Gateways provides customers with a network of sending money to businesses and merchants. Shell companies that pretend to be businessmen sometimes register with PGS to raise funds.
The tax office may verify whether some merchants hold currency on behalf of other merchants based on feedback received; or, if the fake merchant is helping to fund remittances, the fee for the book is to evade tax. Here, the receiver later returns the cash funds to the sender.
These notices were issued under Article 23 of the 1988 Benami Transactions Act.
“The tax agency appears to use a broader power under Article 23. Unlike IT law, seeking information under this requirement is not related to any public or pending procedures. This data may be used to conduct any investigation and to approve other or joint commissioners in advance.
If the recipient’s return does not reflect the amount, the department can investigate whether they are other people’s territory. A Benami transaction is a transaction or arrangement in which property or assets “transfer” assets such as stocks or funds to or are “holded” by one person, but considerations for such property have been provided or paid by another person. In other words, the holder of the asset (the frontline) is not its real beneficial owner.
Since PGS regulated by RBI must know the formalities of their status (KYC) before registering a merchant, they can be asked to explain whether there were KYC errors.
“Section 23 may be initiated based on any material or information arising from various sources, including the tax department, the Reserve Bank of India, the law enforcement bureau or other government agencies. If the assessment indicates that the possibility of a BENAMI transaction implies the possibility of an IO, the IO may issue an explanation under Article 24 to seek explanation.”
According to advocate and former ITAT member Ashwani Taneja, “With the payments made through PGS, if there is an appropriate, open and well-documented agreement between two entities, an agreement between one entity – one formally represents the payments of another and receives the payment only as a payment/payment agency’s action, the arrangement is announced with the government and if it is related to whether it will be resorted to litigation and whether it will be related to it. Informal and implicit, especially where the real person behind the business is hidden, when the person operating the business is different from the person with the official record of the name and the person with the KYC file, it may also be suspicious of Benami’s arrangement.” He said it is unfair to be responsible for uncontrolled transactions conducted by unknown third parties.
