2019 (10) TMI 173 - AT - FEMA

Sum acquired/possessed/held/owned outside India with LGT Bank without any General or Special permission of RBI - contravention alleged by invoking presumption under section 39 of FEMA, 99 - presumption of documents. - Penalty enhanced - Power of special director in the absence of appeal from Revenue side - HELD THAT - It is stated on behalf of appellants that before the Special Director, the Appellants reiterated their contentions, in addition to submitting that the conclusion of guilt against the appellant is based on no material and that the order passed is perfunctory without application of mind and even contrary to show cause notice where the theory of 1/4th of amount was not even alleged, but the Special Director affirmed the order of the Adjudication Authority on his self-innovated and imaginary reasoning, neither based on any evidence nor based on any material but based on assumptions and presumptions arrived at by indulging in an intellectual flight of imagination. While arriving at the guilt the Special Director devised his own fresh reasoning, contrary to material on record and without complying with the law of evidence and in derogation of the principles of natural justice un-confronted tried to justify the order by creating an imaginary basis for attributing the name of the trust to the first alphabet of the names of the appellants but in this exercise also he could not find anything to refer to the alphabet u in Ruvisha . Special Director without recording the main contentions of the Appellant and without any cross-appeal, then proceeded to enhance the penalty and imposed a penalty of ₹ 1,60,98,308/- against each of the appellants instead of the original imposed penalty of ₹ 5 lakhs. Before this Tribunal the Appellants have filed their sworn affidavit stating on oath that appellants have nothing whatsoever to do with the alleged trust and have never opened and maintained any account or have any title in respect of any amount of such Trust. It appears from is a letter dated 11th June 2013 wherein the Deputy Director of the ED made some queries to the Income Tax Department, seeking to know whether the documents sent by the Income Tax to ED are authenticated and if there is any document about the opening of the account of trust etc. There was no response to this letter. The SCN is issued thereafter on 5 February 2015. This document clearly shows that the respondent itself had entertained doubts as to the credibility, reliability and authenticity of the relied upon material but without any response from Income Tax to this letter, have proceeded to initiate serious proceedings against the appellants and charged the appellants on the same non-credible and inadmissible material and conduct perfunctory proceedings. The respondent has not discharged its burden about the predicament of the non-availability of the evidence has tried to overcome the same by invoking Section 39 of FEMA which is relating to presumption of documents. It is humbly submitted that Section 39 has been misread by the respondent, as the documents received from abroad in any proceedings need to be duly authenticated under FEMA (Authentication of documents) Rules, 2000 which require authentication of the documents received from abroad by way of seal and signature of any person who is authorised by the Diplomatic and Consular Officers (Oaths Fees), Act, 1998. Similar provision was available under FERA and is also available under Customs Act. The Special Director has enhanced the penalty arbitrarily without any Appeal filed by the Department, as if the Special Director is himself the aggrieved party, which renders the order void ab initio. In the absence of appeal by aggrieved person the Special Director had no authority to enhance the penalty which renders the order void ab initio. In view of different law and issues of hand all the appeals are accordingly allowed.

Issues Involved:
1. Alleged contravention of Section 3(a), Section 4 read with Section 39 of FEMA.
2. Validity and authentication of documents used as evidence.
3. Division and attribution of alleged foreign currency among appellants.
4. Invocation of presumption clause under Section 39 of FEMA.
5. Enhancement of penalty by the Special Director without an appeal from the Department.

Detailed Analysis:

1. Alleged Contravention of FEMA:
The Enforcement Directorate issued a show cause notice (SCN) against the appellants for allegedly contravening Section 3(a), Section 4 read with Section 39 of FEMA. The appellants were accused of benefiting and receiving a total sum of USD 447,789.08, held outside India in LGT Bank without RBI's permission. The SCN relied on statements and prosecution complaints filed by the Deputy Commissioner of Income Tax.

2. Validity and Authentication of Documents:
The documents used to support the allegations were unauthenticated photocopies in a foreign language, whose veracity was doubted by the Department itself. A letter dated 11.06.2013 from the Deputy Director of ED to the Income Tax Department questioned the authenticity of these documents, but no response was received. The appellants argued that these unauthenticated documents were inadmissible as evidence under FEMA Authentication Rules, 2000.

3. Division and Attribution of Alleged Foreign Currency:
The Adjudicating Authority arbitrarily divided the alleged amount of USD 447,789.08 among the four appellants by converting it into Indian currency and attributing one-fourth of the amount to each appellant, contrary to any evidence or material on record. This division was not even alleged in the SCN.

4. Invocation of Presumption Clause under Section 39 of FEMA:
The respondent invoked the presumption clause under Section 39 of FEMA, which pertains to the presumption of documents. However, the appellants contended that this presumption was misread, as the documents received from abroad need to be authenticated by authorized persons under the Diplomatic and Consular Officers (Oaths & Fees) Act, 1998.

5. Enhancement of Penalty:
The Special Director enhanced the penalty from ?5 lakhs to ?1,60,98,308/- against each appellant without any appeal from the Department. This enhancement was deemed arbitrary and void ab initio, as it was done without any cross-appeal by the aggrieved party.

Conclusion:
The Tribunal found that the documents relied upon were unauthenticated and inadmissible as evidence. The arbitrary division of the alleged amount and the enhancement of the penalty were not supported by any material evidence or legal basis. The impugned order dated 18th November 2016 was set aside, and the order of the Adjudicating Authority was quashed. All appeals were allowed with no costs.

← Previous Next →