Delhi High Court Upholds Benami Notice: Writ Petition Dismissed as Alternative Remedy Available Under Section 26

Introduction

The Delhi High Court in a recent ruling has reinforced the procedural framework under the Prohibition of Benami Property Transactions Act, 1988. In the matter of Shyamsundar Sharma Vs ACIT/Initiating Officer, the Court refused to interfere with the Show Cause Notice and provisional attachment orders issued by the Initiating Officer. The Court observed that the petitioner possessed adequate alternative remedies before the Adjudicating Officer under Section 26 of the Benami Act, making the writ petition premature and inadmissible.

Background of the Case

The petitioner operated a goods transport business under the name Shyam Air Couriers since 2009 and had been providing courier services to Vestige Marketing Pvt. Ltd. (VMPL) from 2014 onwards. VMPL functions as a marketing entity dealing in FMCG and health-related products through a direct-selling, multi-level marketing network that relies on distributor enrolments and commission-based payouts.

The promoters and directors of VMPL included Sh. Gautam Bali, Sh. Kanwar Bir Singh, and Sh. Deepak Sood, while Sh. Deepak Choudhary served as the company's auditor.

Search and Seizure Action

On 20.09.2023, search proceedings were conducted under Section 132 of the Income Tax Act, 1961 at the premises of VMPL, its directors, auditor, and associated entities. During the search at VMPL's head office located at A-89, Phase II, Okhla Industrial Area, New Delhi 110020, digital evidence including Excel spreadsheets labeled "Bogus Expenses Employee-Wise" were discovered in a pen drive.

Discovery of Alleged Fraudulent Scheme

Investigative analysis revealed that VMPL Group had allegedly made payments to various vendors for services that were never actually rendered. The arrangement involved VMPL making payments through banking channels for bogus invoices, following which cash was allegedly returned to Sh. Kanwar Bir Singh, Sh. Gautam Bali, Sh. Deepak Sood, and Sh. Deepak Choudhury. This suggested that accommodation entry providers held funds advanced by VMPL in their accounts temporarily before returning equivalent amounts in cash to the individuals orchestrating the scheme.

The Excel sheet discovered during the search specifically listed "Shyamsundar Choudhary" as receiving bogus payments from FY 2018-19 through FY 2022-23.

Detailed Transaction Records

Post-search investigation and forensic examination of cloned digital data revealed detailed party-wise breakdowns of transactions linked to alleged bogus expenses categorized under 'Marketing Expenses,' 'Business Promotion Expenses,' 'Services,' and 'Bonus/Commission.' These findings corroborated statements recorded from the directors and employees of VMPL.

The Excel spreadsheet contained an extensive list of parties arranged by various employees, documenting transactions totaling Rs. 57,24,96,495.00 across multiple financial years involving entities including Sone Enterprise, Devendra Enterprises, Golden Ent, Om Trading Co, Shyam Sunder Choudhary, and numerous others.

Issuance of Show Cause Notice

Based on the seized material and subsequent investigation, the Initiating Officer formed the belief that the concerned parties, including the petitioner, were Benamidars involved in bogus transactions orchestrated by VMPL. Consequently, a Show Cause Notice was issued calling upon the petitioner to explain why the property in question should not be treated as Benami Property and appropriate action should not be initiated.

The Show Cause Notice specifically stated:

"Accordingly, on the basis of the material in possession and discussion above, I have reasons to believe that M/s Devendra Enterprises, M/s Shyam Sundar, M/s August Financial Services Pvt. Ltd., M/s Designbea Infrastructures, M/s Garv Enterprises, M/s Star Infra Design Private Ltd., M/s Axiom Landbase Pvt. Ltd., M/s Chawla Enterprise, M/s Gurunanak Marketing, M/s Mesh Education Pvt. Ltd., M/s Bencher Enterprises, M/s Kumar Enterprises, M/s Humble Service are Benamidar(s) within the meaning of section 2(10) of the PBPT Act."

Provisional Attachment Orders

Simultaneously with the Show Cause Notice dated 21.03.2025, the Initiating Officer issued a Provisional Attachment Order under Section 24(3) on 21.03.2025, followed by another Provisional Attachment Order under Section 24(4) dated 30.07.2025, freezing the petitioner's bank accounts.

Petitioner's Response and Subsequent Proceedings

The petitioner filed a detailed reply to the notice, specifically clarifying that his name was 'Shyam Sunder Sharma' and not 'Shyam Sunder Choudhary' as mentioned in the Excel sheets. He further clarified that his business operates under the name 'M/S Shyam Air Courier' and not 'M/s Shyam Sunder.'

The petitioner maintained that all his commercial transactions with VMPL were genuine and legitimate. Along with his written response, he submitted bank statements, ledger accounts, and comprehensive documentation evidencing all transactions for the Initiating Officer's examination.

Initiating Officer's Assessment of Reply

The Initiating Officer examined the petitioner's reply in detail and addressed it comprehensively in the attachment order dated 30.07.2025. The officer noted that Shri Shyam Sundar Sharma's reply relied predominantly on a declaration from VMPL dated 15/05/2026 claiming that transactions with Shyam Air Courier were genuine. However, the officer observed that no additional supporting documents such as E-way bills, invoices, ledger accounts, or bank statements were initially submitted to substantiate these claims.

The Initiating Officer systematically rebutted the petitioner's contentions by highlighting:

• The absence of documentary evidence despite the petitioner's offer to produce such documents if required
• Direct contradictions between the declaration and evidence recorded in sworn statements under Section 132(4) of the Income Tax Act, 1961
• Admissions by VMPL's promoters regarding bogus expense claims
• Digital evidence explicitly listing transactions under bogus expenses
• The failure to address specific allegations under the Benami Act

After thorough consideration, the Initiating Officer passed an order provisionally attaching four bank accounts of the petitioner and subsequently drew up a statement of the case, referring it to the Adjudicating Authority.

Notice by Adjudicating Authority

On 29.08.2025, the Adjudicating Authority issued a notice under Section 26 to the petitioner. Instead of contesting the matter before the Adjudicating Authority, the petitioner filed the present writ petition under Article 226 of the Constitution of India.

Petitioner's Arguments Before High Court

Challenge to Reason to Believe

The petitioner's counsel, Nitin Kanwar, vehemently denied all allegations of bogus or fraudulent transactions. He submitted that all business dealings with VMPL were genuine and conducted against actual transportation and courier services supplied.

Counsel specifically challenged the identification of the petitioner, pointing out that the Excel sheets referred to payments made to one Mr. Shyam Sunder Choudhary, whereas his client's name is Mr. Shyam Sunder Sharma. Furthermore, the business name in the Excel sheet was 'M/s Shyam Sunder,' while his client's trade name is 'M/s Shyam Air Courier.'

Contention Regarding Borrowed Satisfaction

Counsel argued that the Initiating Officer lacked independent "reason to believe" and that no proper satisfaction was recorded establishing how the alleged business transactions constituted Benami transactions. He contended that the proceedings were based on borrowed satisfaction without any independent inquiry or investigation by the Initiating Officer.