2019 (9) TMI 1108 - AT - Money Laundering

Money Laundering - proceeds of crime - attachment of property - Rule 5 of the Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 - HELD THAT - In the present case, admittedly certain small portion of the immovable property was able portion where the appellant was operating office/Gym in the premises. However, the Respondent has taken the possession even before issuance of notice dated 23.02.2018 under subsection (4) of Section 8 of the Prevention of Money Laundering Act, 2002 (Act No. 15 of 2003) r/w Rule 5(1) of the Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 as mentioned in the notice itself The said notice was served only 27.02.2018 after taking the possession. The possession has been taken by the Respondent contrary to the Rule 5 of the Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 - The Respondent was not entitled to take the possession unless 10 days clear notice is issued to the appellant. In the present case on the face of it, no 10 days notice was given after taking the possession. The same Act of the I.O was wholly contrary to the mandatory rule, practice, procedure, PMLA is a Special Act, all Section and Rules are strictly to be complied with. Therefore, it is held that the possession taken by the Respondent is contrary mandatory provisions of the PML Act and the said possession stand restored to the appellants forthwith. There is no investigation any evidence is available on record that the appellant is likely to conceal the property reason to believe are separately recorded by the respondent. Nor any cognizance of schedule offence is taken against the appellant in the complaint filed against the party. The appellant is not arrayed as party in the complaint - The case of the respondent is that it was unaccounted money. The assessment order has already attained finality. How unaccounted can became proceed of crime when there is no FIR or charge sheet under the schedule offence under Section 420 and 120B was registered against the appellant. Section 23 of the PMLA provides for a rebuttable presumption to be proved to the satisfaction of the Adjudicating Authority. But the Respondent never took this plea before the Adjudicating Authority and the Impugned Order is also not based on such presumption u/s 23 of the PMLA. The impugned order is passed without application of law and facts involved in the matter - The property was attached in haste, possession is taken in haste (without compliance of mandatory provisions). The issue raised by the appellant has not been legally dealt with or decided. Thus, as far as attachment of property is concerned, the attachment stands quashed - appeal allowed.

Issues Involved:
1. Legitimacy of the Provisional Attachment Order (PAO) under PMLA.
2. Compliance with procedural requirements for taking possession of the property.
3. Legitimacy of the transactions and investments made by the appellants.
4. Allegations of money laundering and use of unaccounted money.
5. Jurisdiction and authority of the Income Tax Department vs. Enforcement Directorate.

Issue-wise Detailed Analysis:

1. Legitimacy of the Provisional Attachment Order (PAO) under PMLA:
The appeal challenges the PAO dated 04.09.2017, confirmed by the Adjudicating Authority on 19.02.2018. The appellants argue that no FIR or charge sheet for any scheduled offence was filed against them, nor were they named in any criminal complaint or ECIR. The Tribunal noted that the transactions in question were assessed under Section 147/148 of the Income Tax Act and deemed genuine, with no use of unaccounted money. The Tribunal emphasized that the power to attach property under Section 5(1) of PMLA is contingent upon the existence of proceeds of crime resulting from a scheduled offence, which was absent in this case.

2. Compliance with procedural requirements for taking possession of the property:
The Tribunal examined whether the physical possession of the property was taken in accordance with the Act and Rules. It was found that the Respondent took possession without issuing the mandatory 10-day eviction notice under Rule 5(1) of the PMLA (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013. The possession was taken on 22.02.2018, and the notice was served only on 27.02.2018, which was contrary to the mandatory provisions. The Tribunal held that the possession taken by the Respondent was illegal and restored it to the appellants.

3. Legitimacy of the transactions and investments made by the appellants:
The appellants argued that the investments made by four companies were genuine and duly recorded in their books of accounts, audited, and reported to the Income Tax Authority and RoC. The Income Tax Department had assessed these transactions and declared them genuine in its order dated 18.03.2014, which was not appealed and had attained finality. The Tribunal noted that the Respondent relied on the same material already considered by the Income Tax Department and failed to establish that the transactions were proceeds of crime.

4. Allegations of money laundering and use of unaccounted money:
The Respondent alleged that the appellants used unaccounted money for the purchase of the property. However, the Tribunal found that there was no evidence linking the appellants to any scheduled offence or proceeds of crime. The Tribunal emphasized that the occurrence of a scheduled offence is a prerequisite for any proceeds of crime to exist, and in the absence of such an offence, the attachment under Section 5(1) of PMLA was unsustainable.

5. Jurisdiction and authority of the Income Tax Department vs. Enforcement Directorate:
The Tribunal highlighted that the Income Tax Department is the competent authority to investigate accommodation entries and unaccounted money. The assessment order passed by the Income Tax Department had attained finality, and the Respondent had not challenged it. The Tribunal noted that the allegations of money laundering were based on the same material already assessed by the Income Tax Department, and no new evidence was provided by the Respondent.

Conclusion:
The Tribunal quashed the PAO and the impugned order, restoring the possession of the property to the appellants. However, it imposed a condition that the appellants deposit a sum of Rs. 90 lakhs with the Respondent within two months, subject to modification if the transactions were proven genuine. The appeal was partly allowed, and no costs were awarded.

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