The Appellate Tribunal under SAFEMA at New Delhi has set aside an order confirming provisional attachment of jewellery valued at ₹1,07,33,434, holding that the Initiating Officer could not obtain the Approving Authority’s prior approval for provisional attachment before issuing the mandatory notice under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988.

The bench of Justice Munishwar Nath Bhandari (Chairman) and V. Anandarajan (Member) has observed that the statutory sequence prescribed under Section 24 must be followed and that approval for provisional attachment has to be based on the material and reasons disclosed through the notice issued under Section 24(1). 

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The appeals arose from proceedings concerning jewellery found during an Income Tax Department search conducted on 3 December 2021 at Sumangal Safe Deposit Vault LLP.

During the search, jewellery valued at ₹1,07,33,434 was found in Locker No. F-727, which was registered in the name of Parth Yoginbhai Patel.

Following the search, summons under Section 131(1A) of the Income Tax Act, 1961 were issued and the statement of Patel was recorded under Section 132(4) of the Income Tax Act on 17 December 2021.

Patel stated that the locker had been opened on the instructions of his employer, Prarambh Shah, and that the locker key was also kept by Shah. He denied ownership of the jewellery and stated that it belonged to Ashesh Nanalal Doshi. 

The proceedings subsequently focused on the alleged beneficial ownership of the jewellery.

According to the Tribunal’s order, Ashesh N. Doshi was a partner of Sumangal Safe Deposit Vault LLP. In his statement under Section 132(4) of the Income Tax Act, Doshi initially stated that there was no locker in his name or in the name of his family members.

After being confronted with Patel’s statement, Doshi stated that he had given his family jewellery to his son-in-law, Prarambh Shah, who had kept it in the locker registered in the name of his employee, Patel.

The jewellery was consequently treated by the authorities as benami property, leading the Initiating Officer to pass an order for provisional attachment. The Adjudicating Authority subsequently confirmed the Provisional Attachment Order (PAO) on 1 May 2023. 

Before the Tribunal, counsel for the appellants raised several factual and legal objections, but primarily pressed the challenge concerning the procedure followed for provisional attachment.

The appellants argued that Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988 requires the Initiating Officer, where there is material giving rise to a reason to believe that a person is a benamidar, to record such reasons in writing and issue a notice calling upon the person to show cause as to why the property should not be treated as benami property.

They further submitted that Section 24(3) permits provisional attachment only after the statutory notice under Section 24(1) has been issued and after obtaining the previous approval of the Approving Authority.

The central objection was therefore not merely whether the authorities had material suggesting a benami transaction, but whether the statutory procedure for invoking provisional attachment had been followed in the correct sequence. 

The Tribunal found that the chronology of events was crucial.

A notice under Section 24(1) was issued on 28 April 2022. However, the Initiating Officer had sought approval of the Approving Authority under Section 24(3) on 27 April 2022, i.e. one day before the Section 24(1) notice was issued.

The appellants argued that this sequence was contrary to the statutory scheme because the Approving Authority’s approval is required to be based on the reasons and material forming the basis of the Section 24(1) notice.

The Tribunal accepted this contention and held that the prior approval could not precede the statutory notice. 

The respondent authorities opposed the appeals and maintained that there was no illegality in the proceedings.

It was submitted that the alleged benami transaction had been detected during the search and that a decision to provisionally attach the property was taken immediately. According to the respondent, the approval was obtained in the course of follow-up action and the provisional attachment was ultimately made with the approval of the Approving Authority.

The respondent therefore contended that the existence of a benami transaction justified initiation of proceedings and sought dismissal of the appeals. 

It held that the sequence for provisional attachment under Section 24 should begin with the issuance of a notice under Section 24(1).

According to the Tribunal, the notice calls upon the alleged benamidar to explain why the property should not be treated as benami. Section 24(2) contemplates furnishing a copy of that notice to the beneficial owner, while Section 24(3) empowers the Initiating Officer to provisionally attach the property, with the prior approval of the Approving Authority, where the statutory conditions are satisfied. 

The Tribunal specifically observed that, although the Section 24(1) notice and provisional attachment occurred on the same day, the procedure was not legally compliant because the approval of the Approving Authority had already been obtained before issuance of the notice.

The Tribunal characterised the action as mechanical in nature, observing that the Initiating Officer could not have obtained prior approval for provisional attachment without first issuing the Section 24(1) notice.

The Tribunal reasoned that the Section 24(1) notice discloses the reason to believe and the material forming the basis for treating the property as involved in a benami transaction. It is on the basis of that material, along with other relevant material, that the Approving Authority is expected to consider whether prior approval for provisional attachment should be granted. 

The Tribunal further emphasised that, in the absence of the Section 24(1) notice, the Approving Authority would not have before it the reasons and material necessary to grant prior approval for provisional attachment.

Since approval had been granted before issuance of the Section 24(1) notice in the present case, the Tribunal held that the respondent’s action was in contravention of the Prohibition of Benami Property Transactions Act, 1988. 

The Tribunal found sufficient reason to interfere with the order of the Adjudicating Authority.

It accordingly set aside the impugned order and allowed the appeals.

The Tribunal did not permanently foreclose further proceedings. It granted liberty to the respondent authorities to take action afresh, provided such action is undertaken strictly in accordance with the provisions of law.

The appellants were also granted liberty to raise before the concerned authorities all the grounds that had been raised in the present appeals if any fresh action is initiated. 

Thus, even where the authorities allege that a benami transaction has been detected during a search, the exercise of attachment powers remains subject to compliance with the procedural safeguards contained in the statute.

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