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TMI Blog1989 (4) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... isputed by the Income-tax Officer. The assessment orders for the initial years filed before us show that they were under section 143(1) of the Income-tax Act. Subsequently, the assessments were said to be under section 143(3). The appellants have, however, filed copies of their submissions in writing made on May 17, 1974, before the Income-tax Officer in which they had explained as per the Income-tax Officer's verbal enquiry regarding the deposit of capital amounts, that they had been withdrawn from their individual books of accounts and they were assessed earlier also individually. These writings thus bring out that the Income-tax Officer did make enquiries about the source of these investments, though he still chose to make the assessments under section 143(1). The ground on which the proceedings under the SAFEMA were initiated was that Gopal Chandra Saha, the third partner in Lakshmi Bhandar, was detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act on November 5, 1975, and this detention was revoked by the Government and he was released on March 22, 1977, on the lifting of the Emergency. The Competent Authority, therefore, felt that bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved, the appellants have moved these appeals before us. We have heard the parties and gone through the facts and circumstances of the case. Section 6(1) of the Act postulates that if, having regard to the value of the properties held by any person to whom the Act applies, either by himself or through any other person on his behalf, his known sources of income, earnings or assets, etc., and any other information or material available to it as a result of action taken under section 18 or otherwise, the Competent Authority, after recording reasons to believe in writing that all or any of them are illegally acquired properties may serve a notice upon such person calling upon him to indicate the source of his income, earnings or assets, out of which or by means of which the property had been acquired, and so on. This section thus pre-supposes due application of mind and subjective satisfaction of the Competent Authority warranting "reasons to believe", and those reasons should be recorded in writing to the effect that the property sought to be proceeded against is an illegally acquired property. The section further enjoins that in order to reach the formation of "reasons to bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their assets. No investigation under section 18 was also carried out. Instead, there was a wrong statement in the so-called "reasons to believe" recorded by the Competent Authority that they were not assessees, while the reality was that they in fact were. The appellants have, therefore, vigorously assailed these reasons, and pleaded that there was no genuine application of mind by the Competent Authority, and that these were mere mechanical reasons recorded. The appellants have produced copies of the assessment orders for the assessment years 1970-71 to 1972-73 showing that they were assessed to income-tax. Along with them, statements of accounts were filed mentioning their initial investments in the financial year 1969-70 in the business, the profits earned from them, the withdrawals made and the balances carried forward. Chandan Kumar Saha's initial capital was Rs. 20,500 while that of Gaur Chandra Saha's Rs. 22,300. The closing balances at the end of the previous year relevant to the assessment year 1972-73 were sufficient to justify their investments in the partnership "Lakshmi Bhandar". These businesses were closed by them then. From the side of the Competent Authority, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eve" to initiate proceedings under section 6 without genuine application of mind and in a perfunctory manner. Material factors were ignored and the rationale and the mandate of section 6 bypassed. The position of law in this regard is well-settled that when a subjective satisfaction is sought to be arrived at for exercise of power, though the appellate authority would not substitute the same with that of its own, it would be justified to look into whether, in arriving at that satisfaction, the concerned authority ignored certain material facts and circumstances. Whether those facts and material could have still enabled him to come to the same conclusion is entirely irrelevant. No speculation in this regard has to be entered into by the appellate body or the court while considering the validity of that satisfaction. It is the non-consideration of such material alone which would render the same as unsustainable in law. It need hardly be impressed in this regard that the SAFEMA is a very drastic law entailing forfeiture of properties. Its provisions have, therefore, to be strictly complied with and no person should be deprived of his property unless there are cogent circumstances in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the present cases under the SAFEMA suffer from initial invalidity as there was no proper application of mind and the satisfaction of "reasons to believe" by the Competent Authority. He had failed to take note that the two appellants were assessees in the past before joining the partnership. Rather he proceeded on the premises that they were non-assessees. The non-consideration of the former renders the entire proceedings vitiated. This is irrespective of what impact those assessments would have had on the Competent Authority though, as already discussed above, the disclosures in the returns then had gone a long way to establish the existence of funds with the appellants. Even otherwise, there was material irregularity in the proceedings and breach of the principles of natural justice when the appellants applied for inspection of the documents on which the Competent Authority had relied and also sought copies thereof. The Competent Authority rejected the prayer in this regard by a communication dated March 20, 1978, to the appellants. The appellants were thus materially prejudiced in not being allowed inspection and to take copies of the documents by which the Competent Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When this was not the position, it is difficult to see how the present appellants could be made accountable for individual acts and omissions of other persons who were not connected in any manner with the partnership. Explanation 4 to this section is of no avail as that only permits taking into account facts which took place before the enactment of the statute. This Tribunal had the occasion to make some observations on the liability of relations, persons or associates, in Mira Rani Mazumdar v. Competent Authority [1987] 166 ITR 230 (ATFP) while taking note that the definition of the term "person" in section 2 of the SAFEMA is wide.embracing and this was to cover clandestine holding of properties in other persons' names by smugglers and foreign exchange manipulators, and tracing and pursuing them in their hands. It was observed (at p. 236) : "However, at the same time, one has to act with caution and circumspection so that the relations, partners or associates who may have otherwise nothing to do with smuggling or foreign exchange manipulations or properties connected therewith, and may be, even ignorant of the activities of the detenu, are not unnecessarily harassed and penali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c . . . " The Bombay High Court as well, in a recent decision in the case of CIT v. Harinagar Sugar Mills Ltd. [1989] 176 ITR 289, observed that even where no limitation is prescribed for taking recourse to a statutory provision, delay or rather inordinate delay may be an aspect which the court can consider for quashing the proceedings. Even under the Limitation Act, the provisions of which are otherwise not technically applicable to the SAFEMA where no period of limitation is prescribed elsewhere in the schedule or the division, the suit or application can be brought within three years of the accrual of the right to sue or apply, vide articles 113 and 137. In the Criminal Procedure Code also, limitation has started to be introduced with regard to certain types of offences. The inordinate delay of over ten years in the present case in reviving the proceedings has not been explained by the Competent Authority. Had the case been one where, for certain reasons or happening of events, the proceedings had been stayed, and those reasons have disappeared or events have happened, the revival would be permissible after their so happening. Limitation in such cases may have to be ignore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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