‘Untested, retracted statement is no evidence at all’: Rajasthan High Court sets aside benami attachment

Jaipur: The Rajasthan High Court has set aside the attachment of 79 immovable properties held to be benami, holding that a statement recorded under Section 132(4) of the Income-tax Act which stood retracted within nine days and was never tested by cross-examination cannot, standing alone, sustain a finding as grave as that of a benami transaction.

A division bench of Justice Arun Monga and Justice Sandeep Shah, in a judgment authored by Justice Monga, held that where the entire edifice of proceedings under the Prohibition of Benami Property Transactions Act, 1988 rests upon a single untested statement, the denial of cross-examination is not a curable irregularity but a breach of natural justice going to the root of the matter.

The Court observed: “The cumulative position is thus: 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, which carries confiscatory and penal consequences.”

The appeal under Section 49 of the PBPT Act arose from an order dated Apr 1, 2026 of the Appellate Tribunal affirming the Adjudicating Authority’s order dated Aug 30, 2024, which had held 79 immovable properties purchased by M/s Alishan Complex Private Limited to be benami within the meaning of Section 2(9) and upheld the final attachment order dated Jul 28, 2023 passed by the Initiating Officer under Section 24(4)(a)(i).

The proceedings traced their origin to a search conducted on Jun 16, 2022 under Section 132 of the Income-tax Act, 1961 on a Jodhpur-based handicrafts business. The appellant, a private limited company engaged in real estate development, had purchased the 79 properties at Jodhpur in FY 2017–18 for about Rs 11.16 cr, each payment made through banking channels. The Initiating Officer’s case was that unaccounted cash of about Rs 40–42 cr, generated through bogus jewellery purchase bills and money-lending and routed through hawala and angadia channels with a Mumbai-based chartered accountant as conduit, had been fed into shell companies carrying large share premium reserves, which then acquired the properties in the appellant’s name — rendering the company a benamidar and the founder the beneficial owner.

During the search, the statement of the CA was recorded under Section 132(4); in answer to Question Nos. 50 and 55 he was stated to have disclosed the routing of cash through angadia operators in Mumbai. By affidavit dated Jun 27, 2022, he retracted it, alleging that it had been extracted under duress in the course of some 65 hours of continuous questioning. He was never summoned or examined in the benami proceedings, and the request to cross-examine him was declined at the stage of adjudication.

Appearing for the appellant, Mr. Ashwani Taneja submitted that shareholders’ funds of roughly Rs 10 cr had stood recorded in the company’s books since FY 2006–07, predating the the founder’s family’s entry into the shareholding structure by a decade, and that the purchases were funded by the recall and redeployment of loans and advances already in the books — a conversion of one asset class into another, not an infusion of fresh money. The company founder it was urged, was not even a direct shareholder, held an indirect interest of roughly 4.17%, and became a director only on Jan 6, 2020, a date that post-dates every one of the 79 purchases. Reliance was also placed on an assessment order dated Mar 27, 2026 for AY 2018–19 in which the same Department’s Assessing Officer, examining the very same investment and seized material, recorded that it stood duly reconciled and was not unexplained.

For the respondents, Mr. K.K. Bissa contended that the grounds raised were in substance an invitation to reappreciate evidence; that beneficial ownership rests on control rather than arithmetical shareholding; that the Assessing Officer had examined only whether the investment was recorded in the books and never the “source of the source”; and that cross-examination is not an inbuilt facet of natural justice under the PBPT Act.

Rejecting the submission that the Initiating Officer had not relied on the statement alone, the bench framed the question as one of severability, the Section 132(4) statement being the only direct evidence anywhere on the record of the single factual premise on which the benami allegation rested: “strike the statement out mentally and ask whether the remaining material can independently sustain a finding that consideration was provided by another person under s. 2(9)(A). On this record, no banking trail, cash deposit, or financial instrument linking Lunia money to the 79 purchases has been identified, so the structure seems to stand or fall with the statement.”

The Court made reference to Andaman Timber Industries v Commissioner of Central Excise, Kolkata-II, in which the Supreme Court held that not allowing an assessee to cross-examine witnesses whose statements were made the basis of the impugned order, despite a specific request, is a serious flaw rendering the order a nullity. It distinguished M/s Telestar Travels Pvt. Ltd. v Special Director of Enforcement and Vallabh Textiles on the footing that the statements there were merely corroborative of undisputed documentary material, whereas here the statement was foundational and stood disowned by its own maker. Relying on Vinod Solanki v Union of India and Jaydayal Poddar v Bibi Hazra, the bench added that a retracted confession may be acted upon only if independently corroborated, and that the strict burden of proving a transaction benami lies on the party asserting it.

The bench also faulted the refusal to exercise the statutory power under Section 19(1)(b) of the PBPT Act to summon and examine witnesses on oath, holding that such refusal, when directed at the sole material witness, is “not a matter of discretion but a refusal to perform a duty cast by the statute in aid of natural justice.” Because the Act creates a self-contained adjudicatory mechanism and simultaneously bars the jurisdiction of civil courts, the affected party stands deprived of the ordinary civil trial safeguards, and “the quasi-judicial forum under the special statute must internalise those safeguards to satisfy Article 14 and Article 21 of the Constitution.”

On the interplay between the two enactments, the Court held that the PBPT Act operates independently of the outcome under the Income-tax Act, that the “source of the source” remains examinable in benami proceedings, and that a clearance under Section 69 does not of itself foreclose a finding of benami. At the same time, findings returned under Section 69, though not conclusive, carry evidentiary value under the PBPT Act and are required to be considered, the bench observing that the Initiating Officer “does not hold primary jurisdiction to hold findings with regards of sources and genuineness of acquisition of subject properties” and therefore “cannot blindly disregard and contradict the order of the primary jurisdictional authority i.e. Assessing Officer.”

Setting aside the orders of the Appellate Tribunal and the Adjudicating Authority along with the final attachment order, the bench remanded the matter to the Initiating Officer at the stage of the provisional attachment order dated May 1, 2023, directing him to take the assessment order dated Mar 27, 2026 on record and deal with its bearing, to record reasons on the appellant’s explanation regarding the source and vintage of its reserves, and to afford a hearing before passing a fresh order under Section 24(4)/(5). Should the matter travel again to the Adjudicating Authority, the appellant is to be afforded an opportunity to cross-examine Sanklecha if the Revenue wishes to rely on his statement. All contentions were kept open, and the provisional attachment was directed to continue in the interim to protect the interest of the Revenue.

Title: M/s Alishan Complex Private Limited v The Initiating Officer, DCIT, Benami Prohibition Unit, Jaipur

Case No.: D.B. Civil Miscellaneous Appeal No. 1595/2026

Citation: [2026:RJ-JP:35541-DB]

Counsel for appellant: Mr. Ashwani Taneja, Mr. Divyansh Dubey, Ms. Divya Bapna

Counsel for respondent: Mr. K.K. Bissa, Mr. G.S. Chouhan