1997 (6) TMI 337 - AT - FEMA

Summary

Issues Involved:
1. Non-recording of reasons as required by Section 6(1) of SAFEMA.
2. Non-communication of reasons to the appellants.
3. Compliance with the requirement of sub-section (2) of Section 6 of SAFEMA.
4. Legality of the properties under contention.

Issue-wise Detailed Analysis:

1. Non-recording of reasons as required by Section 6(1) of SAFEMA:
The main contention in F.P.A. Nos. 14/Mds of 1996 and 15/Mds of 1996 was that the initiation of proceedings by issuing notices under Section 6(1) was not preceded by recording the reasons for initiating the proceedings. The Competent Authority claimed that reasons were recorded but were not available in the file. The Tribunal held that recording of reasons under Section 6(1) is mandatory and must be done before issuing notices. The Tribunal cited several precedents, including S. Narayanappa v. CIT and Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax, to emphasize that the reasons for belief must be recorded in writing and must have a rational connection to the formation of the belief. The Tribunal concluded that the absence of recorded reasons meant the Competent Authority did not have jurisdiction to issue the notices, rendering the entire proceedings void.

2. Non-communication of reasons to the appellants:
The appellants argued that non-communication of the reasons vitiated the entire proceedings. The Tribunal noted that while Section 6(1) does not explicitly require the communication of reasons, it would be prudent for the Competent Authority to do so. The Tribunal referenced Ajantha Industries v. Central Board of Direct Taxes, where non-communication of reasons was held to result in serious infirmity. However, the Tribunal distinguished this case from Ajantha Industries, noting that the recording of reasons under Section 6(1) is not a final order and the affected party has remedies under the Act. Despite this, the Tribunal held that the absence of recorded reasons in the file meant the proceedings were without jurisdiction.

3. Compliance with the requirement of sub-section (2) of Section 6 of SAFEMA:
The appellants in F.P.A. Nos. 16/Mds of 1996 and 17/Mds of 1996 contended that the proceedings were vitiated due to non-compliance with sub-section (2) of Section 6 of SAFEMA, as copies of the notices were not issued to the detenu who was the real owner of the properties. The Tribunal did not address this issue in detail in this judgment, stating that these appeals would be dealt with by separate orders.

4. Legality of the properties under contention:
The Competent Authority directed the forfeiture of the properties, holding that they were illegally acquired. The appellants contested this, arguing that the properties were not illegally acquired. The Tribunal did not delve into the merits of whether the properties were illegally acquired, as it found that the proceedings were void due to the lack of recorded reasons. The Tribunal emphasized that the burden of proof under Section 8 of SAFEMA would only arise if the Competent Authority had validly initiated the proceedings by recording reasons as required under Section 6(1).

Conclusion:
The Tribunal allowed F.P.A. Nos. 14/Mds of 1996 and 15/Mds of 1996, setting aside the orders of forfeiture by the Competent Authority due to the lack of jurisdiction stemming from the failure to record reasons as required by Section 6(1) of SAFEMA. The Tribunal did not address the merits of the properties' legality or the compliance with sub-section (2) of Section 6, as these issues were to be dealt with in separate judgments for F.P.A. Nos. 16/Mds of 1996 and 17/Mds of 1996. The Tribunal also made observations regarding the maintenance of records by the Competent Authorities, emphasizing the importance of recording and communicating reasons to avoid unjustified or frivolous proceedings.