Gujarat is a land of entrepreneurship and real estate developers. And when there is a bullish run, there’s bound to be some trampling on the way. In this instance, laws related to benami property have been conveniently trampled.
According to highly placed sources in the Income Tax Department, benami property has emerged as a major tool of laundering black money in recent years by investing into real estate. Benami transactions are also a major reason for the artificial hike in property prices, leading to loss of revenue for the central and state governments.
The Benami Transactions (Prohibition) Act, 1988, was introduced with an attempt to re-claim all property held under the Benami umbrella. The Act was amended in 2016.
The Gujarat Government has done precious little to execute its provisions. To begin with, in a state with over six crore population, there are only two Benami Prevention Commissioners. Gujarat receives over 1,000 referrals and leads for benami transactions but less than 1% of them registered.
The Income Tax Department has set up 24 dedicated Benami Prohibition Units (BPUs) across India. The brief of these units is to gather information and match the same with the data available to identify benami properties and initiate action under the Prohibition of Benami Property Transactions Act 1988.
During the initial period of amendment in the Act, IRS officer Samir Vakil, who is currently Special Commissioner of State GST, was given the responsibility to head Benami Prohibition unit in Gujarat. But little moved.
Significantly, it has been six years since the Act was amended, but the I-T department has still not figured out the process to implement it.
Politicians, bureaucrats and Benami
“Most benami property in Gujarat is owned by politicians and bureaucrats and that’s a major reason that though the Benami Cell can fetch 10 times more revenue for the Centre and State, the long arm of the Tax department remains unused,” a source at the Vejalpur unit of the Income Tax Department in Ahmedabad said.
He went on, “As a department we don’t work independently, there is pressure from politicians and bureaucrats. This is the key reason that benami property is still unregistered and unpunished by our department.”
Less than 1% referrals get registered
When Vibes of India asked for details of outstanding cases in Gujarat, the young IRS officer heading the Benami Property Cell at Aaykar Bhavan only said, “The amendment is fairly new. It will still take at least five years to streamline the process. Currently, less than 1 per cent of the total referrals (over 1000/ year) are registered, forget the penalty under the Benami Act.”
No training for IRS officers
Despite the Benami Property Cell’s crucial portfolio in the I-T department, it has turned out to be a recruiting ground for new and young IRS officers. Benami is a sensitive department but no special training is provided to IRS officers to lead it. An office with such a huge backlog to clear could do better with experienced bearers.
The Cell’s significance could be understood from the fact that until May 31, 2019, show-cause notices were issued in over 2,100 cases involving benami properties across India. The total value stood at over Rs 9,600 crore.
No mechanism in place for Benami
A plethora of transactions like cash transfers, property deals and share issuances have come under scanner with the invocation of the Benami Transactions (Prohibition) Amendment Act. “The problem has to do with which definition of benami to go by. A property that wasn’t considered benami by the earlier Act, is now an offence. We do not have a proper mechanism in place,” elaborated another IRS officer.
Confusion over retrospective application
“Currently, there is some dispute on the retrospective application of some of the provisions of the Act. In particular, as the old Act did not contain rules and regulations enabling confiscation, there are disputes on its application on properties acquired prior to 1 November 2016,” said a well placed source in Aaykar Bhavan, Ahmedabad.
Understaffed Cell needs an advocate
“The judiciary and Income Tax department work hand-in-hand in cases registered under the benami property law and there is a dire need to recruit an advocate in the cell as we need the legal backing to hold our case when it comes under the legal purview. But unfortunately, the cell doesn’t even have enough IRS officers. We are understaffed, and overworked. Our problems fell on deaf ears, ” said an IRS from the Benami Property Cell.
Major leads through I-T raids
“The benami property cell of the Income Tax department gets leads through I-T raids in the city. Over 60% of our leads come from searches. But how many of them actually end up being punished? It has been over six years since the Central Government came up with the new Act and our department is still figuring out the process to implement it,” shares a peeved IRS officer.
In October, 2021, the Income Tax Department conducted searches on a real estate developer group and its brokers in Ahmedabad. It led to the detection of unaccounted transactions of over ₹500 crore. The operation was carried out across 22 residential and business premises. “A large number of original documents of properties purchased over the years, which are held in the name of ‘benami’ individuals, were found. Little has been done since,” adds the source.
Benami Transactions: Old Act (1988)
Benami Transactions (Prohibition) Act, 1988 (Old Act) was introduced to prohibit such transactions and also to recover property held as benami. The Old Act contained nine sections; however, the necessary rules, regulations and procedures for the implementation of the law were not framed. In particular, there is no regulation relating to the confiscation of property.
Benami Transactions: New Act (2016)
This Act came into force from November 1, 2016. The amended law contains 72 sections.
Punishment for Benami Property Offenders:
A person found guilty of the offence of benami transaction can face:
• Imprisonment from one to seven years.
• Fine is also levied up to 25% of the fair market value of the property.
• Further, any person who furnishes false information or document is punishable with imprisonment from six months to five years. Additionally, a fine is also levied up to 10% of the fair market value of the property.