TaxTMI 
TaxTMI 
2008 (7) TMI 852
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...., Zaibunnisa Memon, is his sister and Appellant No. 9, Arij Mohd. Merchant, is the brother-in-law of the said Iqbal Mohammed Memon. An order of preventive detention was passed against him for his alleged involvement in illicit trafficking under the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 (for short the "PITNDPS") on or about 29.9.1994. The same, however, could not be served on him as he had left India. A pre execution writ petition filed on his behalf was dismissed. The said order of detention is still operative. 3. The said Iqbal Mirchi is, thus, a `person' within the meaning of Section 68A(C) of the Act. Appellants being his relatives in terms of Section 68H of the Act were issued with notices directing them to show cause as to why the properties mentioned therein should not be forfeited being `illegally acquired properties'. Causes were shown pursuant thereto. Opportunities of hearing were also afforded. Whereas some of the properties belonging to the appellants were directed to be forfeited, some were released. The Appellate Tribunal on appeals having been preferred thereagainst by the appellants by a common order dated ....
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....uestion were in fact purchased from the tainted money and it was not for the appellants to prove contra. (iv) As the only relevant consideration for passing an order in terms of Section 68H of the Act is that the property had been acquired from the tainted income, it is sufficient for the noticee to show that the said allegations were not correct. (v) The competent authority was required to keep distinction between his function and the one under the Income Tax Act and the Wealth Tax Act in mind; his jurisdiction being limited, that is, whether the properties were illegally acquired properties or not, wherefor he could not have gone further and hold that only because the noticees had not been able to trace the source of their income, the properties were to be treated to be illegally acquired property, which may be only a relevant factor but would not necessarily lead to the said conclusion. THE ACT 6. The Act was enacted to consolidate and amend the law relating to narcotic drugs, to make stringent provisions for the control and regulation of operation relating to narcotic drugs and psychotropic substances, to provide for the forfeiture of property derived from, or used ....
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....affairs or keeping the accounts of such person; (iii) Any association of persons, body of individuals, partnership firm, or private company within the meaning of the Companies Act, 1956, of which such person had been or is a member, partner or director; **** **** **** (vi) The trustee of any trust, where, - (1) The trust has been created by such person; or (2) The, value of the asset contributed by such person (including the value of the assets, if any, contributed by him earlier) to the trust amounts on the date on which contribution is made, to not less than twenty per cent of the value of the assets of the trust on that date, (g) "Illegally acquired property" in relation to any person to whom this Chapter applies, means, - (i) Any property acquired by such person, whether before or after the commencement of this Chapter, wholly or partly out or by means of any income, earnings or assets derived or obtained from or attributable to the contravention of any provisions of this Act; or (ii) Any property acquired by such person, whether before or after the commencement of this Chapter, for a consideration, or by any means wholly or partly traceable to any property....
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....n to whom this Act applies, before a period of six years from the date he was arrested or against whom a warrant or authorisation of arrest has been issued for the commission of an offence punishable under this Act or from the date the order or detention was issued, as the case may be." Section 68E provides as to how illegally acquired property shall be identified, stating: "68E. Identifying illegally acquired property - (1) Every officer empowered under section 53 and every officer-in-charge of a police station shall, on receipt of information is satisfied that any person to whom this Chapter applies holds any illegally acquired property, he may, after recording reasons for doing so, proceed to take all steps necessary for tracing and identifying such property. (2) The steps referred to in sub-section (1) may include any inquiry' investigation or survey in respect of any person, place, property, assets, documents, books of account in any Bank or public financial institution or any other relevant matters. (3) Any inquiry, investigation or survey referred to in sub-section (2) shall be carried out by a....
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....entral Government under this Chapter. (2) Where a notice under sub-section (1) to any person specifies any property as being held on behalf of such person by any other person, a copy of the notice shall be served upon such other person: Provided that no notice for forfeiture shall be served upon any person referred to in clause (cc) of sub- section 68 A or relative of a person referred to in that clause or associate of a person referred to in that clause or holder of any property which was at any time previously held by a person referred to in that clause. 68I. Forfeiture of property in certain cases - (1) The competent authority may, after considering the explanation, to the show cause notice issued, under Section 68-H and the materials available before it and after giving to the person affected (and in a case where the person affected holds any property specified in the notice through any other person, to such other person also) a reasonable opportunity of being heard, by order, record a finding whether all or any of the properties in question are illegally acquired properties: Provided that if the person affected (and in a case where the person affected holds any proper....
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....oticees-appellants contended that they were concerned only with 11 properties which was accepted. Proceedings in respect of the unrelated properties were dropped and, thus, continued in respect of the said 11 properties stating:- "27. After the replies to the Show Cause Notice were received from the affected person it was found that many of the properties were disclaimed by them. This necessitated further verification and enquiries were conducted and it was found that most of the properties are under ownership/possession of different persons who are not noticees. The affected person have disclaimed the properties mentioned at Sl. Nos. 6, 7, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27 and 38. It was further informed that the properties at Sl. No. 36 i.e., (i) Rabia Mansion (ii) Mariam Lodge and (iii) Sea View are owned by "Sir Mohammed Yusuf Trust". It was further stated that the properties at sr. nos. 3 and 33 are not owned by them but are tenanted properties. After preliminary inquiries conducted by office it was felt that in these cases provisions of Section 68-H (2) / 68-L of the NDPS Act ....
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....ly acquired property as defined under sub-section (g) of section 68B of the NDPS Act." 11. From a perusal of the said notice to show cause, it is evident that admittedly another proceeding had been initiated against them. 12. Four properties were directed to be forfeited; seven were released. 13. The second proceedings with which we are concerned herein continued in respect of the 11 properties. Indisputably again in the earlier proceedings, income tax returns had been brought on records. 14. The relevant provisions of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (for short "SAFEMA") and Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS) are in pari materia. 15. Contentions were raised that the show cause notice shows complete non-application of mind on the part of the competent authority, as ; (i) 28 unconnected properties including the property of Late Fatima Amin which formed part of the separate proceeding had been included. (ii) The properties mentioned therein had never been mentioned by the appellants in the previous proceedings, although they did not form part thereof. ISSUE 16. The core question whic....
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....er information or material made available as a result of a report from any officer making an investigation under Section 68-E of the Act or otherwise. 21. When the aforementioned conditions are satisfied, the competent authority would be entitled to issue a show cause notice, if he has reason to believe, wherefore reasons are to be recorded in writing that the properties are illegally acquired properties. 22. Once the notice to show cause is found to be satisfying the statutory requirements which are condition precedent therefor, a valid proceeding can be said to have been initiated for forfeiture of the property. Only in a case where a valid proceeding has been initiated, the burden of proof that any property specified in the notice is not illegally acquired property, would be on the `person' affected. 23. Before, however, an order of forfeiture can be passed, the Competent Authority must not only comply with the principles of natural justice, he is also required to apply his mind on the materials brought before him. It is also necessary that a finding that all or any of the properties in question were illegally acquired properties is recorded 24. The competent authori....
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....cation of such a property although might have been made in an inquiry made by the officer in-charge of a Police Station; however, when the proceeding was initiated, the question as to whether such properties were illegally acquired properties or not, was required to be ultimately determined by the competent authority alone. 28. It is, however, beyond any doubt or dispute that a proper application of mind on the part of the competent authority is imperative before a show cause notice is issued. Section 68-H of the Act provides for two statutory requirements on the part of the authority viz: (i) he has to form an opinion in regard to his `reason to believe'; and (ii) he must record reasons therefor. Both the statutory elements, namely, 'reason to believe' and `recording of reasons' must be premised on the materials produced before him. Such materials must have been gathered during the investigation carried out in terms of Section 68-E or otherwise. Indisputably therefore, he must have some materials before him. If no such material had been placed before him, he cannot initiate a proceeding. He cannot issue a show cause notice on his own ipse dixit. A roving enquiry is not co....
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....lender or whether he really intends that such person shall be the real owner and/or possessor thereof - or gifts away or otherwise transfers his properties in favour of any of his relatives or associates, or purports to sell them to any of his relatives or associates -in all such cases, all the said transactions will be ignored and the properties forfeited unless the convict/detenu or his relative/associate, as the case may be, establishes that such property or properties are not "illegally acquired properties" within the meaning of Section 3(c). In this view of the matter, there is no basis for the apprehension that the independently acquired properties of such relatives and associates will also be forfeited even if they are in no way connected with the convict/detenu. So far as the holders (not being relatives and associates) mentioned in Section 2(2)(e) are concerned, they are dealt with on a separate footing. If such person proves that he is a transferee in good faith for consideration, his property - even though purchased from a convict/detenu - is not liable to be forfeited. It is equally necessary to reiterate that the burden of establishing that the properties mentioned in ....
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....SAFEMA did not exist, impugned orders of forfeiture cannot be sustained. In that view of the matter, the appeals deserve to be allowed. The order under challenge is set aside." 31. Our attention, however, has been drawn to a decision of a two Judge Bench of this Court in Kesar Devi (Smt.) Vs. Union of India and Others [(2003) 7 SCC 427] wherein Fatima Mohd. Amin (supra) was distinguished by a Bench of this Court, inter alia, opining that no nexus or link between the money of the debt and property sought to be forfeited is required to be established under the Scheme of the Act, stating; " "10...The condition precedent for issuing a notice by the competent authority under Section 6(1) is that he should have reason to believe that all or any of such properties are illegally acquired properties and the reasons for such belief have to be recorded in writing. The language of the section does not show that there is any requirement of mentioning any link or nexus between the convict or detenu and the property ostensibly standing in the name of the person to whom the notice has been issued...  ....
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....avit or quoted in it. However, all that has not been done in this case. 8. It must be stated that an order of confiscation is a very stringent order and hence a provision for confiscation has to be construed strictly, and the statute must be strictly complied with, otherwise the order becomes illegal." It was also observed:- "10. In the present case, in the notice dated 15-3-1988 issued to the appellant under Section 6(1) of the Act (copy of which is annexed as Annexure P-1 to this appeal), it has not been alleged therein that there is any such link or nexus between the property sought to be forfeited and the alleged illegally acquired money of the appellant." 34. In the final order, the rule of evidence as envisaged under Section 68-I read with Section 68-J of the Act must be applied. A person affected would be called upon to discharge his burden provided a link or nexus is traced between the holder of the property proceeded against and an illegal activity of the detenu. Such a formation of belief is essential. 35. Mr. B.B. Singh, however, has drawn our attention to a decision of this Court in ....
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.... were involved. The said decision ex-facie has no application to the fact of the present case. REASON TO BELIEVE 37. This brings us to the next question as to what does the term "reason to believe" mean. We may in this behalf notice some precedents operating in the field. 38. In the context of the provisions of Section 147 of the Income Tax Act, this Court in Phool Chand Bajrang Lal Vs. ITO : [1993] 203 ITR 456] held:- "From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceed....
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....en fulfilled in the present case. 39. Non- application of mind on the part of the competent officer would also be evident from the fact that a property named `Rose Villa' which was the subject matter of the decision of this Court in Fatima Amin (supra), was also included herein. Once the show cause notice is found to be illegal, the same would vitiate all subsequent proceedings. 40. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai and Another [(2007) 6 SCC 329], this Court held: "86. It is of some significance that in the standard pro forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the assessing officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations. The impugned order, therefore, suffers from non- application of mind. It was also bound to comply with the princ....