SAFEMA Tribunal Affirms Benami Attachment on Keyal Group Beneficial Owners’ Bank Balances

Background of the Dispute

The Appellate Tribunal under SAFEMA, New Delhi, was seized of a group of connected appeals filed under Section 46(1) of the Prohibition of Benami Property Transactions Act, 1988 (Act of 1988). The appellants included members of the Katyal family and Nirmal Katyal HUF. They assailed an order dated 25.02.2025 by the Adjudicating Authority, which had confirmed a Provisional Attachment Order passed against them.

These proceedings stemmed from a search conducted under Section 132 of the Income Tax Act 1961 on the Keyal Group on 11.11.2022. During this operation, the Income-tax authorities allegedly unearthed a pattern of purchases recorded from non-genuine entities. One of the principal concerns related to transactions routed through M/s Sanmati Trading Co. (Proprietor: Ms. Reeta Devi), which the authorities believed to be a fictitious concern used for benami transactions.

Armed with this information, the Initiating Officer (IO) triggered action under the Act of 1988, ultimately issuing a Provisional Attachment Order in respect of amounts lying in the bank account of the appellant company, being treated as benami property traceable to sham transactions with M/s Sanmati Trading Co.

Investigation into M/s Sanmati Trading Co.

Non-existence and Non-compliance Indicators

The IO launched a detailed examination into M/s Sanmati Trading Co. The following red flags emerged:

  • The firm did not appear to be engaged in any real commercial activity.
  • Summons issued to Ms. Reeta Devi, the stated proprietor, were returned unserved.
  • On physical verification at the address available in records, no such concern was found operating.
  • The entity was not filing income-tax returns and was not traceable in the income-tax database as an assessee.

Mismatch Between Claimed Supplies and GST Profile

The IO further verified the entity’s particulars on the GST portal. The GST registration of M/s Sanmati Trading Co. indicated business in items such as:

  • ferrous waste and scrap
  • remelting scrap ingots of iron or steel
  • cereal flours (other than wheat or meslin)
  • stranded wire, ropes, cables, plaited bands, and similar items

However, the appellant company’s records projected purchases of clothes and fabrics from M/s Sanmati Trading Co. This stark product mismatch between the appellant’s claimed purchases (fabrics) and the supplier’s registered line of business (scrap and metals, etc.) became a key circumstance pointing to the fictitious nature of the transaction.

Failure to Trace Bank Account and Business Activity

Despite the appellants’ assertion that payments to M/s Sanmati Trading Co. had been made through banking channels:

  • The IO could not, even after investigation, identify the bank account of M/s Sanmati Trading Co.
  • The appellants did not disclose the bank account details of the said entity, even though such information would ordinarily be readily available to any genuine purchaser making payments via bank.
  • Notices from the Adjudicating Authority sent to the last-known address of M/s Sanmati Trading Co. were also returned undelivered, reinforcing the inference that the concern was non-existent or purely fictitious.

In addition, the authorities noticed unexplained cash deposits in the bank account of another entity, M/s Asian Fabric, around the period corresponding to the purported payments to M/s Sanmati Trading Co. The authorities considered this as part of a circular movement of funds, amounting to “round-tripping” and indicative of a benami arrangement.

Subsequently, it was also noted that the GST registration of M/s Sanmati Trading Co. stood cancelled, although this cancellation happened after the period of the impugned transactions.

Appellants’ Core Contentions

1. No Benami Transaction; Mere Commercial Dealings

Counsel for the appellants argued that the transactions were simple commercial trades between two independent entities and did not fall within the mischief of benami law. According to the appellants:

  • The purchases of clothes and fabrics were supported by invoices.
  • Payments had been made through banking channels, which by itself should lend credibility.
  • There was no intention to conceal ownership of property, and thus no benami element.