SAFEMA Orders Release of Seized Funds | Reduces Penalty as Appellant Proves Legal Forex Acquisition During Travel Abroad

Case Details: Vaseem Kapadia v. Special Director Directorate of Enforcement - [2024] 164 taxmann.com 450 (SAFEMA-New Delhi)

Judiciary and Counsel Details

• Munishwar Nath Bhandari, Chairman & Balesh Kumar, Member
• B. Seshagopalan, Adv. for the Appellant. 
• Surender Kumar, Adv. for the Respondent.

Facts of the Case

In the instant case, during the search, the Enforcement Directorate (ED) seized foreign currencies worth Rs.2.99 lakh and Indian currency worth Rs.9.29 lakh from the appellant’s premises.

A bank passbook of overseas accounts was also found on the appellant’s residential premises. The account holder’s name shown in the passbook was Kapadia, and the total credits in the passbook were found to be US$5.95 lakh and RMB 5.78 lakh.

The appellant was the person arranging funds that were found credited in the said account, and he failed to provide an adequate explanation as to how the said passbook of the Chinese bank account remained in his possession.

ED passed an order imposing a penalty of Rs.46.40 lakh on the appellant for contravention of section 3 of the Foreign Exchange Management Act, 1999. It was a case of the appellant that seized foreign currency of value Rs.2.99 lakh was acquired legally by him and his family members before travelling abroad.

Moreover, the appellant submitted on record copies of his passport, his wife’s, and his parents’ passports with stamps of travel abroad. Further, copies of receipts of purchases of foreign currency for a couple of visits were also on record.

AAR Held

The Appellate Tribunal noted that in any case, regulation 3 of FEM (Possession and Retention of Foreign Currency) Regulations, 2000 allowed for the retention of US$2000 per person who had travelled abroad, and in the instant case, they were four members in the family.

Therefore, a charge of section 3 of the FEMA for an amount of Rs.2.99 lakh could not be sustained and in view of aforesaid, confiscation of foreign currency of value of Rs.2.99 lakh was to be set aside and was ordered to be released thereof to the appellant.

The Appellate Tribunal held that since, the Adjudicating Authority found no contravention of FEMA for seized Indian currency of Rs.9.29 lakh, which had not been confiscated. Thus, the same was ordered to be released. Further, since only contravention of section 3 for amounts of US$5.95 lakh and RMB 5.78 lakh by the appellant was established, penalties imposed on the appellant for aforementioned contraventions were disproportionately higher and therefore, the same was to be reduced to Rs.15 lakh.