Allowed

FPA-FE-02/BNG/2018 of M/s. Joy of India v/s The Special Director Directorate of Enforcement, Bangalore

ATFP12 Sept 2019FPA-FE-02/BNG/2018

Case brief

AI extract

What is this about?

Appeal against penalty and confiscation order under FEMA. Appellants challenged the order for establishing a firm, receiving foreign donations, and purchasing property without RBI permission, arguing they were resident Indians with proper documentation and prior RBI acknowledgment.

What did the court decide?

Order of confiscation and imposition of penalty set aside; no violation of FEMA established.

FPA-FE-02/BNG/2018 of M/s. Joy of India v/s The Special… — Company and Corporate | ATFP (2019)

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, NDPS, PMLA & PBPT ACT AT NEW DELHI

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Date of Decision:- 12.09.2019

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MP-FE-95/BNG/2018 (Stay) MP-FE-96/BNG/2018 (Misc.) MP-FE-97/BNG/2018 (COD) &

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FPA-FE-02/BNG/2018

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M/s. Joy of India … Appellant Versus The Special Director Directorate of Enforcement, Bangalore … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Shri Rajat Agnihotri, Advocate Mr. Joshua Samul, Advocate
For the respondent	:	Mrs. Aagam Kaur, Legal Consultant
CORAM JUSTICE MANMOHAN SINGH	:	CHAIRMAN
JUDGEMENT

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FPA-FE-02/BNG/2018

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The Appellants have filed the appeal against the Order-in-Original bearing No. JD/BGZO/03/2016 dated 28.06.2016 passed by the Respondent. The said Order-in-Original is passed in respect of proceedings initiated pursuance to show-cause notice No. T- 04/02/BGZO/JD(JK)/2014-15 dated 13.03.2015.

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The Show-cause notice bearing No. T-04/02/BGZO/JD(JK)/201415 dated 13.03.2015 had been issued by the Respondent to the Appellants wherein it had been alleged that the Appellants have contravened the provisions of Regulation 3 of the Foreign Exchange

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FPA-FE-02/BNG/2018

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Page 1 of 16

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Management (Establishment in India of branch or business or other place of business) Regulations, 2000 read with Section 6(6) of the Foreign Exchange Management Act, 1999, (hereinafter referred to as FEMA), Regulation 5 of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 read with Section 6(2) of the FEMA to the extent of Rs. 2,15,21,972/-, Regulation 3 of the Foreign Exchange Management (Investment in firm or proprietary concern in India) Regulations 2000 read with Section 47 of the FEMA to the extent of Rs. 2,15,21,972/- and Regulation 8 of the Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations 2000 (Notification No. FEMA 21/2000 RB dated 3^rd May 2000) read with Section 6(3) of the FEMA to the extent of Rs. 71,83,982/-

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In the Complaint it had alleged that the Appellant Nos. 2 and 3 who are Korean Nationals came to India on repeated business visa basis on 08.08.2008 and have been residing in India on extended visa basis. They have created First Appellant Firm in India under a registered Partnership Deed dated 31.12.2008 without the prior permission of the Reserve Bank of India, despite the fact that the Reserve Bank of India had refused to grant permission to open a firm in India as their residential status was not clear. It is further alleged in the Complaint that during 2009-2014 the Appellant No. 2 and 3 received donations to the First Appellant firm from various foreign nationals through bank to the tune of Rs. 2,15,21,972/-. It is further alleged that the Appellant Nos. 2 and 3 purchased an immovable property ad measuring 3237 sq. ft. in Bangalore for a consideration of Rs. 50,00,000/- under a registered Sale Deed dated 01.09.2009 registered in the Office of the Sub-Registrar, K.R. Puram. Therefore, it was alleged that the Appellants have violated the provisions of FEMA. On the basis of the said Complainant had issued a show cause notice to the Appellants.

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FPA-FE-02/BNG/2018

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Page 2 of 16

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In the Show Cause Notice, the appellant ere called upon as to why the adjudication proceedings, as contemplated under Section 13(1) of FEMA should not be held, in the manner as provided in Rule (4) of the Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000.

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The Appellant was summoned, and the Appellants appeared through their Counsel and had filed objections on 17.03.2016 and also given their Statement denying the allegations. The main allegation in the complaint are as under:-

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(a) The Appellant No. 2 and 3 had visited India on different dates on business VISA bearing Nos. AE 546530 and AE 547826 with their daughters and resided in a rented house with USD 20000. When they came to India in August 2008 (08.08.2008) they created a partnership firm in the name of THE JOY OF INDIA, the First Appellant herein, on 31.12.2008 and registered the same with the Registrar of Firms, Shivajinagar, Bangalore on 09.01.2009 vide registration number 696/2008-09 with an object to run a Paying Guest accommodation, Housing and Real Estate‟s including construction, Boarding and Lodging, restaurants, grocery shops, consultancy services, tours and travels, trading in export and import of garments, automobile accessories, publishing magazines and journals of various interest and other incidental and legal business. The Appellants obtained license from Registrar of Firms, Shivaji Nagar, Bangalore to run a Paying Guest accommodation vide license No. HO/E/LC/146/2011-12 dated 11.08.2011 which was renewed on 19.05.2012 and 05.03.2013.

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FPA-FE-02/BNG/2018

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Page 3 of 16

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(b) The complaint goes on to state that as per the evidence on record and submissions made on behalf of the Appellant No. 1 at the time of personal hearing, it was revealed that the noticees had purchased an immoveable property i.e., residential site bearing No. 41 and 56, property No.116/2, Khata No. 88 measuring 3237 sq. ft. at Chelekere, K.R. Puram Hobli, Bangalore for a consideration of Rs. 16,03,000/- vide a registered Sale Deed dated 01.09.2009. It was further alleged they had paid a sum of Rs. 30,59,710 to one Ruben Ravikumar, a contractor, for the purpose of constructing a building at the said site. It was alleged that the source of income for purchase of the site and the payments to the contractor was from funds and donations received from Korean relatives, friends and members of Korean churches who visited India and brought foreign currency which after getting converted into Indian Rupees, was donated to the Appellant No. 1 firm. It was stated that the amounts were received in two accounts one being a savings bank account No. 029801506568 held in the name of Appellant No. 2 and a current account no. 029805003204 held in the name of the Appellant No. 1 firm, both at ICICI Bank, M-417, 80 feet Road, Kalyan Nagar, Bangalore. It was further stated in the complaint that the statement of account of the above-mentioned accounts revealed that they had received a total sum of Rs. 2,15,21,972/- from 2009-2014.

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(c ) It was further stated that as regards the permissions required to be obtained from the RBI to purchase the residential site as mentioned above, the Appellant had produced a letter dated 26.08.2009 issued by the RBI permitting them to purchase sites and construct Paying guest accommodation. As per the First FPA-FE-02/BNG/2018 Page 4 of 16

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Respondent, the perusal of the letter dated 26.08.2009 revealed that the RBI had refused to grant permission on account of the residential status of Appellant Nos. 2 and 3 being unclear. Thus, it was contended by the First Respondent that the Appellants have, therefore, have violated the Regulation No. 3 of the Foreign Exchange Management (Establishment in India of branch or business or other place of business) Regulations, 2000. It was further alleged that the receipt of amounts/donations to the account of the Appellant No. 1 firm, from foreign nationals, was also in contravention of the FEMA regulations.

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(d) Further the Respondent alleged that after due verification of the Bank accounts of the Appellants, they found that the total amount found in the Savings Bank account of the Appellant No. 2 and the Current Account of the Appellant No. 1 amounted to Rs. 2,15,21,972/- and

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Based on the above, the following allegations have been alleged against the Appellants:

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(i) The Appellants have opened a firm in India without permission from RBI despite RBI refused to grant permission to them to open a firm in India as their residential status was not clear.

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(ii) The Appellants have received donations from various foreign nationals other than through authorized banking channels to the tune of Rs. Rs. 2,15,21,972/- during 2009-2014.

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(iii)The Appellant No. 2 and 3 had purchased immovable property admeasuring 3237 sq. ft. in Bangalore at a cost of Rs. 40 lakhs vide Sale deed dated 01.09.2009.

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FPA-FE-02/BNG/2018

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Page 5 of 16

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(iv)The said amount of Rs. 40 lakhs was received in cash from various other foreign nationals and had been deposited in ICICI Bank M-417, 80 feet Road, Kalyan Nagar Bangalore 560 043 in Savings Bank Account No.02980150568 in the name of the Appellant No.2

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(v) The amount held in deposits in the bank accounts matches with the donations received from foreign nationals.

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The Complainant based on the aforesaid allegations had issued a show cause notice calling upon the Appellant as to why the following properties should not be confiscated

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a. Land measuring 3237 sq. ft. at site No. 41 and 56, Katha No. 88, S. No. 116/2 at Challakere Village, K. R. Puram Hobli, Bangalore East Taluk, Bangalore 560 084;

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b. Savings Bank account No. 029801506568 maintainted with ICICI Bank, M-417, 80 feet Road, Kalyan Nagar Bangalore in the name of Appellant No. 2 having a balance of Rs. 8,530.55 as on 28.01.201; and

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c. Current account bearing No. 029805003204 maintained with ICICI Bank, M-417, 80 feet Road, Kalyan Nagar Bangalore in the name of the Appellant No. 1 having a balance of Rs. 24,036.82 as on 28.01.2015.

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The Appellants appeared before the Respondent and stated their defense. It was contented on behalf of the Appellants that the Appellants are “Resident Indians” and as such entitled to acquire properties in India. The factum of opening the Appellant No. 1 firm by the Appellant Nos. 2 and 3, the purchase of the immovable property in India as well as the receipt of donations from foreign nationals were not disputed. The only issue was that being “Resident Indians” they are entitled to purchase FPA-FE-02/BNG/2018 Page 6 of 16

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properties and as such there is no violation as alleged under the showcause notice. A request was made before the Respondent to drop all proceedings initiated against the Appellants in view of to the show-cause notice.

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The case set up by the appellants was rejected and it was decided against the Appellants and the Respondent authority has rejected the contentions made by the Appellants in their written statement and has passed the following order, now under challenge:

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Contravention		Noticee	Penalty
Regulation 3 of	the Foreign	Mr. Shu	Rs. 1,00,000
Exchange	Management	Kwan Oak	(Rupees One
(Establishment in In	dia of branch		lakh only)
or office or oth	er place of
business) Regulatio	ns, 2000 read
with Section 6(6) 1999.	of the FEMA
-do-		Mrs. Mijeung Bang	Rs. 1,00,000 (Rupees One lakh only)
Regulation 5 of	the Foreign	Mr. Shu	Rs. 4,00,000
Exchange	Management	Kwan Oak	(Rupees
(Permissible Capi	tal Account		Fonur lakhs
Transactions) Regu	lations, 2000		only)
read with Section FEMA 1999 to the	6(2) of the extent of Rs.
2,15,21,972/-
-do-		Mrs. Mijeung Bang	Rs. 4,00,000 (Rupees Four lakhs only)
Regulation 3 of	the Foreign	Mr. Shu	Rs. 4,00,000
Exchange	Management	Kwan Oak	(Rupees Four
(Investment in firm	of proprietor		lakhs only)
concern in India) 2000 read with Sec	Regulations, tion 47 of the

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FPA-FE-02/BNG/2018

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Page 7 of 16

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FEMA 1999 to the extent of Rs.
2,15,21,972/-
-do-	Mrs. Mijeung Bang	Rs. 4,00,000 (Rupees Four lakhs only)
Regulation 8 of the Foreign	The Joy of	Rs. 2,00,000
Exchange Management	India	(Rupees Two
(Acquisition and transfer of		lakhs only)
immovable property in India)
Regulations, 2000 read with
Section 6(3) of the FEMA 1999 to
the extent of Rs. 71,83,982/-
-do-	Mr. Shu Kwan Oak	Rs. 2,00,000 (Rupees Two lakhs only)
-do-	Mrs. Mijeung	Rs. 2,00,000 (Rupees Two
	Bang	lakhs only)

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It is submitted that in addition to the penalties as imposed hereinabove, the Respondent authority passed an order confiscating the properties, as mentioned in Para 7 hereinabove, to the Central Government in terms of Section 13(2) of FEMA.

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The Appellant aggrieved by the said order filed by the respondent as mentioned on various grounds.

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(i) That the Order passed by the Respondent is per se illegal and one opposed to law and the facts of the present case and the consequent confiscation ordered and levy of penalty is grossly bad in law.

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(ii) That the Order passed by the Respondent is not a speaking order since none of the contentions urged by the Appellants both in respect of the Show Cause Notice and the

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FPA-FE-02/BNG/2018

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Page 8 of 16

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documents furnished by the Appellant had been met which shows that the same has been passed without application of mind. The Respondent was required to meet each of the contentions urged and was required to have recorded reasons for its rejection which the Respondent has failed in doing. For this reason alone, the order under challenge herein is liable to be set aside.

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(iii) The Respondent has failed to notice and appreciate that the allegations in the Complaint which was based on documents and which had formed the basis for the show-cause notice did not amount to a contravention, much less a contravention under FEMA. Hence, the entire proceedings carried out against the Appellants and the consequential order and confiscation are bad in law and liable to be set aside.

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(iv) The Respondent in the impugned order has merely reiterated the narration as laid down in the Complaint filed against the Appellants. By merely and meekly repeating the allegations made in the Complaint and without properly considering and adjudicating upon the reply submitted by the Appellants, the Respondent authority has erred in no applying its mind. No reason has been ascribed as to why the contentions urged by the Appellants have been rejected. This nonapplication of mind by the Respondent authority is a gross miscarriage of justice.

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(v) The Respondent has erred in ignoring the fact that as on the date of the purchase of movable property by the Appellants, they had been residing in India for more than 182 days in the

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FPA-FE-02/BNG/2018

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Page 9 of 16

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previous financial year which rendered them to be considered as “Person resident in India” and thus, they did not require any permission from the Reserve Bank of India to purchase immovable property in India.

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(vi) The Respondent authority has also failed to consider that no material has been placed on record to show that the amount of Rs. 2,15,21,972/- had been brought in India in violation of the provisions of and Regulations of FEMA. Thus, the allegations themselves are incapable of being sustained inasmuch as the basic ingredients and requirements of the provision of law invoked have not been met nor any material produced to that effect. Hence, the confirmation granted to the allegations made in the show- cause notice is an abuse of justice and ought to be set aside.

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(vii) The Respondent also erred in not questioning the investigation done by the Directorate of Enforcement on account of the contradictions contained in the Complaint filed. On one hand an allegation has been made by the Directorate against the Appellant Nos. 2 and 3 that they had purchased an immovable property ad measuring 3237 sq. ft. in Bangalore for a consideration of Rs. 50,00,000/-, and on the other hand the Directorate further goes on to state in the Complaint that the said immovable property was purchased for Rs. 16,03,000/-.

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(viii) The impugned order has further failed to appreciate that no material to support the same, independent to the statements recorded, has been relied upon or produced with the Complaint

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FPA-FE-02/BNG/2018

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in the absence of which there exists no logical basis to pass the impugned order.

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(ix) There has been failure to notice that in view of the nature of the allegations levelled on the Appellants, it was incumbent on the Directorate, under the provisions of Section 3(c) of FEMA, to categorically establish:

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(a) Receipt of payment.

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(b) Receipt otherwise than through an authorised person of such payment.

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(c ) Such receipt was by Order or on behalf of any person resident outside India.

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In the absence of any material to that effect or a finding to that effect, the order passed cannot be sustained.

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(x) There has been a failure on part of the Respondent to notice that the necessary ingredients of Section 3(c) of FEMA were required to have been met in light of the provisions of Section 2(v) read with Section 2(w) of FEMA. In absence of the same having been established or corroborated, the order passed cannot be allowed to stand.

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(xi) The Respondent authority has failed in not appreciating the explanations and various documents which were tendered by the Appellants with reference to the Statements recorded during the course of investigation and the hearing. The Respondent authority ought to have considered the contradictions pointed out by the Appellants between the statements recorded and the documents relied upon. The failure on the part of the Respondent to do so renders the order passed liable to be quashed.

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FPA-FE-02/BNG/2018

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(xii) The Respondent failed to appreciate that there was a clear and an apparent lack of investigation on part of the Directorate of Enforcement in their entire proceedings. Once the statements of the Appellants have been recorded, which on the face of it seemed probable, then investigation ought to have been carried out to verify the contentions made or to prove them to the contrary. The same having not been done, renders the entire proceedings void.

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(xiii) The Appellants crave leave to raise additional grounds in support of this Appeal if found necessary.

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In the net-shell the case of the appellants was that the appellants were residing in India for more than182 days in the previous financial year at the time of setting up of business and purchase of property in India. Thus, they satisfied the definition of the term “Person resident in India” as contemplated under Section 2(v) of the Foreign Exchange Management Act, 1999 and therefore there was no impediment to purchase and hold property in India nor did they require any permission from the Reserve Bank of India to purchase immovable property or to set up any business in India. The property was purchased on 01.09.2009 more than a year after they entered India under a valid Visa. It is specifically alleged that the documents/allegations as made out in the complaint/ Impugned order are vague as nothing was placed on record to show that Rs. 2,15,21,972/- was brought in India in violation of FEMA.

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The appellants issued a valid Business Visa by the Embassy of India, Seoul which Business Visa was valid from 28.07.2008 to 27.07.2009 and thereafter from 17.08.2009 to 16.08.2010 and on subsequent dates. Both entered India on 08^th August 2008 and

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FPA-FE-02/BNG/2018

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continuously stated in India till 17.07.2009 when they left India and came back after obtaining a fresh Business Visa for the period 17.08.2009 to 16.08.2010. It is further confirmed in the impugned order. Copy of passport of the Appellants with the relevant Business Visa and stamp of the Immigration Department for arrival and departure on the respective dates have been filed alongwith written submissions as Document no. 1. They purchased the immovable property on 01.09.2009, they had fulfilled the requirement of “Person Resident in India” as defined under section 2(v) of the Foreign Exchange Management Act, 1999 by continuously residing in India from 08^th August, 2008 till 31.03.2009 for more than 182 days during the preceding Financial Year i.e. 2008-2009.

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Before they purchased the immovable property, had written a letter to the Reserve Bank of India on 06.08.2009 requesting for permission to purchase the property and for constructing a building thereon. The Reserve Bank of India vide their letter dated 26.08.2009 bearing no. FE.CO.FID/5396/10.51.000/2009-10 had confirmed under Section 2(v) of the FEMA, 1999 that the Appellants do not require the approval from the RBI from the FEMA angle and that they would have only to prove his/her residential status if required, by any Authority. Therefore, before purchase of the immovable property, the appellants had approached the RBI seeking permission. In view fo the reply of the RBI vide the afre said letter, the Appelalnt had only to satisfy Section 2(v) of FEMA, 1999, and no prior approval was required on the date when they ahd purchased the immovable property. Copy of the RBI letter is enclosed Documents no.2. This fact has been noted by the Adjudicating Authority (internal page 6, paragraph No. 18 (6)) while passing the impugned order.

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FPA-FE-02/BNG/2018

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The Appellants had paid the sale consideration of Rs. 16,03,000/(Rupees Sixteen Lakhs Three Thousand Only) under the Sale Deed. The said amount was received by them from overseas into their Account in ICICI Bank on 16.08.2009. There was compliance with regard to receipt of the said amount. This is substantiated in the two (2) FIRC certificates issued by the Bank pursuant to requested of the adjudicating authority. The said two (2) FIRC certificate disclose that on 26.08.2009, two inward remittances were received. The consideration was received through the legal channel and the purpose of remittance was disclosed to the Bank. This was also taken note of by the Adjudicating Authority in paragraph no. 15. Copy of the said foreign inward remittance is also enclosed as Document no. 4.

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Joy of India, the first appellant was assessed for Income Tax and the first appellant was assigned PAM number AAFFT5802L and had filed Income Tax returns for the assessment year 2010-2011 to 2014-2015 and even for subsequent years up till 2017-2018. This has been taken note of by the Adjudicating Authority (internal page 4 and paragraph 14) while passing the impugned order.

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As far as amount is concerned, the amount came in as donations came in India as gifts through the legal route and were for the purposes of furthering the objectives of their social cause. Even in the Complaint, it was mentioned that Appellants purchased the immovable property for Rs. 50,00,000/- but later on it was mentioned that the property was purchased for Rs. 16.03,000/-

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The test as contemplated under Section 3(c) of FEMA has not been met. The Respondents failed to establish all the three (3) necessary ingredients to show any violation, the ingredients being that there was a FPA-FE-02/BNG/2018 Page 14 of 16

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receipt of payment; the receipt was otherwise than through an authorized person and the receipt was by Order or on behalf of any person resident outside India. In the impugned order contentions and documents referred by the appellants have not been dealt with. It has come on record that the Trust was setup by the Appellants for a charitable purpose of providing shelter and education to children belong to backward and poor class irrespective of caste, creed or religion and Appellants have agreed to hand over the property to a Trust which has been set up comprising of Indian trustees who have given their consent to act as trustees and carry on with the objectives of the trust.

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From the entire gamut, it is established that the following:

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a. The appellants had continuously stayed for a period of 182 days in the preceding financial year i.e. 2008-2009 as contemplated under section 2(v).

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b. They had applied for permission to the RBI before the purchase of the immovable property.

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c. The RBI had informed that no prior permission was required if they fulfilled the criteria under section 2(v) of the FEMA Act.

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d. the amount for purchase of the immovable property came through the legal channel and necessary FIRC certificates were issued by the Bank.

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e. The first appellant was assessed for the Income Tax since Assessment year 2010-2011 and have been paying income tax till Assessment year 2017-2018.

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Thus, there is no violation, the appeal is allowed and the Order of confiscation dated 13.03.2015 as well as imposing the penalty amount is set-aside as it was passed against the law and facts.

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FPA-FE-02/BNG/2018

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No Cost.

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(Justice Manmohan Singh) Chairman

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New Delhi, 12^th September, 2019

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„s‟

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FPA-FE-02/BNG/2018

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FPA-FE-02/BNG/2018 of M/s. Joy of India v/s The Special Director Directorate of Enforcement, Bangalore

Case brief

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FPA-FE-02/BNG/2018 of M/s. Joy of India v/s The Special Director Directorate of Enforcement, Bangalore

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