2009 (3) TMI 982 - HC - FEMA

Summary

Issues Involved:
1. Legality of the forfeiture of the house property and joint bank account.
2. Validity of the show-cause notice under SAFEMA.
3. Competent authority's adherence to procedural requirements under SAFEMA.
4. Relevance of Income Tax assessments and Voluntary Disclosure Scheme in SAFEMA proceedings.
5. Burden of proof and the role of the Income Tax Department in verifying the legality of the sources of income.

Issue-wise Detailed Analysis:

1. Legality of the Forfeiture of the House Property and Joint Bank Account:
The writ petition challenges the order of the Appellate Tribunal confirming the forfeiture of the house property and the amount in the joint account under SAFEMA. The petitioner argued that the properties were legally acquired and not from tainted funds. The Tribunal, however, rejected the petitioner's proof, citing the lack of independent evidence and the inability to trace the sources of income to legitimate means.

2. Validity of the Show-Cause Notice under SAFEMA:
The petitioner contested the show-cause notice issued under Section 6(1) of SAFEMA, arguing that it was invalid due to the absence of material evidence and relevant information justifying the notice. The competent authority had recorded reasons to believe that the properties were illegally acquired, but the petitioner claimed these reasons were not substantiated with adequate evidence or material.

3. Competent Authority's Adherence to Procedural Requirements under SAFEMA:
The petitioner argued that the competent authority failed to utilize the powers under Sections 18(2) and 18(3) of SAFEMA to conduct a thorough inquiry or investigation into the legitimacy of the sources of income. The court noted that the competent authority and the Tribunal did not make use of the Income Tax Department officers to verify the claims made by the petitioner, which was a procedural lapse.

4. Relevance of Income Tax Assessments and Voluntary Disclosure Scheme in SAFEMA Proceedings:
The petitioner presented income tax assessments and returns, including those filed under the Voluntary Disclosure Scheme (VDS), as evidence of legitimate acquisition of properties. The Tribunal dismissed these assessments, suggesting that the petitioner might have manipulated the income tax records to create evidence. The court, however, emphasized that these entries were made before the issuance of the show-cause notice and should have been considered valid unless proven otherwise by a proper inquiry.

5. Burden of Proof and the Role of the Income Tax Department:
The court highlighted that the burden of proving the legitimacy of the properties lies with the petitioner, but the competent authority must also substantiate its claims of illegality with concrete evidence. The failure to engage the Income Tax Department to verify the petitioner's claims was a significant oversight. The court referenced previous judgments emphasizing the strict construction of forfeiture provisions and the necessity for the competent authority to provide clear and adequate reasons for its belief that the properties were illegally acquired.

Conclusion:
The court allowed the writ petition, setting aside the orders of the competent authority and the Appellate Tribunal. It held that the respondents failed to follow the procedural requirements under SAFEMA and did not adequately disprove the petitioner's claims of legitimate acquisition of the properties. The court emphasized the necessity of a thorough and fair inquiry, utilizing the powers vested under SAFEMA, to ensure justice and adherence to legal standards.