2014 (10) TMI 404 - HC - FEMA

Contravention of Sections 9 (1) (b), 9 (1) (c) and 9 (1) (d) read with Section 64 (2) of the Foreign Exchange Regulations Act, 1973 - Remission of amount from abroad - Held that - ED itself is not clear whether the declaration made by Mr. Sri Chawla in Bangkok could be termed as a statement under Section 40 of FERA. It is not shown that the procedure envisaged under FERA was followed while recording the said declaration. In any event, Mr. Sri Chawla only talks of payment being made to two persons who met him on behalf of Mr. Rakesh Jain. The payment is purportedly made for the purchase of land. The sale deeds show that the purchaser was OEPL and the seller was ACPL. The said statement, therefore, does not help in proceeding only against Mr. Rakesh Jain, if no proceedings had been initiated against ACPL, which is the true beneficiary. While the declaration of Mr. Sri Chawla may, more or less, corroborate the statement of Mr. Rakesh Jain as regards the total amount paid, the statement of Mr. Madan does not corroborate either statement. AT has relied on material that was not part of the record of the case. In particular, while the AO correctly notes that the Investigation Officer had not conducted any inquiry to ascertain the fair price and has also taken note of the order of the CIT and on that basis held that the SCN is not supported by proper evidence, the AT appears to have not referred to the proceedings under the Income Tax Act, 1961 at all. The conclusion of the AT that there was payment over and above the sale consideration shown in the sale deed, appears to be based on the AT taking judicial notice of the price of agricultural land in the vicinity of Gurgaon on the basis that it is an adjacent area . No such plea was advanced by any of the parties before the AT. The Appellants are, therefore, justified in their criticism of the impugned order of the AT for travelling well beyond the scope of its revisional jurisdiction and adjudicating upon factual matters for which there was no basis in the record. The Court is unable to sustain the impugned order dated 3rd June 2008 of the AT and restores the AO dated 6th January 2000. The appeals are accordingly allowed, but in the circumstances, with no order as to costs. The amounts deposited by the Appellants shall be refunded to them within a period of eight weeks in accordance with law - Decided in favour of assessee.

Summary

Issues Involved:
1. Maintainability of the revision petitions before the Appellate Tribunal (AT).
2. Proceedings under FERA against individuals without involving the companies.
3. Merits of the evidence and statements presented.

Issue-wise Detailed Analysis:

1. Maintainability of the Revision Petitions:
The first question addressed was whether the revision petitions before the AT were maintainable. The appellants argued that Section 49 (5) (b) of FEMA did not save revision petitions filed under Section 52 (4) FERA, only appeals filed under Section 52 (2) FERA. They cited various precedents to support their claim that the petitions were filed beyond the limitation period and without proper authorization. The respondents countered that Section 6 (e) of the General Clauses Act, read with Section 49 (6) FEMA, allowed the continuation of such petitions. The court agreed with the respondents, stating that Section 49 (6) FEMA, combined with Section 6 of the General Clauses Act, indicated legislative intent to allow pending revision petitions to continue under FEMA. The court cited the Supreme Court's decision in Shiv Shakti Cooperative Housing Society, which supported the continuation of pending proceedings under new legislative provisions.

2. Proceedings under FERA against Individuals without Involving the Companies:
The court examined whether proceedings under FERA could be maintained against the appellants without involving the companies (ACPL and OEPL). The genesis of the case was the 12 registered sale deeds dated 2nd March 1995, where OEPL purchased property from ACPL. However, no notices were issued to ACPL, and proceedings were initiated against Mr. Rakesh Jain individually, not as ACPL's director. The court found this a fundamental error, as proceedings should have been against the companies involved. The court noted that the memorandum did not allege anything against OEPL, and the ED accepted this position. The court concluded that for Section 68 FERA, which is similar to Section 141 of the Negotiable Instruments Act, liability could not be imposed on directors if the company itself was not proceeded against. Thus, the entire proceedings were deemed unsustainable in law.

3. Merits of the Evidence and Statements Presented:
On the merits, the appellants argued that the evidence was unreliable and contradictory. Statements from Mr. Madan, Mr. Rakesh Jain, and Mr. Sri Chawla varied significantly regarding the amounts and circumstances of payments. The appellants also highlighted that Mr. Rakesh Jain retracted his statement, and the Commissioner of Income Tax had accepted the property valuation as reflected in the sale deeds. The respondents maintained that Mr. Sri Chawla's declaration in Bangkok about paying Thai Bahts corroborated Mr. Rakesh Jain's statement. The court found that the ED was unclear if Mr. Sri Chawla's declaration could be considered a statement under Section 40 FERA, and noted that the declaration did not help proceed only against Mr. Rakesh Jain. The AT was criticized for relying on material not part of the case record and not considering the CIT's order. The court concluded that the AT exceeded its revisional jurisdiction by adjudicating on factual matters without basis in the record.

Conclusion:
The court found the impugned order of the AT unsustainable and restored the adjudication order dated 6th January 2000, exonerating the appellants. The appeals were allowed, and the amounts deposited by the appellants were ordered to be refunded, with bank guarantees discharged and returned to them.