members are now having 50% or more shareholding in the appellant companies. These facts assume significance since Shri Mahaveer Lunia has not only taken over shareholding of the shareholder of BD as on current date but is also a Director of BD’s since 06.01.2020. Hence, Shri Mahaveer Lunia got direct control of BD as a future benefit. Therefore, it cannot be said that he is having shares of the shareholding company upto limited extent.

30. Further, the appellants have submitted that the benamidar companies acquired disputed immovable properties using their own funds, including capital, reserves, and loans, all of which were reported and accepted by the Registrar of Companies (ROC) and the Income Tax Department. The companies regularly filed their income tax returns, accounts, and audited financial statements. M/s Swagtma Enclave Ltd. was initially operated and managed by M/s Surpati Packaging Pvt Ltd. and M/s Upward Commerce Pvt. Ltd. M/s Alishan Complex was initially operated and managed by M/s Shivaasha Mercantile Pvt Ltd and M/s Principle Dealer Pvt. Ltd. initially operated and managed by M/s Jagdamba Dealer Pvt. Ltd. and M/s Midland Financial Advisory Pvt. Ltd., shareholding changed in FY 2016-17 leading to the Mahaveer Lunia family becoming the shareholders. Despite these changes in shareholding, there was no significant alteration in the companies’ operations.

31. We find that the transactions under question came to light, when list of properties under question were found at the residential premises of Shri Mahaveer Lunia during the search action carried out by the Income Tax Department on Maharani group on 16.06.2022. The group specializes in business of handicrafts. During search and post search investigations, it emerged before the Income Tax Authorities that this business generates huge margin as the tourists pay handsome price for choice items. The investigation uncovered the group engaged in fraudulent practices, including inflating expenses through bogus purchase bills from jewelers in Jodhpur and payments for these fake purchases were made via banking channels, with the cash being returned from such jewelers, which was utilized for buying shell companies. In the cases in hand, appellant companies have been alleged to be shell companies having reserve share premium previously managed by entry operators from Kolkata and Mumbai. As per the allegations made by the IO, unaccounted cash of Shri Mahaveer Lunia was routed through hawala operators, in which Chartered Accountant Shri Anil Sanklecha (relative of Shri Mahaveer Lunia) played a role. The appellants have submitted that the disputed immovable properties were purchased by the appellants using their own funds, including capital, reserves, and loans, all of which were reported and accepted by the Registrar of Companies (ROC) and the Income Tax Department. Therefore, it becomes necessary to examine whether these companies have disclosed sources of their funds, capital, reserves and loans.

32. It is noticed that the appellant companies have submitted information related to their capital and share premium, consolidated data, which is as under:

Apart from above, appellant companies have submitted that they have received funds from entities to which advances were given by them in the previous years i.e. Chanakya Finvest Pvt Ltd, Bangbhumi Properties Pvt Ltd, Bangbhumi Realestate Pvt Ltd, Moonstar Projects Pvt Ltd, Everlink Complex Pvt Ltd, Dreamlight Developers Pvt Ltd, Mahaveer Lunia, Gajraj Abasan Pvt Ltd, Bosslife Residency Pvt Ltd, Bosslife Residency Pvt Ltd, Ridhi Vincom Pvt Ltd, Wheelers Developers Pvt Ltd, Lakeview Highrise Pvt Ltd, Suniyojit Hirise Ltd, Kandoi Financial Services, Lake Residency Pvt Ltd, Gajraj Heights Pvt Ltd, Sappers Finance And Consultancy Pvt Ltd, Jia Auto Sales Pvt Ltd, Shyam Stock, MarudharbhumiDevelpers Pvt. Ltd.

33. It is noticed that the appellant companies have not given the details when the loan/advances were given to above mentioned entities and at what interest rate the loan/advances were provided. The source to advance the loan and of reserve capital and share premium has not been disclosed. The appellant companies have not furnished any legitimate document to declare the source of advances and, therefore, could not be verified. On the contrary, the IO specifically mentioned that the companies like M/s Bangbhumi Properties Pvt Ltd, M/s Bangbhumi Real Estate Pvt Ltd, M/s Chankya Finvest Pvt Ltd and M/s Bosslife Residency Pvt Ltd were Kolkata based companies. One Sukanta Mitra was Director in M/s Chankya Finvest Pvt Ltd. during the period 16.06.2008 to 07.08.2015. The statement of Rakesh Kumar Agarwal was recorded u/s 131 of the Act on 21.11.2014, in response to Q9, he had clearly admitted that Shri Sukanta Mitra including some other persons were made dummy Directors of the shell companies by him, who were mostly his relatives, associates and employers, who lend their name for directorship in lieu of some remuneration which was provided by him from time to time. The statements of Shri Rakesh Kumar Agarwal, Shri Mahaveer Lunia and others have been corroborated by various records/documents found during search on Mahalaxmi Group. In view of above, it is evident that companies like M/s Chankya Finvest Pvt Ltd. and other companies were shell/paper companies from which appellant companies have shown various receipts/credits for making payment to sellers of the lands/immovable properties. In view of above facts and situation, it is evident that the source of capital, share premium and funds shown as advances returned from different entities prior to purchase of properties under question remained unexplained. Those funds were not introduced in these companies by their shareholders or directors. 34. It is noticed that Shri Anil Sanklecha, CA in response to question numbers 50, 55 in his statement recorded on oath u/s 132(4) of the I.T .Act, 1961 stated on 17.06.2022/18.06.2022 and admitted that he has received cash from Mahaveer Lunia to the tune of Rs. 40-42 crores (approx.) through Angadia (Hawala operator) in Mumbai, which was routed in the shell entities. He also stated that his servant Mr. Suresh Mukhia was one of the Directors in those companies earlier. In order to verify the veracity of said submission, list of current and previous directors was perused from the records, wherein it is seen that Shri Suresh Mukhia was director in past. It is also noticed from material on record that one company was having two shareholders namely M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd. with shareholding of 49.99% each. It is also seen that Mahaveer Lunia and his family members were having 50% shareholding in both M/s Surpati Packaging Pvt. Ltd. and M/s Upward Commerce Pvt. Ltd. Similarly, M/s Shivaasha Mercantile Ltd. is having 99.98% shareholding in other companies, in which Mahaveer Lunia and his family members were having 58.24% shareholding. Likewise, M/s Mahavir Agency Pvt. Ltd. and M/s Jagdamba Dealer Pvt. Ltd. are having 49.98% each shareholding. Further, M/s Jodhana Buildmart Pvt. Ltd. and M/s Marudhar Landcon Pvt. Ltd. are having 50% each shareholding in M/s Mahavir Agency Pvt. Ltd. Mahaveer Lunia and his family members are having 100% shareholding of M/s Jodhana Buildmart Pvt. Ltd. and M/s Marudhar Landcon Pvt. Ltd.

35. It is evident from above that Mahaveer Lunia and his family members got 50% or more shareholding in the appellant companies. The above shareholding clearly shows that Mahaveer Lunia and his family members had indirect control over appellant companies through mediator shareholders and were managing the affairs for routing their unaccounted money keeping themselves in disguise. In fact, a smoke screen has been created by Mahaveer Lunia and his family members through mediator shareholders where appellant companies were used as a front to hide the identity of real owner and to keep revenue authorities in deception.

36. In view of above, it is found that appellant companies were shell or paper companies, previously controlled by entry operators in Kolkata and Mumbai, and were used to facilitate accommodation entries for cash payments. Further, during search action carried out by Income Tax Department, it was revealed that total of 143 properties of worth more than Rs. 75 crores (40 crores in the name of one company, Rs. 18 crores in another and Rs. 17 crores in the name of third company) had been acquired between 2017 and 2021, mostly in FY 2017-18 and it was unearthed that presently Mahaveer Lunia and his family members are having control over it. Since FY 2016-17, Shri Mahaveer Lunia and his family have controlled appellant companies raising questions about wherefrom and on what basis the share premium was infused, under what rationale and how the capital reserves of the appellant companies came into existence and how and at what price Shri Mahaveer Lunia or his family members acquired the said shareholding. Proper explanation with supporting legitimate documents has not been furnished by any of the appellants. The current management’s claim that the properties were purchased from the company’s capital and reserves lacks clarity on how these funds were sourced. There is no explanation on the financial terms of the Lunia family’s acquisition of BD shares and how they managed the share premium and capital reserves. It is evident from above that appellant companies were not having real worth as well as creditworthiness to purchase the lands/immovable properties by way of making such investment on its own. It is clear that the cash transactions carried out through Hawala/Angadia between Shri Mahaveer Lunia and Shri Anil Sankhlecha during F.Y. 2017-18 and 2018-19, which were routed in the appellant companies and ultimately used for making purchase of the said lands/immovable properties in the name of appellant companies.

37. It was argued by the counsel for the appellants that when the Income Tax Department did not assume jurisdiction to initiate proceedings against the benamidar companies with respect to the alleged transactions, it clearly goes to show that the allegations levelled by the IO are absolutely baseless and devoid of any merit. When the income tax department has itself not doubted the genuineness of these transactions, then the IO had no jurisdiction to declare the companies as shell companies and accordingly it is not justified to hold company as Benamidars of their own properties purchased from their own funds.

38. Shri Mahaveer Lunia is not shareholder in the Companies. In fact, he holds shares of the shareholding company, that too of limited extent. The companies have purchased the immovable properties out of their own funds and these properties become the properties of the company and shareholders do not become the owners of the properties of the Company thus the IO has committed serious error in holding that the company has purchased the immovable properties for immediate or future benefit, direct or indirect benefit for beneficial owner.

39. It was urged that when the Income Tax Department has assumed the jurisdiction and initiated proceedings against the benamidar companies with regard to the alleged transactions, then there was no reason to make allegations about benami transactions in regard to the same facts. It is more so when the Income-Tax Department made the assessment of undisclosed income thus it could not have been taken to be involved in benami transactions.

40. We find no substance in the argument, rather it has been raised based on misconceived notions. According to the appellants, element of benami transaction can rest only when unaccounted or illegal money is transacted. The said concept is incorrect because element of benami transaction may exist even if it has been transacted out of the disclosed income and source. We would illustrate it. If somebody is having disclosed income declared in the income tax, however, transferred to a third person for purchase of the property in his name, then it would be a case of benami transaction despite disclosed income being used in benami transaction. In the similar manner, even if the income tax authority has made assessment of undisclosed income after causing notice under Section 148 of the Income Tax Act or otherwise it may become legalized money but would not nullify the element of benami transaction, if exists. The facts of this case have been disclosed to show how the benami transaction has been entered though it was initially founded based on the allegation of cash out of betting and gambling but the fact remains that the appellants changed their stand regarding earning which was initially said to be out of service and thereupon through the agriculture income and disclosed in the revised income tax return. It was after the notice caused by the respondents. The IO found an element of benami transaction where the money was routed for purchase of shares, mutual funds and properties. It was transacted by beneficial owner and thereupon purchase remained in the name of benamidar’s companies. The detailed fact to show how a case of benami transaction has been made has already been discussed thus it is not required to be repeated, however, element of benami transaction, if made out, would not be effected by subsequent assessment of income.

41. The next question is co-related to the last issue. The counsel for the appellants submitted that the cash transaction cannot be taken to be the basis for the benami transaction. It is nothing but admission about the involvement of cash in the transaction though with the qualification that mere involvement of cash would not make out a case of benami transaction. The proposition taken by the counsel for the appellant may be correct and we may endorse that each cash transaction may not involve a benami transaction, rather it cannot be only on an allegation to make out a case under Section 2(9)(A) of the Act of 1988. If the involvement of cash transaction results in benami transaction, it cannot be nullified only on the ground that involvement of the cash would make out a case of benami transaction. However, if no allegation is made out then even involvement of cash would not make out a case of benami transaction. It depends on the facts of the case. In the instant case, huge amount was involved which remained unaccounted and even if in the revised return, it was assessed, if the fact remained that it was used for benami transaction and, therefore, the argument is clarified with the aforesaid and in this case respondents could not satisfy route of transaction to make out a case of benami transaction.

42. The next question was that Mahaveer Lunia is not shareholder of the appellant companies. In fact, he purchased share of shareholding company and that too of limited extent. The appellant company purchased the immovable properties out of their own funds and, therefore, shareholders did not become the owner of the properties. The fact aforesaid has been raised in ignorance of the fact that the appellant company could not support the source of funds to acquire the properties though they had taken an excuse about availability of funds in the account of the company itself and, therefore, it was used for purchase of the properties. It is, however, without clarification about the generation of funds and more specifically receipt of the amount from those to whom money was advanced by the appellant companies. There is no material to show as to when money was advanced and source for advance of money to the appellant company so as to legally received it back. In the background aforesaid, receipt of the amount as a repayment of the advances was taken to be nothing, but for creation of the benami transaction where beneficial owner infused the cash which was shown to be nothing but out of repayment of the advances. The source of advance and necessary material was not found with the appellants in the proceedings conducted by the Income Tax Department as well as the respondents and otherwise if the appellant Mahaveer Lunia was holding shares only in the shareholding company, then it makes a case of benami transaction because he had infused cash amount in those companies for purchase of shares, mutual funds and properties making out a case of benami transaction under Section 2(9)(A) of the Act of 1988. The infusion of cash by Mahaveer Lunia in the shareholding companies was admitted by Shri Anil Sanklecha, CA. Thus, even the last argument raised by the counsel for the appellants cannot be accepted, rather analysis aforesaid reveals satisfaction of the ingredients of Section 2(9)(A) of the Act of 1988.

43. In the light of the discussion made above, the appeals would fail and are dismissed.