Arpit Katyal Vs Initiating Officer (Appellate Tribunal Under SAFEMA Delhi)
SAFEMA Tribunal Upholds Benami Attachment in Keyal Group Case; Holds Transactions with Fictitious Entity Justify Attachment of Beneficial Owner’s Bank Funds
The Appellate Tribunal under SAFEMA dismissed a batch of appeals filed by members of the Katyal family and Nirmal Katyal HUF, upholding the provisional attachment under the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act). The proceedings arose from an Income-tax search on the Keyal Group, which revealed alleged fictitious purchases from M/s Sanmati Trading Co. The Investigation found that the supplier was non-existent, could not be traced at its registered address, was not an income-tax filer, and its GST registration pertained to metal and scrap, whereas the appellant claimed to have purchased clothes and fabrics from it.
The Tribunal held that the material collected by the Initiating Officer established a prima facie case of a fictitious transaction under Section 2(9)(B) of the PBPT Act. It observed that the appellants failed to produce credible evidence of actual supply of goods, acknowledgements of delivery, transport records or even the supplier’s bank account details, despite claiming that payments had been made through banking channels. The invoices relied upon were also found to be deficient, lacking proof of delivery and other essential particulars. Once the authorities discharged the initial burden by placing these circumstances on record, the burden shifted to the appellants to establish the genuineness of the transactions, which they failed to do.
Rejecting the contention that only the alleged benamidar’s property could be attached, the Tribunal held that Section 2(9)(B) stands on a different footing from other categories of benami transactions. Where the transaction itself is found to be fictitious, attachment of the beneficial owner’s property, including funds lying in its bank account representing the value of the benami transaction, is legally permissible. Finding no infirmity in the Adjudicating Authority’s order confirming the provisional attachment, the Tribunal dismissed all the appeals.
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
This batch of appeals has been filed under Section 46(1) of the Prohibition of Benami Property Transactions Act, 1988 (in short “the Act of 1988”) to challenge the impugned order dated 25.02.2025 passed by the Adjudicating Authority confirming the Provisional Attachment Order while answering the reference.
2. The case was initiated on receipt of the information on search under Section 132 of the Income Tax Act,1961 on Keyal Group on 11.11.2022. It was found that the entities of Keyal Group have shown purchases from few fictitious entities in their books of accounts, one of which was M/s Sanmati Trading Co. (Proprietor Ms. Reeta Devi). After getting the information, the Initiating Officer (IO) proceeded in the matter under the Act of 1988.
3. The IO analyzed the financial profile of M/s Sanmati Trading Co. which revealed that it is not having any business, rather the entity was not found to be in existence. The summons was issued to Ms. Reeta Devi, Proprietor of the firm M/s Sanmati Trading Co. but was returned undelivered. The officer was deputed for physical verification and inquiry but the address given by Ms. Reeta Devi, the entity was not found available.
4. The further inquiry revealed that M/s Sanmati Trading Co. was on the GST portal but not dealing in the products like clothes/fabrics, rather it may be in metal and scraps while the appellant company was dealing in clothes and fabrics. Therefore, the purchase of fabrics by the appellant company was found to be fictitious and it is not only the transaction to be fictitious but even the firm, namely, M/s Sanmati Trading Co. and accordingly provisional attachment was caused to the extent of benami transaction. The Provisional Attachment Order has been confirmed and aggrieved by the aforesaid, present appeal has been preferred.
Arguments of counsel for the appellants:
5. The learned counsel for the appellant referred to the sequence of events to submit that a case of benami transaction is not made out yet finding has been recorded about the benami It was a case of trading between two entities in the course of business thus could not have been taken to be benami.
6. It is further that property provisionally attached is not the benami property rather the amount lying in the bank account of the appellant unconnected to benami transaction has been provisionally attached. Thus, on both grounds, the impugned order deserves to be set aside.
7. The learned counsel for the appellant further referred to the mode of transactions considered to be fictitious. It was submitted that the appellant had purchased clothes and fabrics from M/s Sanmati Trading Co. The payment was made through the banking channel thus it was a genuine transaction. However, it has been taken to be the payment to a fictitious company only for the reason that M/s Sanmati Trading Co. was not filing income tax returns.
That could not have been taken to be a case of fictitious firm. It could not have been even on the ground that the bank account of M/s Sanmati Trading Co. was not traceable. In fact, burden was on the respondents to trace out the bank account of M/s Sanmati Trading Co. If they failed to trace out the bank account, burden could not have been shifted on the appellant to disclose the bank account number and details of M/s Sanmati Trading Co. The respondents, in fact, shifted the burden of proof on the appellant though burden of proof remains on the person who allege benami transaction which, in the present case, is on the respondents. The respondents utterly failed to make out a case of benami transaction. Thus, on the aforesaid ground also, the impugned order deserves to be set aside.
8. The learned counsel for the appellant lastly submitted that merely because M/s Sanmati Trading Co. was having GST registration to deal in ferrous waste and scrap, remelting scrap ingots of iron or steel, cereal flours other than that of wheat or meslin, stranded wire, ropes, cables, plaited bands, etc. it could not have been inferred that they could not sell or deal with in the clothes and fabrics. The main thrust of the respondents to hold the transaction to be fictitious was even in reference to the GST registration of the benamidar firm M/s Sanmati Trading Co. In any case, the respondents could have attached the property involved in the alleged benami transaction and not the amount lying in the bank account of appellant company different than the alleged benami property. The prayer was accordingly made to cause interference in the impugned order.
9. The learned counsel for the appellant did not raise any other argument than referred to above. It is despite an opportunity to raise any other legal or factual issue. The counsel restricted his argument to what has been narrated above.
Arguments of counsel for the respondents:
10. The counsel for the respondents seriously contested the appeal. Elaborate and vehement arguments were made on each issue raised by the appellants which would be referred while recording our finding to avoid repetition of the facts and for the sake of brevity.
Finding of the Tribunal:
11. We have considered the rival submissions of the parties and perused the record.
12. The case was initiated by the respondents on receipt of an information about the involvement of the Keyal Group in certain purchases of material from the fictitious entities, out of which one was identified to be M/s Sanmati Trading Co. The modus shown therein was to show purchase of clothes and fabrics by the appellant company and as a result to make the payment to M/s Sanmati Trading Co. through the banking channel. M/s Sanmati Trading Co. Proprietor Ms. Reeta Devi was summoned many times but it could not be served in absence of the existence of the entity. In the sequence of events, the respondents tried to find out about the income tax returns, if any, filed by the benamidar M/s Sanmati Trading Co. but they could not lay hand on the income tax returns, rather they could find company to be not an income tax filer. When the summons was returned undelivered, the IO sent an officer for physical verification and inquiry. M/s Sanmati Trading Co. was not found on the location. It was coupled with the fact that even on a deep inquiry, the said firm was registered to deal with in ferrous waste and scrap, remelting scrap ingots of iron or steel, cereal flours other than that of wheat or meslin, stranded wire, ropes, cables, plaited bands, etc. The effort of the IO was then to trace out the bank account of M/s Sanmati Trading Co. which also could not be revealed and the appellant did not co-operate to disclose the bank account where the benamidar firm M/s Sanmati Trading Co. has an account. It is despite the payment by the appellant to M/s Sanmati Trading Co. through the banking channel. The appellants failed to provide a credible explanation for the cash deposits in the account of M/s Asian Fabric, which was around the same time, the payments were made to M/s Sanmati Trading Co. It was nothing but rounding of the money resulting in benami transaction. All the aforesaid circumstances were noted to declare a fictitious transaction in the hands of the appellant. It was later on found that even the GST registration of the benamidar had been cancelled though much subsequent to the registration. Accordingly, IO found transaction to be fictitious and caused provisional attachment of the property.
13. The counsel for the appellant submitted that there is no element of benami transaction in the case and thus on the aforesaid ground itself, a challenge to the impugned order has been made.
14. To address the issue, it would be relevant to quote Section 2(9)(B) of the Act of 1988 which is as under:
“(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name;”
The provision quoted above refers to a transaction or an arrangement in respect of the property carried out or made in the fictitious name. In the instant case, the allegation against the appellant is for a transaction in the name of fictitious entity, namely, M/s Sanmati Trading Co. Accordingly, a case under Section 2(9)(B) of the Act of 1988 was taken up by the respondents.
15. The issue is as to whether M/s Sanmati Trading Co. can be said to be a fictious company or entity merely for the reason that it was not filer of income tax returns. The answer is that it cannot be the sole ground, however, it can be supported by other material to find out whether the entity is fictitious or not. In the instant case, the transaction by the appellant company with M/s Sanmati Trading Co. was for supply of clothes and fabrics of which no relevant material could be placed on record by the appellant despite initial burden discharged by the respondents to prove a case of benami transaction. The respondents referred to the GST registration of M/s Sanmati Trading Co. which was not in trade of clothes and fabrics but in the metal. The aforesaid was the second issue to analyze whether the appellant had dealing with a fictitious entity. The third issue was about the non-existence of the entity. It was not found on the location even in the physical verification. Even otherwise, the summons was returned undelivered because neither the firm nor Ms. Reeta Devi was found available. That was the third ground to determine a transaction with the fictitious entity. The fourth issue taken up by the respondents was about non-availability of the bank account of M/s Sanmati Trading Co. It is despite the fact that the appellant made transaction through the banking channel, as alleged but despite the investigation, the bank account of M/s Sanmati Trading Co. could not be traced out. The appellant remained non-cooperative therein to disclose the bank account number of M/s Sanmati Trading Co. despite involving a banking transaction by the appellant for alleged purchase of clothes and fabrics. It is coupled with the further fact that even while the notice was issued by the Adjudicating Authority at the known address of M/s Sanmati Trading Co. it remained undelivered. The appellant failed to defend his case by producing evidence that whatever allegations have been made are incorrect and false and, in fact, M/s Sanmati Trading Co. was active in the business and not a fictitious entity but in defence, the appellant failed to produce any document to show that transaction between the entities was not fictitious.
16. The Adjudicating Authority even examined the bills/tax invoices for Rs.3 lakhs and odd which were found to be without proof and specific mention of account number of the entity. There was no acknowledgement of the supply of material and mode of delivery. In fact, the transaction was fictitious and, therefore, a case under Section 2(9)(B) of the Act of 1988 was made out. Thus, argument of the learned counsel for the appellant that the facts of the case and the material produced by the respondents do not make out a case of benami transaction, cannot be accepted.
17. The issue now remains about the provisional attachment of the amount lying with the appellant in his bank account. The counsel for the appellant submitted that what can be attached is the benami property and not any other property in lieu thereof. The aforesaid argument was tested and found that the appellant was involved in fictitious transaction with ulterior motives and thereby he was showing purchase of clothes and fabrics and accordingly to make the payment as a consequence thereof. It was to a firm which was not existing. Accordingly, the appellant could get the cash amount in return to it. Taking the aforesaid into consideration, it was found that the amount routed by the appellant was coming back to him and accordingly the provisional attachment of the amount involved in benami transaction has been made. The appellant otherwise could have disclosed the source of the amount involved in dummy entities and thereupon transfer to the appellant company in one or the other form.
18. The counsel for the appellants vehemently contested the issue on the ground that burden of proof lies on the person who makes the allegation. It is a fact that initial burden lies on the person who makes the allegation of benami transaction but once it is satisfied, the other party has to defend it. The appellant in this case has utterly failed to defend his case to bring any material to show that the transaction was not fictitious. In the circumstances coupled with the route of the transaction brought on the record by the respondents, the attachment of the amount in the hands of the appellant has rightly been caused.
19. It is submitted that the attachment of the property cannot be in the hands of the beneficial owner but can be in the hands of the benamidar. The argument aforesaid is relevant and generally if a case is made out under Section 2(9)(A) of the Act of 1988 or any provision other than Section 2(9)(B), the provisional attachment of the property may be caused in the hands of the benamidar though aforesaid is not the universal legal proposition and in any case Section 2(9)(B) is an exception to it. It is for the reason that when the transaction is fictitious, the question would not arise. It would be in the hands of the beneficial owner who is involved in making fictitious transaction. We are not required to go to the variety of the reasons for such fictitious transaction when the respondents could make out the fictitious transaction in the hands of the appellant. Thus, the attachment of the property of the appellant cannot be said to be illegal.
20. The counsel for the respondents otherwise has referred to the material which include the invoices, GST registration of M/s Sanmati Trading Co. which was for a different product than alleged to have been sold to the appellant company. In fact, we have already given all the circumstances to show a fictitious transaction and now it is not required to be repeated.
21. In view of the above, we do not find any error in the impugned order so as to cause interference therein. The appeals accordingly fail and are dismissed.
