Safema forfeiture cannot stand when inquiry evidence supports lawful source and is wrongly ignored by authorities.

Evidence recorded by an Income-tax Officer appointed under section 18 of SAFEMA formed part of the statutory inquiry, and the competent authority could not reject corroborative statements merely because the same witnesses were not again produced before it. The Madras HC held that the officer's report, which supported the petitioner's claim that the purchase consideration came from lawful sources, was not properly considered, and the adverse finding on the alleged loans rested on an incorrect premise. The finding that lawful source of funds was not proved was therefore vitiated, and forfeiture of the property was not warranted; the orders of the competent authority and the Appellate Tribunal were quashed.

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Issues: Whether the forfeiture of the property under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 was sustainable when the evidence recorded through an Income-tax Officer acting as commission showed corroboration of the petitioner's case that the purchase consideration came from lawful sources.

Analysis: The competent authority and the Appellate Tribunal had accepted that part of the consideration came from the sale proceeds of the petitioner's wife's jewellery, but rejected the balance mainly because the witnesses examined by the Income-tax Officer were not again produced before the competent authority. The Court held that, under section 18 of the SAFEMA, the Income-tax Officer appointed for inquiry performs functions on behalf of the competent authority, and the proceedings recorded by him form part of the proceedings under the Act. The report of the Income-tax Officer specifically stated that the statements recorded showed general corroboration of the petitioner's claims and that the deponents appeared truthful. That material was not properly considered, and the adverse finding on the alleged loans was based on an incorrect premise.

Conclusion: The finding that the petitioner failed to prove lawful source of funds was invalid, and the forfeiture was not warranted.

Final Conclusion: The writ petition succeeded, and the orders of the competent authority and the Appellate Tribunal were quashed.

Ratio Decidendi: Where evidence recorded by an officer appointed under section 18 of the SAFEMA materially supports the claim of lawful source, the competent authority and appellate tribunal cannot reject it merely because the same witnesses were not again produced before them, and a finding based on non-consideration of such material is vitiated.

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