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Harshad P. Mehta and Others Vs. Competent Authority - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT IT
Decided On
Reported in(1999)238ITR79ITAT
AppellantHarshad P. Mehta and Others
RespondentCompetent Authority
Excerpt:
.....show cause as to why the properties mentioned in the schedule should not be forfeited as illegally acquired properties.3. in response to the said show-cause notices, the appellants sought for time which was granted by the competent authority from time to time and a final opportunity was granted by fixing the date of hearing on april 20, 1998. the appellants failed to attend and did not reply to the show-cause notices, nor did they submit their explanations. the competent authority, therefore, proceeded on the basis of the materials available on record and passed the impugned order, directing forfeiture of the properties of harshad p. mehta and his relatives and a sum of rs. 9.5 lakhs in the hands of the appellant, ashish patel, against which, the appellants have preferred these.....
Judgment:
1. The appellants in these appeals are Harshad P. Mehta and his relatives, namely, his wife and children and the purchaser of property at serial No. (b) of the schedule, namely, Row House No. 18, at Ahmedabad. They question the order of the Competent Authority, Mumbai, dated April 13, 1998, made under sections 7 and 19 of the Smugglers and Foreign Exchange and Manipulators (Forfeiture of Property) Act, 1976 (the SAFEMA for short), directing the forfeiture of the properties mentioned in the Schedule to the order.

2. Harshad P. Mehta along with seven others was detained by order dated February 3, 1997, under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 ("the COFEPOSA" for short), for indulging in violation of the provisions of the Foreign Exchange Regulation Act, 1947 ("the FERA" for short), by opening fictitious bank accounts and remitting large amounts in foreign exchange abroad through banks, by using forged import documents between the years 1991-1996. It was alleged that Harshad P. Mehta was an active participant in the conspiracy of carrying out illegal hawala transactions running into crores of rupees by way of effectively managing the affairs pursuant to the conspiracy and was an associate of the other detenus. Though the detention order against him was revoked, the competent authority, finding that Harshad P. Mehta is a "person" within the meaning of section 2(2)(d) of the SAFEMA, issued notices to Harshad P. Mehta and the other appellants under section 6(1) of the SAFEMA dated August 29, 1997, to show cause as to why the properties mentioned in the schedule should not be forfeited as illegally acquired properties.

3. In response to the said show-cause notices, the appellants sought for time which was granted by the competent authority from time to time and a final opportunity was granted by fixing the date of hearing on April 20, 1998. The appellants failed to attend and did not reply to the show-cause notices, nor did they submit their explanations. The competent authority, therefore, proceeded on the basis of the materials available on record and passed the impugned order, directing forfeiture of the properties of Harshad P. Mehta and his relatives and a sum of Rs. 9.5 lakhs in the hands of the appellant, Ashish Patel, against which, the appellants have preferred these appeals.

4. Shri J. S. Arora, learned counsel for the appellants, vehemently contended that the provisions of the SAFEMA are not applicable to the appellants, inasmuch as the detention order against Harshad P. Mehta was revoked and the properties never belonged to any one of the other seven detenus. In support of his contention, he relied on the decision of the Supreme Court in Attorney General for India v. Amratlal Prajivandas [1995] 83 Comp Cas 804, and contended that the properties, in order to fall within the definition of illegally acquired properties, must have originally belonged to the detenu and later been transferred to the appellants who are the affected parties and that the forfeited properties should be traceable to the detenus. He further submitted that Harshad P. Mehta was himself conducting hawala transactions according to the competent authority and hence the money belonged to him and not to the detenus, and inasmuch as he was not the detenu, the properties acquired through his funds cannot be forfeited.

It was next submitted by learned counsel that the sources from which the properties were acquired by the relatives were only traceable to Harshad P. Mehta and not the detenus.

5. The Deputy Director, appearing for the competent authority, submitted that Harshad P. Mehta was also detained along with seven other detenus and his detention order was later revoked. Harshad P.Mehta was an associate of the detenus and he was actively participating in hawala business along with them, by organising and conspiring with them and managed remittances of foreign exchange abroad against forged import documents through fictitious bank accounts and transferred nearly thousand crores of rupees out of the country through hawala channels and that he earned crores of rupees out of his illegal activities and hence the properties acquired by him and the properties acquired in the names of his relatives were through the illegally acquired money and hence the properties are illegally acquired properties which were liable to be forfeited and the competent authority was correct in directing their forfeiture. He further submitted that the competent authority was justified in directing the forfeiture of Rs. 9,50,000 in the hands of Ashish Patel who held a sale agreement dated June 1, 1994, for the property standing at Sl. No. (b) Row House No. 18, at Ahmedabad, as Ashish Patel failed to give details of the sale proceeds.

6. In view of the rival contentions, the questions for consideration are as under : (i) Whether the properties standing in the name of Harshad P. Mehta ire liable for forfeiture as an associate of the detenus (ii) Whether the properties standing in the names of the relatives of Harshad P. Mehta are liable to be forfeited (iii) Whether the amount of Rs. 9,50,000 was rightly forfeited in the hands of Ashish Patel 7. The contention of learned counsel, based on the decision in Attorney General for India v. Amratlal Prajivandas [1995] 83 Comp Cas 804, 842 (SC) is erroneous. It is not necessary that the properties of the detenus should have been transferred to the affected persons, to bring them within the ambit of clause (d) of section 2(2), SAFEMA, the relevant portions of which are extracted hereunder : "2. Application. - (1) The provisions of this Act shall apply only to the persons specified in sub-section (2).

(2) The persons referred to in sub-section (1) are the following, namely :- ...

(b) every person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974) : (i) such order of detention, being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said Act or before the receipt of the report of the Advisory Board or before making a reference to the Advisory Board; or (ii) such order of detention, being an order to which the provisions of section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub-section (2) of section 9, of the said Act; or (iii) such order of detention, being an order to which the provisions of section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, or on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12A, of that Act; or (iv) such order of detention has not been set aside by a court of competent jurisdiction; ....

(c) every person who is a relative of a person referred to in clause (a) or clause (b); (d) every associate of a person referred to in clause (a) or clause (b); ...

Explanation 2. - for the purposes of clause (c), 'relative', in relation to a person, means - Explanation 3. - For the purposes of clause (d), 'associate', in relation to a person, means - ...

(ii) any individual who had been or is managing the affairs or keeping the accounts of such person; ...

(v) any person who had been or is managing the affairs, or keeping the accounts, of an association of persons, body of individuals, partnership firm or private company referred to in clause (iii); ..." 8. It is thus seen that under clause (d) of section 2(2) of the SAFEMA, every associate of a person referred to in clause (b), i.e., every person in respect of whom an order of detention has been made under the COFEPOSA is covered by the provisions of the SAFEMA. Under clause (c), every person who is a relative of a convict or detenu is also a "person" covered by the provisions of the Act. The spouse of the detenu or convict or any lineal descendant is also a person covered by the Act. "Associate", for the purposes of clause (d) of section 2(2) means any individual who had been, or is managing the affairs, or keeping the accounts, of an association of persons, body of individuals, partnership firm or private company under clauses (iii) and (v) of Explanation 3 to section 2(2).

9. Harshad P. Mehta admitted in his letter dated July 22, 1997, which was filed during the investigation stage that his major source of earnings is from the commission he earned through hawala activities and it was this earning which has been deposited into various bank accounts and which has been utilised for acquisition of various assets. Under section 132 of the Income-tax Act, 1961, a search was conducted against Harshad P. Mehta on November 24, 1994, resulting in seizure of huge amounts of cash, jewellery and other assets. In the assessment order dated March 31, 1997, for the assessment year 1994-95, it is stated that the assessee declared a sum of Rs. 1,40,00,000 and that he made huge investments from time to time in the names of his relatives in the shape of immovable properties and other assets. In his statement recorded on oath under section 131 of the Income-tax Act, Harshad P.Mehta admitted that he was supervising the bank operations by making illegal remittances abroad for fraudulent imports and that he was getting a commission between Rs. 20,000 to Rs. 25,000 per crore of rupees. The income-tax authorities for the assessment year 1990-91, disbelieved the foreign gifts of Rs. 25,00,000 claimed to have been received by Raksha H. Mehta from one Vinod Goyal and it was found to be a hawala transaction.

10. From the record it is revealed that Harshad P. Mehta started life as a petty cloth merchant and that he organised and participated in conspiracy with the seven detenus and played an active role in the remittances of foreign exchange abroad, by forging import documents through fictitious bank accounts and transferred nearly thousand crores of rupees out of the country through hawala channels. We agree with the finding of the competent authority that Harshad P. Mehta earned crores of rupees out of his illegal activities. Till the year 1990, neither he nor the members of his family had any sources of income worth the name.

He was a person of meagre means up to March 31, 1991, as stated by him in his statement dated November 30, 1994, made under section 132(4) of the Income-tax Act, before the income-tax authorities. The income-tax returns filed for the assessment years 1990-91 and 1991-92 disclosed meagre income. The other appellants who are the relatives of Harshad P.Mehta did not produce any documentary proof before the competent authority to account for the investments made by them from any legal source. It is also pertinent to refer to the statement of Harshad P.Mehta dated July 22, 1997, made to the Inspecting Officer, that the major source of his earnings was through commission received from hawala activities, which has gone into the acquisition of various assets held by him and his family members.

11. The appellants, Harshad, P. Mehta and his relatives, did not care to appear before the competent authority and failed to discharge the burden cast on them under section 8 of the SAFEMA and failed to prove by adducing any evidence whatsoever, to establish that the properties specified in the notices issued under section 6(1) are not illegally acquired properties. Even before us, the contention made on their behalf by learned counsel is that Harshad P. Mehta was not a detenu and hence his properties cannot be forfeited unless they are traced to the detenus and that the properties of the relatives cannot be forfeited as Harshad P. Mehta was not a detenu. No material was placed at any stage and no evidence was let in, as required by section 8 and the appellants failed to discharge the burden cast on them.

12. The appellants were given ample opportunity by the competent authority but they failed to discharge the burden cast on them under section 8 of the SAFEMA which is as follows : "8. Burden of proof. - In any proceedings under this Act, the burden of proving that any property specified in the notice served under section 6 is not illegally acquired property shall be on the person affected." 13. As held by the Supreme Court in Attorney General for India v.Amratlal Prajivandas [1995] 83 Comp Cas 804 referred to while interpreting section 8 (page 844) : "It is equally necessary to reiterate that the burden of establishing that the properties mentioned in the show-cause notice issued under section 6, and which are held on that date by a relative or an associate of the convict/detenu are not the illegally acquired Properties of the convict/detenu, lies upon such relative/associate. He must establish that the said property has not been acquired with the monies or assets provided by the detenu/convict or that they in fact did not or do not belong to such detenu/convict." 14. It is clearly established that Harshad P. Mehta was closely associated with the hawala transactions and that he was, in fact, the kingpin, managing the affairs and his earnings were through the above transactions, either received as a share of their earnings or commissions or salary. He was, therefore, an "associate" of the seven detenus within the meaning of clauses (ii) and (v) of Explanation 3 to section 2(2) of the Act and the provisions of the Act are clearly applicable to him.

"Illegally acquired property" is defined under clause (c) of section 3(1) which is as follows : "3. Definitions. - (1) In this Act, unless the context otherwise requires, - ...

(c) 'illegally acquired property', in relation to any person to whom this Act applies, means - (i) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earnings or assets derived or obtained from or attributable to any activity prohibited by or under any law for the time being in force relating to any matter in respect of which Parliament has power to make laws; or (ii) any property acquired by such person, whether before or after the commencement of this Act, wholly or partly out of or by means of any income, earning or assets in respect of which any such law has been contravened; or ..." 15. We hold that Harshad P. Mehta is a "person" within the meaning of section 2(2) and the Act is applicable to him as an associate of the seven detenus. The property acquired by him by means of income or earning by contravening the provisions of law is "illegally acquired properties" as defined under the Act. The properties are, therefore, liable to be forfeited under section 4 of the Act and the competent authority was correct in directing their forfeiture. The contention of learned counsel with regard to the relatives of Harshad P. Mehta that their properties cannot be forfeited as they are not the relatives of the detenu and that they are not "persons" within the meaning of the Act is based on a misconception that only the properties of the detenu/convict in the hands of the relatives can be forfeited. It was nowhere stated in Attorney General for India v. Amratlal Prajivandas [1995] 83 Comp Cas 804 (SC), that the detenu/convict alone is "person" covered by the Act. It was not laid down that the properties of relatives of "associate" of detenu/convict, who are also "persons" covered by the Act cannot be forfeited, even though those assets are traced to the earnings of the associate.

16. It is not lawful for any person to whom the Act applies to hold any illegally acquired property by himself or through any of the persons on his behalf and if any person holds any illegally acquired property, such property shall be liable to be forfeited. Section 4 of the Act clearly lays down the said proposition and is in the following terms : (1) As from the commencement of this Act, it shall not be lawful for any person to whom this Act applies to hold any illegally acquired property either by himself or through any other person on his behalf.

(2) Where any person holds any illegally acquired property in contravention of the provisions of sub-section (1), such property shall be liable to be forfeited to the Central Government in accordance with the provisions of this Act." 17. As held by us earlier, Harshad P. Mehta is a "person" to whom the Act applies. It is significant to note that under section 4(1), only the words "person to whom this Act applies" are used and not the words "every person who is a relative of a person referred to in clause (a) or clause (b) and in clauses (c) and (d) of sub-section (2) of section 2", which are confined only to the detenu/convict. It is, therefore, clear that sub-section (1) of section 4 covers associates of the convict/detenu also and the said provision is not confined only to associate/convict and that being so, Harshad P. Mehta to whom the Act applies, is prohibited under section 4 from holding illegally acquired property either by himself or through any other person, namely, his relatives on his behalf. Under clause (2) of section 4, the relatives of Harshad P. Mehta who are holding illegally acquired property which was acquired through the income or earnings made by Harshad P. Mehta by the contravention of law, is liable to be forfeited in accordance with the provisions of the Act.

18. We have no hesitation in agreeing with the findings of the competent authority that Harshad P. Mehta was an associate of the seven detenus within the meaning of clause (d) of section 2(2) and that he was actively associated in conducting hawala and was responsible for transfer of hundreds of crores of rupees out of the country, violating the provisions of the FERA, and he was in overall charge of the illegal business, conducted in conspiracy with the seven detenus. Even though the commissions received by him were received only as salary as contended by learned counsel, the amounts undoubtedly came out of the illegal money received from conducting hawala. The properties acquired by him and in the names of his relatives through such earnings are illegally acquired properties within the meaning of clause (c) of section 3(1).

19. The other appellants who are the relatives of Harshad P. Mehta, who are the holders of illegally acquired property acquired through the illegal earnings of Harshad P. Mehta cannot be permitted under section 4(2) of the Act to hold such illegally acquired property and the said property is liable to be forfeited and the competent authority has rightly directed the forfeiture of the properties standing in the names of the relatives.

20. Shri J. S. Arora argued that the provisions of the SAFEMA are draconian and hence should be strictly construed and took us through the preamble of the Act to impress upon us that the Act is meant only to take away the properties of the detenu/convict held in the names of relatives, associates and confidants. It is well-settled law that the preamble to an enactment is not a part of the statute. It can be looked into only for the purpose of the intendment of Parliament in enacting the law. Far from supporting the contention of learned counsel, a reading of the preamble would show that the Act was enacted for the effective prevention of smuggling activities and foreign exchange manipulations which are having a deleterious effect on the national economy and it is necessary to deprive persons engaged in such activities and manipulations of their ill-gotten gains. An associate of the detenu/convict who was engaged in the activity of foreign exchange manipulations which has a deleterious effect on the national economy, cannot be permitted to get away with his ill-gotten gains by ploughing the same in the acquisition of properties in the names of his relatives. If the interpretation placed by learned counsel to the provisions of the Act is accepted, it would defeat the very object of the Act. In this context, it is apt to quote from Attorney General for India v. Amratlal Prajivandas [1995] 83 Comp Cas 804 (SC) (page 840) : "After all, all these illegally acquired properties are earned and acquired in ways illegal and corrupt - at the cost of the people and State. The State is deprived of its legitimate revenue to that extent.

These properties must justly go back where they belong - to the State." 21. Learned counsel referred to a decision of this Tribunal dated November 28, 1994, in FPA No. 122 of 1979-80 and contended that this Tribunal had earlier taken the view that the properties acquired through the income of the detenu or acquired by the detenu in the names of the relatives only can be forfeited. The observation in the order was merely confined to the facts of that case and the Tribunal did not concern itself with section 4 of the Act.

22. The appellants in FPA No. 44/Bom of 1998, Ashish P. Patel, was the power of attorney of Raksha H. Mehta, the appellant in FPA No. 23/Bom of 1998 who sold Row House No. 18, Jaishefali, Satellite Road, Ahmedabad, to Jyothi Ben Gandhi and Rakesh Gandhi for Rs. 9,50,000 by virtue of a sale agreement dated June 1, 1994, and the said Row House was transferred by Jaishefali Co-op. Housing Society Ltd. in the names of the purchasers on April 14, 1998. A notice under section 6(1) dated August 29, 1997, was issued to the appellant, Ashish P. Patel, calling upon him to furnish details of the sale proceeds of the Row House and state whether the said amount is lying with him, or was remitted to Raksha H. Mehta. Though the appellant by his letter dated October 16, 1997, undertook to furnish the said details within one month from the date of the letter, he failed to do so. The competent authority, therefore, directed the forfeiture of a sum of Rs. 9,50,000 in the hands of Ashish P. Patel. Neither the appellant nor his counsel was present when the appeal was taken up for hearing on May 4, 1999, and was adjourned to June 3, 1999, to be heard along with the connected appeals. On June 3, 1999, also no one was present for the appellant though he was served with notice of hearing. We heard the Deputy Director for the competent authority and we have gone through the records and the memorandum of appeal. The grounds of appeal are very vague and the appellant failed to show as to how the order of the competent authority is erroneous, though ground No. 1 of the grounds of appeal refers to forfeiture of Rs. 30 lakhs being advance given to Radhe Construction, we do not find forfeiture of the said amount in the hands of Ashish P. Patel, from a reading of the order of the competent authority. Ground No. 2 which relates to the forfeiture of Rs. 9,50,000 in the hands of Ashish P. Patel does not show as to how the order of the competent authority is erroneous. The appellant did not produce any material before the competent authority in support of the contention now raised in the memorandum of appeal, that he did not retain any amount with him and that he passed on the money to Raksha H. Mehta. In the absence of any material placed before him, the competent authority was justified in directing the forfeiture of Rs. 9,50,000 in the hands of Ashish P. Patel.

24. For all the aforesaid reasons, we do not find any reason to interfere with the order of the competent authority. We confirm the same and dismiss all the appeals.


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