Income Tax Findings Have Evidentiary Value In Benami Proceedings: Rajasthan High Court

On 3 August, the Rajasthan High Court held that findings under the Income Tax Act, though not conclusive in proceedings under the Prohibition of Benami Property Transactions (PBPT) Act, have evidentiary value and must be considered by authorities deciding benami proceedings.

A Division Bench of Justices Arun Monga and Sandeep Shah allowed an appeal filed by Alishan Complex Private Limited against orders passed by the Appellate Tribunal, Adjudicating Authority and Initiating Officer, which had declared 79 properties purchased by the company as benami properties under the PBPT Act. The judges held:

“the PBPT Act operates independently of the outcome under the Income-tax Act” and that “findings returned under Section 69, though not conclusive, carry evidentiary value in proceedings under the PBPT Act and are required to be considered.”

The dispute arose after the Income Tax Department conducted a search on the Maharani Group in June 2022. During the search, the Chartered Accountant of the group gave a statement under Section 132(4) of the Income Tax Act (which permits recording of statements during a search). Based on the material recovered during the search, including the statement, the Benami Prohibition Unit initiated proceedings.

The authorities alleged that 79 properties purchased by Alishan Complex Private Limited were actually held for the benefit of Mahaveer Lunia, promoter of the Maharani Group. The company denied the allegation and stated that the properties were purchased through banking channels using its own funds and reserves.

The proceedings centred on the statement of the Chartered Accountant recorded during the search. The statement was retracted within days through an affidavit alleging that it had been obtained under duress. Despite the company's request, the Initiating Officer relied on the statement without summoning the Chartered Accountant or allowing cross-examination.

The Court held that reliance on such a statement was unsustainable. It observed that where a retracted statement forms the basis of benami proceedings, denial of cross-examination violates principles of natural justice. Referring to the confiscatory and penal consequences under the PBPT Act, the Bench observed that “that strict burden cannot be discharged by an untested, retracted statement.”

Rejecting the Tribunal's approach, it held that “an untested statement is weak evidence; a retracted statement is weaker still; an untested and retracted statement, standing alone, is no evidence at all in the eyes of law for sustaining a finding as grave as that of a benami transaction.”

Further, the Bench further noted that an assessment order passed under the Income Tax Act on 27 March 2026 had accepted the company's explanation regarding the source of funds and investments. It observed that although proceedings under the PBPT Act and the Income Tax Act operate independently, the assessment order was relevant material that the benami authorities were required to consider.

Accordingly, the High Court set aside the orders passed by the Appellate Tribunal, Adjudicating Authority and Initiating Officer and remanded the matter to the Initiating Officer for fresh inquiry and a reasoned order after considering all relevant material.

For the Appellant: Mr. Ashwani Taneja, Mr. Divyansh Dubey, Ms. Divya Bapna

For the Respondent: Mr. K.K. Bissa, Mr. G.S. Chouhan