2025 (5) TMI 1690 - AT - Money Laundering

SAFEMA Tribunal upholds asset freezing order under Black Money Act Section 51 despite natural justice claims

Shri Suresh Kumar Banthia and Shri Jitesh Kumar Banthia Versus The Deputy Director, Directorate of Enforcement, Kolkata

The Appellate Tribunal under SAFEMA upheld the retention order for freezing bank amounts, mutual funds, shares and securities in a case involving offences ... Validity of the order permitting retention of freezing of the bank amount, mutual funds, shares and securities - Offence under Section 51 of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - Order of seizure - failed to furnish information relating to the financial interest in the entities located outside India held by them as beneficial owners - violation of the principles of natural justice - HELD THAT:- In the light of facts given, we do not find that the appellant was not served documents relied upon by the respondent. The appellant has alleged that the documents relied by the Income Tax Department in the complaint should have been served ignoring the fact that in the instant case, the proceeding has been initiated by the Enforcement Directorate and they can supply the documents available with them and relied upon and not those documents with the Income Tax Department. The appellant is, otherwise, facing the prosecution lodged by the Income Tax Department and thus Counsel for the appellant could not show that the relevant material and documents apart from the information was not given to him in the prosecution lodged against the appellant. It was, otherwise, admitted by the appellant that few documents relied upon were served immediately after an application. The admission to that effect exists in the letter sent by the appellant to the Adjudicating Authority on 17.12.2022. The appellant’s admission is that some of the documents relied by the respondent have not been served. If the appellant wished to get the documents relied upon by the Income Tax Department in the complaint it could not have been demanded from the respondent in absence of the prosecution lodged by them. It is otherwise a fact that records seized from the appellants to show their connection of Off-shore Company, no argument was made that the appellants have no connection with the Off-shore entity at Singapore, rather, the appellant was found directly connected with the Off-shore Company having bank accounts causing offence under Section 51 of the Act of 2015. The appellant had given a letter to the Registrar, Adjudicating Authority to inform that the specific relied upon document based on which reasons to believe has been recorded and search was conducted followed by an application under Section 17(4) of the Act of 2002 has not been supplied. A reference of the earlier letter dated 08.12.2022 to provide a copy of the application under Section 17(4) of the Act of 2002 and copies of the relied upon documents which were not supplied along with the Show Cause Notice were given with a request to supply a copy of the documents not served by the respondent. It is, however, with the admission that in response to the letter dated 08.12.2022 copy of the some of relied upon documents were supplied to the appellant on 15.12.2022 i.e. after 7 days of receipt of the letter. However, many documents were not supplied. It was submitted that certain vital documents based on which complaint was filed by the Income Tax Department were not supplied in ignorance of the fact that the copy of the Complaint was available with the appellant facing the prosecution and whatever documents relied by the respondent had been served to the appellant. The appellant was otherwise having the information on service of the copy of the reasons to believe served to him about his involvement in the Off-shore company and the bank account having photographs, date of birth and all relevant personal details of the appellants. No defence to the aforesaid was given or even denied with proof that they have been unnecessarily implicated. In fact, finding a case of black-money, the Income Tax Department has already made assessment of the tax, thus, the appellant was having all required information but for the sake of making a case for violation of the principles of natural justice, the issue was framed about non-supply of relied upon documents. The appellant, however, prayed for supply of the application under Section 17(4) of the Act of 2002, reasons to believe recorded vide retention order and reasons to believe recorded in reference to ECIR in ignorance of the fact that copy of the reasons to believe was served along with the notice as per the provisions of the Act of 2002 and otherwise the appellant prayed for the official correspondence with the Income Tax Department not forming the part of the application to seek further retention of the freezing of the bank account and seizure of the documents. The appellant has otherwise faced prosecution at the instance of the Income Tax Department and was even assessed with imposition of tax for contravention of the Act of 2015. Thus, application by the appellant for service of documents was designed only to delay or otherwise frustrate the proceedings in view of the fact that the appellant had no defence against the complaint sent by the Income Tax Department to which even the appellant is facing the prosecution and otherwise Assessment Order has been passed against him. Thus, we don’t find a case to cause interference in the impugned order of seizure of documents and freezing of bank accounts and also of the cash. However, the order would remain subject to final outcome of the prosecution case against the appellants. If they are discharged therein, the documents and the movable assets can be released in their favour. The appeals are disposed of with the aforesaid without causing interference in the impugned order. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal were:Whether the impugned order permitting retention and freezing of bank amounts, mutual funds, shares, securities, and seized records including digital devices was valid under the applicable legal framework.Whether the appellants were denied the principles of natural justice by not being served with the complaint filed by the Income Tax Department, and whether non-supply of the complaint and relied-upon documents (RUD) prejudiced the appellants' ability to defend themselves effectively.Whether the Enforcement Directorate was obliged to supply documents relied upon by the Income Tax Department in the prosecution, or only those documents in its possession and reliance.The correctness of the findings regarding the appellants' connection to the offshore company and the alleged undisclosed foreign assets.Whether the appellants' application for supply of documents and other procedural requests were bona fide or intended to delay or frustrate proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the order permitting retention and freezing of assets and seizure of recordsThe legal framework relevant to this issue includes Section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ('the Act of 2015') and the Prevention of Money Laundering Act, 2002 ('the Act of 2002'), particularly Section 17(1) regarding search and seizure.The appellants were alleged beneficial owners of an offshore company, Blue Bell Express Limited, registered in the British Virgin Islands, with bank accounts in Singapore. The Income Tax Department had initiated prosecution and passed an assessment order under Section 10(3) of the Act of 2015 for the Assessment Year 2018-19, quantifying undisclosed foreign assets worth Rs. 13,09,09,804/- and imposing tax accordingly.The Enforcement Directorate conducted searches under Section 17(1) of the Act of 2002 at various premises of the appellants, seizing incriminating documents, electronic devices, and freezing bank and Demat accounts. The Adjudicating Authority allowed retention of these seized records and frozen assets.The Tribunal noted that the appellants did not dispute their connection with the offshore entity or the bank accounts, and no argument was advanced denying involvement or ownership. The factual matrix showed substantial documentary and electronic evidence linking the appellants to the offshore company and its bank accounts, including nominee agreements, KYC documents, passports, and bank statements obtained from foreign authorities.Applying the law to these facts, the Tribunal found no infirmity in the order permitting retention and freezing of assets, as the seizure was in accordance with the provisions of the Act of 2002 and supported by the predicate offence under the Act of 2015.Issue 2: Alleged violation of principles of natural justice due to non-service of complaint and non-supply of relied-upon documentsThe appellants contended that they were not served with the Income Tax Department's complaint, which formed the basis of the Enforcement Directorate's reasons to believe under Section 8(1) of the Act of 2002. They argued that non-supply of the complaint and relied-upon documents prevented effective defense and violated natural justice.The Tribunal examined the procedural history and correspondence. It was established that the appellants were facing prosecution before the Chief Metropolitan Magistrate on the complaint filed by the Income Tax Department, and therefore had access to the complaint and related documents in that forum.The Enforcement Directorate, as the respondent, was obligated only to supply documents in its possession and relied upon, not those held by the Income Tax Department. The Tribunal observed that some of the relied-upon documents were supplied to the appellants after their written requests, and the appellants failed to specify which documents remained undisclosed.The Tribunal held that the appellants' plea of non-service of complaint was misplaced because the complaint was available to them in the prosecution proceedings. The request for documents held by the Income Tax Department was beyond the Enforcement Directorate's obligation. Hence, no violation of natural justice occurred in this regard.Issue 3: Whether the appellants' application for documents was bona fide or a delaying tacticThe appellants sought copies of the application under Section 17(4) of the Act of 2002, reasons to believe, and official correspondence with the Income Tax Department. The Tribunal noted that the reasons to believe were served along with the notice, and some documents were supplied after the appellants' requests.The Tribunal found that the appellants had full knowledge of the material facts, including their beneficial ownership of the offshore company and bank accounts, and the assessment order imposing tax. The appellants did not deny or rebut these facts.Accordingly, the Tribunal concluded that the appellants' repeated requests for documents and complaints of non-supply were designed to delay or frustrate the proceedings rather than to mount a genuine defense.Issue 4: Connection of appellants with offshore company and undisclosed foreign assetsThe Tribunal reviewed the certified information received from foreign authorities, including the British Virgin Islands and Singapore, which established the appellants' beneficial ownership of Blue Bell Express Limited, nominee agreements, bank account details, KYC documents, and bank statements showing credit entries.The appellants did not dispute these facts or provide evidence to negate their connection. The Income Tax Department had already passed an assessment order under Section 13 of the Act of 2015 quantifying undisclosed foreign assets and imposing tax.The Tribunal applied the law to these undisputed facts and found the appellants were rightly held liable under the Act of 2015 and the Enforcement Directorate's actions under the Act of 2002 were justified.3. SIGNIFICANT HOLDINGSThe Tribunal held, inter alia:'We do not find that the appellant was not served documents relied upon by the respondent... The appellant is, otherwise, facing the prosecution lodged by the Income Tax Department and thus Counsel for the appellant could not show that the relevant material and documents apart from the information was not given to him in the prosecution lodged against the appellant.''The appellant had no defence against the complaint sent by the Income Tax Department to which even the appellant is facing the prosecution and otherwise Assessment Order has been passed against him.''The application by the appellant for service of documents was designed only to delay or otherwise frustrate the proceedings in view of the fact that the appellant had no defence against the complaint.''We don't find a case to cause interference in the impugned order of seizure of documents and freezing of bank accounts and also of the cash. However, the order would remain subject to final outcome of the prosecution case against the appellants. If they are discharged therein, the documents and the movable assets can be released in their favour.'The core principles established include:The Enforcement Directorate's obligation to supply relied-upon documents is limited to those in its possession, not documents held by other agencies such as the Income Tax Department.Facing prosecution on the same subject matter before a competent court implies availability of the complaint and related documents, negating claims of non-service.Retention and freezing of assets and seizure of documents under the Act of 2002 are justified when supported by predicate offences under the Act of 2015 and corroborated by evidence.Procedural requests for documents must be bona fide and not used as tactics to delay or frustrate proceedings.Final determinations on each issue were that the impugned order of retention, freezing, and seizure was upheld; no violation of natural justice was found; the appellants' claims of non-service were rejected; and the appeals were disposed of without interference, subject to the outcome of the prosecution.