The Rajasthan High Court overturned the benami finding against M/s Alishan Complex Pvt. Ltd., emphasizing that the burden of proof rests on the revenue and that untested or retracted statements cannot form the basis of a benami order without a fair hearing.
Background & Facts
The Dispute
The appellant, M/s Alishan Complex Private Limited, a real-estate developer, was declared a benamidar for 79 immovable properties in Jodhpur. The Initiating Officer (IO), Deputy Commissioner of Income Tax (Benami Prohibition), Jaipur, issued a provisional attachment order under the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act) and the matter progressed through the Adjudicating Authority and the Appellate Tribunal.
Key Facts
- 16.06.2022: Search under Section 132 of the Income-Tax Act, 1961 on the Maharani Group revealed a list of properties and original sale deeds.
- 17-18.06.2022: Chartered Accountant Shri Anil Sanklecha gave a statement under oath that he received cash of about ₹40-42 crore from Shri Mahaveer Lunia and routed it to the appellant companies.
- 27.06.2022: Sanklecha filed a notarised affidavit retracting his earlier statement, alleging duress and continuous questioning for 65 hours.
- 28.04.2023: IO issued a show-cause notice under Section 24(1) of the PBPT Act, demanding a reply by 15.05.2023.
- 01.05.2023: IO issued a provisional attachment order under Section 24(3) before the reply period expired.
- 28.07.2023: Final attachment order under Section 24(4)(a)(i) was passed.
- 07.08.2023: Reference made to the Adjudicating Authority under Section 24(5).
- 30.08.2024: Adjudicating Authority confirmed the properties as benami and upheld the provisional attachment.
- 01.04.2026: Appellate Tribunal affirmed the Adjudicating Authority’s order under Section 46 of the PBPT Act.
- 27.03.2026: Assessing Officer, under the Income-Tax Act, passed an assessment order for AY 2018-19, recording the ₹11.16 crore investment in the company’s books, finding no addition under Section 69.
- 03.08.2026: The High Court delivered the present judgment, setting aside the orders dated 30.08.2024 and 01.04.2026 and remanding the matter to the IO.
Procedural History
- 28.04.2023: Show-cause notice issued (Section 24(1)).
- 01.05.2023: Provisional attachment order (Section 24(3)).
- 28.07.2023: Final attachment order (Section 24(4)(a)(i)).
- 07.08.2023: Reference to Adjudicating Authority (Section 24(5)).
- 30.08.2024: Adjudicating Authority order confirming benami status.
- 01.04.2026: Appellate Tribunal order affirming the AA’s decision.
- 27.03.2026: Income-Tax assessment order (no addition under Section 69).
- 03.08.2026: High Court judgment (present).
The Parties' Positions
- Appellant: Asserted that the properties were purchased with its own corpus, that the twin conditions of Section 2(9)(A) were not satisfied, that the retracted statement should not be relied upon, and that the revenue had shifted the burden of proof onto the company.
- Respondent (IO): Contended that the revenue had “reason to believe” the properties were benami, that the statements recorded under Section 132 were admissible, and that cross-examination was not a statutory requirement.
Relief Sought
The appellant sought quashing of the provisional and final attachment orders, reversal of the benami finding, and release of the properties. The respondent sought affirmation of the orders and continuation of the attachment.
The Legal Issue
The central questions were: (a) Does a clearance under Section 69 of the Income-Tax Act preclude further action under the PBPT Act, and (b) Can statements recorded under Section 132 of the Income-Tax Act be used to sustain a benami finding without affording the affected party a right to cross-examination?
Arguments Presented
For the Appellant
- The company’s share capital and reserves (≈ ₹10 crore) pre-dated the Lunia family’s entry, disproving any external consideration.
- Shareholding does not equate to beneficial ownership; shareholders own shares, not the assets (Pr. CIT v. Pradeep Wig).
- The retracted statement of Shri Sanklecha was the sole foundation of the benami allegation; its withdrawal and lack of cross-examination render it inadmissible (Andaman Timber Industries v. Commissioner of Central Excise).
- The Income-Tax assessment order of 27.03.2026 accepted the investment as genuine and recorded, contradicting the benami finding.
- The revenue shifted the burden of proof onto the appellant, contrary to the statutory scheme of Section 24(1).
For the Respondent
- The burden of proving a benami transaction lies on the revenue under Section 2(9)(A) of the PBPT Act.
- The statements recorded under Section 132 were relevant material; Section 60 of the PBPT Act permits use of material from other statutes.
- Cross-examination is not a mandatory component of the PBPT procedure (Harivallabh Mohanlal Joshi v. Union of India).
- The cash routed through the chartered accountant demonstrated the source of consideration, satisfying the first limb of Section 2(9)(A).
The Court's Analysis
The Court began by delineating the statutory architecture of the PBPT Act. Section 24(1) requires the Initiating Officer to issue a notice only when he has “reason to believe” based on material in his possession. This establishes a prima facie burden on the revenue, not on the noticee. The Court noted that the twin conditions of Section 2(9)(A) - (i) consideration provided by another person and (ii) property held for that person’s benefit - must be affirmatively proved by the authority.
"The Initiating Officer cannot issue notice on borrowed satisfaction, vague information, or a bare recital of the statutory language; the recorded reasons must themselves disclose the material and the nexus."
The Court examined the burden-shifting doctrine. While Section 69 of the Income-Tax Act imposes a reverse burden on the assessee to explain unexplained investments, the PBPT Act places the initial burden on the revenue. Consequently, a clearance under Section 69 does not extinguish the revenue’s duty to prove a benami transaction.
On evidentiary matters, the Court applied the principles from Valliamal v. Subramaniam and Andaman Timber Industries, emphasizing that an adverse order founded on a statement that is retracted and untested violates natural justice. The Court held that the retraction within nine days of the statement, coupled with the appellant’s specific request for cross-examination, rendered the reliance on the statement infirm.
The Court further observed that the Income-Tax assessment order of 27.03.2026 - which recorded the ₹11.16 crore investment in the company’s books, reconciled with bank statements, and found no addition under Section 69 - constitutes a material fact that the revenue must address in any benami proceeding. Ignoring this order created an asymmetry that the Court could not condone.
Finally, the Court considered the right to cross-examination. Although the PBPT Act does not expressly provide for it, the gravity of the civil and penal consequences (attachment, confiscation, prosecution under Section 27 and Section 53) demands the full spectrum of natural-justice safeguards. The Court therefore concluded that the denial of cross-examination rendered the impugned orders void.
The Verdict
The High Court set aside the Appellate Tribunal’s order dated 01.04.2026, the Adjudicating Authority’s order dated 30.08.2024, and the provisional attachment order dated 28.07.2023. The matter was remanded to the Initiating Officer to: (i) take the Income-Tax assessment order of 27.03.2026 on record; (ii) specifically consider the appellant’s explanation of the source and vintage of its reserves; (iii) afford a reasonable opportunity of hearing, including the right to cross-examine Shri Anil Sanklecha if his statement is relied upon; and (iv) pass a fresh order under Section 24(4)/(5) within the statutory period. The provisional attachment remains in force pending the fresh order. No costs were awarded.
What This Means For Similar Cases
Burden Remains on the Revenue
- The initial burden to establish a benami transaction under Section 2(9)(A) stays with the Initiating Officer. A company cannot be forced to prove a negative.
- A clearance under Section 69 of the Income-Tax Act does not bar a benami proceeding; the two statutes operate in distinct domains.
Unreliable Statements Cannot Anchor Benami Findings
- Statements recorded under Section 132 of the Income-Tax Act must be corroborated and subject to cross-examination if they form the core of a benami allegation.
- A retracted statement loses evidentiary value unless independently corroborated; reliance on it alone renders the order a nullity.
Natural Justice Is Mandatory in PBPT Proceedings
- Even though the PBPT Act does not expressly mention cross-examination, the severity of the consequences (attachment, confiscation, criminal prosecution) obliges the authority to provide a fair hearing.
- Courts will scrutinise any denial of cross-examination as a violation of Article 21 and Article 14 of the Constitution.
Practical Takeaways for Practitioners
- Document every source of funds and ensure that the company’s books reflect the investment; this will be decisive if the revenue raises a benami claim.
- Promptly challenge any reliance on untested or retracted statements and file a specific request for cross-examination.
- Highlight any Income-Tax assessment orders that have accepted the investment as genuine; argue that the revenue must reconcile its findings across statutes.
- Prepare to argue the statutory burden under Section 24(1) and Section 2(9)(A) rather than focusing solely on the merits of the transaction.
