TaxTMI 
TaxTMI 
1997 (6) TMI 337
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....finition of section 2(2)(b) of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act and he was required to show cause as to why the properties mentioned in the list annexed to the show-cause notice should not be forfeited. Similar notices were issued to the appellants in F.P.A. Nos. 15 to 17/Mds of 1996 as they answered the description of "person" under section 2(2)(b) of the Act. Later, Sahul Hameed died on February 21, 1993, and the appellants in F.P.A. No. 14/Mds of 1996 were issued notices as his legal heirs. All the appellants replied to the show-cause notices and contested and adduced evidence to show that the properties mentioned in the lists annexed to the show-cause notices are not illegally acquired properties and contended that they are not liable to be forfeited. The Competent Authority rejected the contentions raised by the appellants and directed the forfeiture of the properties of the appellants, holding that they are illegally acquired properties. The specific contention of the appellants in F.P.A. No. 14/Mds of 1996 and 15/Mds of 1996 is that the proceedings are vitiated, as the initiation of the proceedings by issuing notices under section....
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....d is of no value in the present context. It was next pointed out by Shri Narayanan that the appellants did not raise this question at the earlier stages of the proceedings. He further contended that in view of the fact the appellants failed to adduce convincing evidence to show that the forfeited properties were not acquired by illegal means no prejudice is caused to them by non-furnishing of the reasons recorded by the Competent Authority. Section 6(1) of the SAFEMA reads as follows : "If, having regard to the value of the properties held by any person to whom this Act applies, either by himself or through any other person on his behalf, his known sources of income, earnings or assets, and any other information or material available to it as a result of action taken under section 18 or otherwise, the Competent Authority has reason to believe (the reasons for such belief to be recorded in writing) that all or any of such properties are illegally acquired properties, it may serve a notice upon such person (hereinafter referred to as the person affected) calling upon him within such time as may be specified in the notice which shall not be ordinarily less than thirty days, to indica....
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.... sufficiency of the reasons for the belief. Again the expression 'reason to believe' in section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith : it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law." The same proposition of law was reiterated in Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax [1971] 82 ITR 147 (SC), while dealing with section 34(1)(a) of Indian Income-tax Act, 1922, in which it was observed as follows (headnote) : " There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on....
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....s held by the person affected are illegally acquired properties, that he will get the jurisdiction to proceed further and to issue notice under section 6(1). Admittedly, the record does not contain any reasons which are said to have been recorded before issuing notices under section 6(1) to the appellants in F.P.A. Nos. 14/Mds of 1996 and 15/Mds of 1996. Mere assertion by the Competent Authority that reasons have in fact been recorded is of no avail, as this Tribunal has no opportunity to examine the reasons in order to find out whether they were relevant and whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and that the reasons are not extraneous or irrelevant to the purpose of the section. Unless the Competent Authority has reason to believe that the properties sought to be forfeited are illegally acquired properties, and such reasons have been recorded as required under section 6(1), he does not get jurisdiction to issue notices under section 6(1) and to proceed further in the matter. Notices issued without jurisdiction are of no consequence, as the further proceedings are vitiated for lack of jurisdiction. The c....
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....ct the interest of the affected person to whom the notice under section 6 is issued, in order to avoid the issue of unjustified or frivolous notices. It was argued for the Competent Authority based on Chatar Singh Nagra, that unless the affected person proves that prejudice is caused by non-recording of reasons and non-communication of the same, the proceedings are not vitiated. The reasons were in fact recorded in that case. They were, therefore, available to the Tribunal for perusal. In the present case, no such reasons are available for our perusal. Hence, the question of the appellants proving that they were prejudiced by non-recording of reasons or non-communication of the same does not arise. That part of the observations of the Tribunal in that case is not applicable in the present case. It was strenuously argued by Shri Kumar that non-communication of the reasons to the appellants vitiated the entire proceedings. In support of his contention he relied on several decisions, the main being Ajantha Industries v. Central Board of Direct Taxes, [1976] 102 ITR 281 (SC). That was a case arising under the Income-tax Act, 1961, where the file was transferred under section 127(1) o....