9911796707
TMI Blog2013 (7) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... f land, which had been gifted to the petitioner by her mother through a gift deed cannot come under the purview of the "Act". The property had not been purchased by her and the petitioner had only succeeded it through her mother. The Income Tax Returns particulars furnished showed taxes paid on legal source of income and no case has been made out by the respondents to show that the Income Tax Authorities collect income tax for illegally earned money also and hence, this point is not sustainable under law. The writ petitioner has failed to give detailed explanation regarding a portion of amount which had been utilized for the construction of the said building. It is imperative that the petitioner should give explanation regarding the source of income for the construction of the building, but she has failed to do so. The second respondent, being the competent authority is equally liable to give an explanation regarding the charge of "illegal money" received by the petitioner from her husband, by way of documentary evidence, but the second respondent has failed to establish their case that the writ petitioner had acquired illegal tainted money from her husband. Therefore, the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain other borrowals to acquire three lorries during the year 1967-68. In spite of the aforesaid business, he had derived an income of Rs.26,300/- for the assessment year 1968-69. The petitioner submits that the above firm of Kerala Timber Trading Company was dissolved in the year 1968 and he started another partnership firm in the name and style of "New Kerala Timber Trading Company" along with some other persons. He continued his operations in lorry services also and he had an income of approximately Rs.15,000/- from the lorry business while his share of income from the new firm was a similar sum. He retired from the firm of New Kerala Timber Trading Company sometime towards the later part of 1969. At the time of retirement, he was paid a sum of Rs.1,06,300/- towards his share of capital and accumulated profit in the firm. The petitioner submits that in September 1969, her husband entered into a partnership with another person to carry on timber trading and the business of PWD contracts under the name and style of 'K.M.Basheer & Co." He had introduced a capital of Rs.1,48,000/- in the firm while the other partner introduced a capital of Rs.30,000/-. 2. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs or funds out of which or by means of which, he had acquired the aforesaid properties. He was also required to indicate the evidence on which he relied on and other relevant information and particulars and to show cause why the properties should not be declared to be illegally acquired property and forfeited to the Central Government under the Act. 4. The petitioner submits that the second respondent also sent a notice dated 27.11.1976 to her stating that on the basis of relevant information and relevant materials available to him, he had reason to believe that the property comprising the International Tourist Home, Railway Station Road, Calicut-2, valued at Rs.7,00,000/- held by her or on her behalf, was illegaly acquired property within the meaning of Clause (i) of Sub Section (c) of Section 3 of the Act and that she was required to indicate the source of her income earnings or assets out of which or by means of which she had acquired the aforesaid property and to show cause why the said property should not be declared to be illegally acquired property and forfeited to Central Government. It was stated in the notice that the returns filed by her for the years 1960-70 to 1972-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not from illegal source. The petitioner submits that in so far as the reasons recorded had not stated that the source for the funds is illegal, but had only stated that the source is not explained, there is no justification for the issue of the aforesaid notice. 6. It was submitted that the second respondent also referred to a note book seized by the income tax authorities from the premises of international tourists home, wherein it was shown that she had received a sum of Rs.3,20,000/- from her husband as against the total cost of construction of Rs.6,80,000/-. It was submitted that the second respondent had admitted that the balance of Rs.3,60,000/- was received as a loan from Kerala Financial corporation and thus, on the basis of materials available with the first respondent, more than 50% of the cost of construction was admittedly from a legal source viz., loan from Kerala Financial Corporation and as such, there is no justification to forfeit the property absolutely. 7. The petitioner states that immediately on receipt of the above notice dated 27.11.1976, she submitted a detailed reply on 26.01.1977 explaining the source for the acquisition of the aforesaid property wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Government free from all encumbrances. The aforesaid order stated that the valuation officer under the income tax department had estimated the value of building as on 31.03.1979 at Rs.10.02 lakhs. This had been as the basis for the aforesaid proceedings. The competent authority stated that in view of the aforesaid valuation, the cost of construction of the property as on 31.03.1979 would be taken as the valuation fixed by the valuation officer. Though the competent authority admitted that the construction of the building had taken place as early as 1972 and substantial amount had been spent for the construction upto 1974, he arbitrarily adopted in the estimated valuation as on 30.03.1979 as the cost of construction for determining whether the investment was legal or illegal. It was submitted that the very basis of the order under Section 7(1) of the Act was erroneous, illegal and arbitrary and that the competent authority had erroneously concluded that the property is illegally acquired and ordered the forfeiture of her property. 10. The petitioner filed an appeal against the aforesaid order before the first respondent, the appellate Tribunal for forfeited property in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty. Thus, the first respondent erroneously continued the view taken by the second respondent that her mother had not explained the source for the purchase of the property and consequently, notwithstanding that the said property was received by her by way of gift from her mother, held that the said property is liable to be forfeited. It was submitted that the order of the first respondent confirming the order of the second respondent is totally without jurisdiction and is liable to be quashed as being erroneous, opposed to law and facts and totally without jurisdiction vitiated by non-application of mind to the relevant facts and the legal position. 11. The petitioner submits that in respect of the source for the construction, she had explained that a sum of Rs.50,000/- was available with her consequent on stopping of all her money lending business. The Income Tax assessment orders clearly showed that she had carried on money lending business. This amount of Rs.50,000/- was not accepted by the second respondent, but the first respondent reversed the findings of the second respondent and accepted the contention that the sum of Rs.50,000/- was available for investment in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was no further notice with regard to the further investments and consequently, no order can be made in respect of any asset not covered by the notice under Section 6. Consequently, even assuming without conceding that the finding of the first and second respondents in regard to the aforesaid advance is correct, in so far as the advance in excess of Rs.95,000/- was made even according to them, subsequent to the issue of the notice under Section 6 and hence it cannot from the basis of an order under Section 7 and consequently, the forfeiture in respect of the said investment is opposed to law and without jurisdiction. notwithstanding this position, the first respondent concluded that she had received a loan of Rs.2,35,000/- which was invested in the property and that the said amount constituted tainted money for the reason that the investment by her husband in the firm was considered to be tainted. It is however relevant to mention that even assuming, without conceding that there was a finding that the investment by her husband in the firm was tainted, there was no finding that the entire assets of the firm, in which her husband was only a partner, was in any manner tainted. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, a forfeiture notice dated 27.11.1976 was issued under Section 6(1) of the Act, proposing forfeiture of the property contained therein. After considering the explanations tendered by the said writ petitioner, the second respondent (i.e, competent authority) SAFEM(FOP) A & NDPS Act, Chennai) passed an order Section 7(1) of the Act, forfeiting the same as it was treated as illegally acquired. Aggrieved by the said order, the writ petitioner filed an appeal before the Appellate Tribunal for forfeited property, New Delhi, (the first respondent herein) who vide their orders in FPA No.10/MDS/95 and FPA No.9/MDS/95 dated 04.09.1997 confirmed the order passed by the second respondent. Consequent to the above, the writ petitioner has filed the present writ petition before this Court to issue a writ of certiorari, call for the records in F.P.A.No.9/MDS/95, dated 04.09.1997, confirming the order of the second respondent in OCA/MDS/208/76, dated 31.10.1994 and quash the same and to stay the operation of orders of the second respondent in the said proceedings. As the writ petitioner's claim have been considered by the original and the appellate authorities, on merits, the only purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources of funds for the purchase of land by mother. It was submitted that even under the provisions of the Income Tax Act, it is obligatory for the assessee to explain the genuineness of the transaction (gift) failing which it will be brought to tax by applying the test of human probabilities (Sumathi Dayal Vs. Income Tax, 1995 Supp. (2) (SCC 453) . "The transactions though apparent were held to be not real one, may be money came by way of bank cheques and paid through process of banking transaction, but that itself is of no consequence" as held in the case of CIT Vs. Mohanakala, 2007 AIR 2216, 2007 (6) SCR 680, 2007 (6) SCC 21, (6) SCC 21, 2007 (7) SCALE 599. It was submitted that in the proceedings under SAFEM(FO) Act, it is the fundamental requirement that the legality of the sources for acquisition of a property are proved in terms of Section 3(1)(c) thereof and hence, the reasons have been validly recorded. It was submitted that even if the Income Tax Officer has failed to examine the genuineness of the gift, such erroneous findings by the Income Tax Officer cannot be given the colour of legality in view of the provisions of Chater VI of the Income Tax Act, which have been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect and misconceived. The noticee having put up the construction even subsequent to the issue of notice under Section 6(1) did so at her own risk, because the property was a subject matter of notice for forfeiture. Having put up further construction, without allowing to estimate the actual construction on the date of notice, the petitioner cannot benefit out of her own action. It was submitted that all sources that were available have been elaborately considered in the order. Thus, the principles of natural justice have been adopted in the impugned order and there is no violation of principles of natural justice. 19. It was submitted that the petitioner cannot benefit out of her own act of putting up additional construction on the property subject to notice and claim any benefit out of the same. The enquiry regarding the sources for the mother had been validly made in as much as the very purpose of the act in its preamble states that the convicts and detentes indulge in making investments out of their ill-gotten wealth in the name of their relatives/associates. The respondents have taken up appropriate view and this ground has to be totally rejected. Further, when the forfei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition and W.M.P. The operative portion of the impugned order is as follows:- "(F.P.A.No.9/MDS/95):- As stated earlier, this appeal has been preferred by Smt.K.H.Katheeja, wife of Shri K.M.Basheer Ahmed, who was detained under the COFEPOSA and the property forfeited is described as "International Tourist Home, Railway Station Road, Calicut-2 (for short, "Tourist Home"). As per valuation report of the valuation cell, Calicut, the said Tourist Home was valued at Rs.10,02,000/- as on 31.03.1979 as against Rs.9,97,280/- as claimed by the appellant as the cost of its construction. For purpose of this appeal, there is not much difference between these two figures. The appellant has explained sourced of investment in the site for the Tourist Home and subsequent construction thereon as under:- Amount Description Rs.25,000/- Site was purchased by the appellant's mother in 1972 and gifted to her Rs.50,000/- From her money lending business subsequent to the stoppage of the said business in January 1974. Rs.91,000/- Loan from M/s.K.M.Basheer & Co., (In which her husband was a partner). Rs.2,35,000/- Loan from her husband Shri K.M.Basheer Rs.3,62,000/- Loan from M/s.Kerala State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a few known people in the neighbourhood. (iv) She does not remember names of the persons to whom money was given on loan, strangely when the business, as claimed by the appellant, was carried on with the neighbours. (v) Return of Income for the above 4 A.yrs. 1969-70 to 1972-73 and also for the subsequent years 1973-74 and 1974-75 were filed together at a later date. (vi) Though in her letter dated 26.01.1977, she had said that money lending business was stopped from January, 1974, however, in her letter dated 08.10.1980 addressed to the I.T.O., Calicut, she has shown a capital of Rs.25,000/- as available from money lending business as on 01.04.1977 (A.Y.1978-79), the two letters contradicting each other leading to belief that it was a 'cooked up argument'. We have perused the assessment orders for the A.Y.1969-70 to 1972-73 which have been made under Section 143(3) of the Income Tax Act, 1961, all on 25.11.1972. These assessment orders clearly show that the appellant was carrying on money lending business and her returned income, accepted by the Assessing Officer as correct, was Rs.13,000/- in each of the four assessment years. In view of this and also for the reason that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , subsequently, he varied the sources from the advancement of the said Rs.85,000/-. In view of the patent contradictions, the I.T.O. did not accept the source as genuine and added Rs.46,300/- out of Rs.85,000/- as income from undisclosed sources. However, on appeal, the addition was reduced by Rs.8,000/- thereby lending a sum of Rs.38,300/- as income from undisclosed sources. The C.A. has held that the remaining amount of Rs.46,700/- (Rs.85,000 - 38,300) has also not been properly explained since no evidence whatsoever in the form of sale deed, confirmatory letters, transfer entry in R.C.books, voucher for sale of timber etc., to prove sale of agricultural property and lorry have been furnished and thus, the sources for financing the loan have not been fully explained satisfactorily. We agree with his findings. Further, we state that as on 31.03.1979 outstanding loan was Rs.2,35,000/- see also para 5(h) above. (e) Rs.3,62,000/- from M/s.Kerala State Finance Corporation We have perused the account maintained by the appellant that M/s.Kerala State Finance Corporation, had advanced loan totalling to Rs.3,62,000/-, the last instalment of loan was disbursed on 25.10.1975. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said property is illegally acquired. In view of the said specific notice and pursuant thereto, the second respondent can forfeit to the Government only the property which existed on the date of notice. While this is so, the second respondent, has by order dated 6th February 1995 evaluated and ascertained the property as on 31sth March 1975 at Rs.10,02,000/- and as sought to forfeit the said property to the Government. Consequently, the said order is not sustainable under law. The first respondent has confirmed the above said order without considering the contentions raised by the petitioner, in regard to the validity of the said order. 23. The learned senior counsel appearing for the writ petitioner further contended that only reason adduced by the second respondent is that though she has filed Income Tax Returns and paid Income Tax in respect of the income from money lending business, the particulars of such business are not furnished along with the returns to the Income Tax Authorities. Consequently, it is assessed that the investment made out of the income and assets of the money lending business, are illegally acquired. Such a presumption is not warranted on the materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice. 25. The learned senior counsel further contended that the property which was the subject matter of the notice was to construction, as it existed as on 27th November 1996. While this is so, the property forfeited was the property which existed and was evaluated as on 31.03.1975. This vitiates the order under Section 7. The source for the construction has been duly explained and consequently, the conclusion of the second respondent that the investment has been made out of illegally acquired funds. This conclusions has not been based on any documentary evidence. Further, the notice under Section 6 was not issued to the mother of the petitioner as she was not involved in the said case. Therefore, the discussion regarding bona-fide of the mother of the petitioner is unwarranted. The learned senior counsel vehemently argued that the appellate authority erred in confirming the order of the competent authority to that effect that the loan taken by her from K.M.Basheer and Co is tainted money. The said firm is a registered partnership firm and running as per law and procedure. The allegation made by both the respondents that the petitioner availed loan from the company which is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rfeiture of Property) Act (13 of 1976) S.2(2)(c), Explanation -"Relative" of convict - Brother's wife and son - Are "relatives" in term of definition. (B) Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (13 of 1976) Ss.6, 18 - Forfeiture of Property of relative - Absence of notice on convict - Is jurisdictional defect - Competent authority cannot proceed in matter by merely serving notice on petitioner-relative." The learned Senior counsel for the petitioner further argued that if the unexplained amount i.e., assumed as illegal money, is utilized for building construction, then the respondent can impose fine as per the Act, but the respondent cannot forfeit the said property. Hence, the learned senior counsel entreats to allow the above writ petition and set-aside the impugned order of the first respondent. 26. The learned counsel for the second respondent vehemently argued that the petitioner's husband had been detained under COFEPOSA since he had been involved in smuggling activities. Out of his income, the writ petitioner had constructed the International Tourist Home. The petitioner was given an opportunity to give explanation regarding the income de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ss.6,7,8 and 2(2)(c) Expln. (2) (iii), (vi), (vii) - Notice under S.6 need not show any link or nexus between the illegally acquired money of the detenue and the property sought to be forfeited for passing order of forfeiture under S.7 - Only requirement for the competent authority is to have reasons to believe and the same must be recorded in writing to the effect that the property was illegally acquired - Whereafter burden would be on the person to whom the notice was issued to prove that the property was not illegally acquired - Wife failing to establish any income of her own to acquire the said properties. - On facts held, notice satisfied the requirements of S.6 B. Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 - Ss.3(1)(c), 6 and 7 - Competent authority to show link or nexus to substantiate the belief that property was illegally acquired - Has to be indicated where relationship with person holding the property is remote, but not when the relationship is close and direct, such as with spouse, child or parent." Hence, the learned counsel entreats the Court to dismiss the above writ petition. 27. After the above discussion, this Court is of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame, no documentary evidence had been produced by the respondent. At the same time, the petitioner is unable to explain the funds which had been utilized by her for construction of the building. The unexplained funds could not be treated as illegally earned money by her husband. Further, there was no discussion regarding the petitioner's family and the earning members of the family. (vii) It has been contended that the respondents had considered that the loan of Rs.91,000/- taken by the petitioner from Basheer & Co as tainted money as they had earlier concluded that the investment made by her husband in the said firm was also through tainted money. However, it is evident that the petitioner had not received the money from her husband, on the basis of being his spouse, but had only taken it as a loan from the partnership firm and hence, this money could not be considered as tainted money. Further, M/s.Basheer & Co., is a partnership firm and not owned solely by her husband. Therefore, the question of tainted money does not arise in the said issuance of loan. (viii) It is seen that the petitioner's mother had gifted the property by way of registered gift deed. As such, the landed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ented by the same person. Now, the husband of the petitioner is no more, as was informed by the learned counsel. It is seen that the common order has been passed by the first respondent / appellate authority in appeal in FPA No.9/MDS/95 and FPA No.10/MDS/95 against the petitioner and her husband. Now, as the husband of the petitioner is no more, the husband's appeal has abated. Consequently, the common impugned order is not maintainable. (xiv) The writ petitioner has failed to give detailed explanation regarding a portion of amount which had been utilized for the construction of the said building. It is imperative that the petitioner should give explanation regarding the source of income for the construction of the building, but she has failed to do so. The second respondent, being the competent authority is equally liable to give an explanation regarding the charge of "illegal money" received by the petitioner from her husband, by way of documentary evidence, but the second respondent has failed to establish their case that the writ petitioner had acquired illegal tainted money from her husband. Therefore, the impugned order of the competent authority has not been supported throu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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