ATFE Slashes Penalty on Appellant for Wrong Transfer of Forex Outside India as He Repatriated the Same & Paid Tax

Case Details: Shri Kumar Satur Nathani v. Special Director Directorate of Enforcement, Mumbai - [2023] 154 taxmann.com 626 (SAFEMA-New Delhi)

Judiciary and Counsel Details

• • Balesh Kumar, Member
  • Johnson K. George, Adv. for the Appellant.
  • Shoumendu Mukherji, Adv. for the Respondent.

Facts of the Case

In the instant case, on the basis of a prosecution complaint filed by the Income-tax Department, a complaint under section 16(3) of FEMA 1999 was filed alleging that the appellants who were residents in India, were maintaining a joint account in Deutsche Bank in Geneva, wherein they deposited their earning from consultancy service in Nigeria from the year 1995 to 2003.

The said funds were transferred to an account in HSBC Bank Geneva which was in the name of appellant No. 1 and his wife. These funds amounting to US $ 13.36 lakh (Valued at Rs. 6,14, crore) were transferred from HSBC Bank Geneva to HSBC Bank Dubai. The account in HSBC Dubai was that of a cousin of appellant No. 1 i.e. appellant No. 2.

The appellants did not have any permission from RBI to do so. They did not inform their Authorised Dealer/RBI of having any such funds and of having opened bank accounts abroad relating thereto. Thus, there was a contravention of section 4 of the FEMA Act, regulation 8 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of Foreign the Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000.

The Respondent thus, imposed a penalty of Rs. 1.5 crores on the appellant No. 1 and Rs. 3.5 crores on appellant No. 2. The Tribunal allowed Appellant No. 1 to make a pre-deposit of 25% of the penalty amount of Rs. 1.5 crores, which was deposited through a Bank Draft issued by the Central Bank of India Mumbai. The Tribunal vide order allowed Appellant No. 2 to make a pre-deposit of Rs. 35 lakhs which is 10% of the penalty amount of Rs. 3.5 crore.

It was noted that the appellants had not made any efforts about the repatriation of such foreign exchange at least till the year 2015, however, in the year 2019 appellants brought back the entire amount of foreign exchange and paid Rs. 3.05 crore towards Income-tax and Interests.

Further, while it was true that foreign exchange earned and retained abroad had been divided between both appellants in the ratio of 30 to 70 and appellant No. 1 had been more active in the transfer of the said amount between accounts abroad.

Appellate Tribunal Held

The Appellate Tribunal held that the penalty amount was to be reduced from Rs. 1.5 crore to Rs. 37.5 lakhs for appellant No. 1 and from Rs. 3.5 crores to Rs. 35 lakhs for appellant No. 2.

List of Cases Referred to

• • SEBI v. Shriram Mutual Fund [2006] 68 SCL 216 (SC) (para 9)
  • Director of Enforcement v. M.C.T. M. Corpn. (P.) Ltd. [1997] 88 Comp. Cas. 449 (SC) (para 10).