SAFEMA Upheld Seizure of Asset as Appellant Failed to Prove Closure or Source of Foreign Account Holding

Case Details: Pradip Burman v. Special Director Directorate of Enforcement, Delhi - [2024] 165 taxmann.com 726 (SAFEMA-New Delhi)

Judiciary and Counsel Details

• Rajesh Malhotra, Member & V. Anandarajan, Member
• Sudhir Makkar & Ambar Bhushan, Advs. for the Appellant.
• Mahip Datta Parashar & Rahul Mehta, Advs. for the Respondent.

Facts of the Case

In the instant case, an investigation by the respondent revealed that the appellant had acquired and deposited foreign exchange amounting to USD 32.12 lakhs with HSBC Bank, Zurich, Switzerland. The appellant did not get that amount repatriated to India, which was in contravention of provisions of Section 4 of FEMA, 1999.

It was found that a total amount of USD 32.12 lakhs was still held outside India in contravention of Section 4 of FEMA, 1999. As a result, the equivalent value of the property was liable to be seized in terms of provisions of Section 37A(1) of FEMA.

The Adjudicating Authority therefore, issued a seizing order under section 37A(1) of FEMA, 1999, whereby total 2.09 lakhs tax free Govt. bonds of Public Sector undertaking valued at Rs. 22.72 crore held by the appellant were seized.

The appellant challenged the said order on the ground that transactions alleged to have taken place in assessment years 2006-2007 and 2007 2008, and provision of section 37A of FEMA, 1999, which authorizes the seizure of property, was introduced from 09.09.2015, and thus, could not be applied retrospectively.

It was also alleged that the appellant continued to hold foreign exchange/bank accounts outside India after Section 37A of FEMA was introduced. Further, he was a resident of Dubai from 1999 to September 2001, and he earned the said amount while he was there by advising certain foreign companies. The said account stands closed.

It was noted that the appellant did not provide any specific date as to when the account in question was closed or provide any evidence of such closure. It was highly unlikely that a person maintaining an account with a foreign bank with a substantial balance would have no documentary evidence or details whatsoever of the date of its closure.

The Appellate Tribunal observed that the balance standing in the account as on date of closure would surely have been transferred to another bank account. Further, no details of the account on which the balance was transferred were provided either.

Appellate Tribunal Held

The Appellate Tribunal held that, to invoke the provisions of Section 37A, there was no requirement to have reason to believe that any foreign exchange, foreign security, or immovable property situated outside India was held in contravention of Section 4 of FEMA, but merely reason to believe that it was suspected to have been so held.

Further, the Appellate Tribunal held that even the source of funds in the account had not been substantiated by the appellant as no proof had been adduced regarding investment advisory services claimed to have been provided by the appellant. Thus, action under Section 37A of FEMA was justified in the facts and circumstances of the case. Accordingly, an instant appeal against the order of the Adjudicating Authority was to be dismissed.

List of Cases Reviewed

• Prism Scan Express (P.) Ltd. v. Initiating Officer, Deputy Commission of Income-tax (BPU-2) [2023] 157 taxmann.com 623 (SAFEMA – New Delhi) (Para 61) followed