2024 (9) TMI 68 - AT - FEMA

Contravention of Section 8(1) of FERA - Accrued interest as confiscated to the credit of Government of India Account u/s 63 of the Foreign Exchange Regulation Act, 1973 (FERA) - Adjudicating Authority has meticulously analysed the evidence as to hold that the Appellant did not own the funds in the bank accounts in India - report from the Inland Revenue Board, Malaysia clearly shows that the Appellant and her husband failed to report either any income from Singapore and UAE or any remittance made to India - HELD THAT - The proceedings before the Income Tax authorities were for the purpose of determination of tax liability of a resident abroad, who is the Appellant herein. In no manner such determination can impact the question of acquisition of funds by a resident in India in the name of the Appellant who was resident abroad. There are statements on record u/s 40 of FERA which clearly bring out the deposits being made in the bank in cash. The evidence on which the Appellant chose to rely upon do not corroborate her contention that the source of such fundswere traceable to her. The paragraphs cited afore bring out that the funds mobilized in the name of R. Susila were for namesake and for the benefit of Smt. N. Sasikala. The discharge which Smt. N. Sasikala got in the prosecution proceedings are independent from the adjudication proceedingsas held by the Hon ble Supreme Court in the cases of Standard Chartered Bank Ors. V.s Directorate of Enforcement Ors 2006 (2) TMI 272 - SUPREME COURT and Radheshyam Kejriwal vs. State of West Bengal Anr., 2011 (2) TMI 154 - SUPREME COURT . The scheme of FERA makes it clear that the adjudication by the concerned authorities and the prosecution are distinct and separate. The Hon ble Court has held that the two proceedings are independent of each other and the finding on the adjudication is not conclusive on the prosecution under the Act. In view of the ratios in the two judgements supra coupled with the fact that presently the impugned order which is under challenge has arisen out of the adjudication proceedings, we are unable to persuade ourselves that the outcome of the prosecution proceedings should have a binding effect on the present proceedings.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Ownership and source of funds.
3. Issuance and validity of Show Cause Notice (SCN).
4. Alleged contravention of Section 8(1) of FERA.
5. Adherence to statutory provisions and natural justice during adjudication.
6. Impact of Income Tax Tribunal's decision.
7. Confiscation under Section 63 of FERA.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The Appellant contended that the Show Cause Notice (SCN) was not issued to her, thereby violating the principles of natural justice. However, the Tribunal found that the SCN was indeed issued to the Appellant, and she, along with her advocate, participated in the adjudication proceedings. The SCN proposed the confiscation of US $6,25,000 in the Appellant's FCNR accounts due to the belief that the amount was involved in the contravention of Section 8(1) of FERA. Documents relied upon were furnished to the Appellant and her advocate, who acknowledged receipt. Therefore, the claim of non-issuance of SCN was dismissed.

2. Ownership and Source of Funds:
The Appellant claimed ownership of the funds, stating they were from her business dealings in Singapore and Dubai. However, the Respondent argued that the Appellant did not report this income to Malaysian Tax Authorities. The Tribunal noted contradictory claims by the Appellant and her husband regarding ownership, and the Inland Revenue Board, Malaysia, confirmed no income declaration from the alleged businesses. The Tribunal found no evidence supporting the Appellant's claim of ownership and concluded that the funds did not belong to her.

3. Issuance and Validity of Show Cause Notice (SCN):
The SCN was issued to the Appellant, requiring her to show cause why the amount should not be confiscated under Section 63 of FERA for contravention of Section 8(1). The Tribunal found that the SCN was properly issued and served, and the Appellant had participated in the proceedings, thus validating the SCN's issuance.

4. Alleged Contravention of Section 8(1) of FERA:
The Respondent alleged that the Appellant violated Section 8(1) of FERA by acquiring unauthorized foreign exchange. The Tribunal found sufficient documentary and circumstantial evidence indicating that the Appellant was not the owner of the funds. The funds were found to be used for the benefit of another individual, and the transactions were designed to obscure the true ownership.

5. Adherence to Statutory Provisions and Natural Justice During Adjudication:
The Tribunal observed that the adjudication proceedings were conducted in accordance with statutory provisions and the directions of the Hon'ble Madras High Court. The Appellant was given opportunities for hearings and cross-examination, and the statements of witnesses were admitted as evidence. The Tribunal concluded that the principles of natural justice were adhered to during the adjudication process.

6. Impact of Income Tax Tribunal's Decision:
The Appellant cited the Income Tax Appellate Tribunal's decision, which held that the money was not taxable in India. However, the Tribunal noted that the Income Tax proceedings were for determining tax liability and did not impact the acquisition of funds under FERA. The Tribunal emphasized that adjudication and prosecution under FERA are distinct and separate, and the Income Tax decision did not affect the present adjudication proceedings.

7. Confiscation Under Section 63 of FERA:
The Tribunal upheld the confiscation of US $6,25,000 under Section 63 of FERA, finding that the funds were directly involved in the contravention of Section 8(1). The Appellant failed to provide documentary evidence supporting her claim of ownership, and the funds were found to be used for the benefit of another individual. The Tribunal concluded that the confiscation was justified.

Conclusion:
The Tribunal meticulously analyzed the evidence and concluded that the Appellant did not own the funds in question. The principles of natural justice were adhered to during the adjudication proceedings, and the confiscation of US $6,25,000 under Section 63 of FERA was upheld. The appeal was dismissed.