The Allahabad High Court has held that mere statement of the contractor doing construction work cannot be relied upon to declare such construction as benami transaction under the Prohibition of Benami Property Transactions Act, 1988. The Court held that “reasons to believe” in Section 24(1) of the Act must be based on cogent and relevant material.
Smt. Meera Pandey , the petitioner has challenged the show cause notice issued under 24(1) of The Prohibition of Benami Property Transactions Act, 1988 (Benami Transactions Act 1988′) and provisional attachment order issued under Section 24(3) of the Benami Transactions Act,1988.
The property in question was purchased by the petitioner on 23.04.2014 and the Act was amended on 25.10.2016. Petitioner challenged the show cause notice issued under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 by which the respondent authorities sought to declare the construction raised on property in question a benami transaction as it was being carried out by the petitioner for his son-in-law.
The subsequent provisional attachment order passed under Section 24(3) of the Act was challenged by the petitioner. Petitioner argued that there was no material with the respondent authorities and the notice was issued based merely on the statement of the contractor.
The division bench comprising of Justice Vivek Chaudhary and Justice Om Prakash Shukla relied on Calcutta Discount Co. Ltd. v. Income Tax Officer & others, CST v. Bhagwan Industries (Pvt.) Ltd. and Madhya Pradesh Industries Ltd v. ITO, where the Court had held that “the words “reason to believe” are stronger than the words “is satisfied” or “reason to suspect” and the Constitutional Courts have consistently held that the Officer cannot record his satisfaction for “reason to believe” on an arbitrary or irrational basis. The same has to be recorded based upon reasons supported by relevant material.”
The Court observed that since the assessment proceedings with respect to petitioner’s income tax return were underway, the Department could have claimed that her earnings of the that year were beyond the known sources of income. The Court further observed that the material sought to be relied on by the counsel for department at the time of hearing of the writ petition was never mentioned in the show cause notice issued to the petitioner.
It was argued that mere statement of the contractor without any material backing it cannot form the reason to believe for initiation of proceedings under Section 24(1). Section 24(3) provides for provisional attachment of property where the Initiating Officer under Section 24(1) believes that the alleged benamidar will alienate the property in his possession during the period specified in the notice. However, the same must be done with the previous approval of the Approving Authority.
The Court held that no material was available with the respondent authorities to show that property in question was likely to be sold by the petitioner to pass an order of provisional attachment under Section 24(3).
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