2025 (8) TMI 256 - AT - FEMA

Foreign-Origin Document Without Proper Authentication Inadmissible Under FEMA Section, Order Set Aside

The AT under SAFEMA at New Delhi set aside the impugned order in FEMA proceedings, holding that the foreign-origin document in German relied upon by the ... FEMA proceedings - document written on German language relied upon - Authenticated Document or not - foreign trust and foreign bank account - case was made out on the basis of document which had been relied upon by the Income-Tax Department in the prosecution under the Income- Tax Act, 1961 lodged against the Appellants herein - HELD THAT:- We are unable to agree with the contention of Respondent that the provisions for the authentication under FEMA can be ignored. While it is true that the document concerned comprising of three pages were received by the Respondent Directorate from the Income- Tax Department, it cannot be denied from the mere perusal of the copies of the said document, originally in German language, enclosed in the Appeal Paper Book that the said document relates to the Ambrunova Trust and the balance amount of US$ 2,406,604.90 equivalent to Indian Rs. 11,53,59,400/- was in the LGT Bank in Lichtenstein. The foreign origin of the document is obvious and patent. The document has not been authenticated as prescribed under any law. The statements of these three Appellants under the provisions of FEMA deny the knowledge about the said document, the said account in the LGT Bank and of their role in Ambrunova Trust. The three Appellants have also denied their involvement in the foreign exchange transactions or holdings abroad in the affidavits filed before this Tribunal earlier. Nothing contrary to that has been produced by the Respondent Directorate. We are unable to agree with the contention of the Ld. Counsel for the Respondent that the judgment dated 20.09.2019 of this Tribunal in the case of Viraj Chandrakant vs. Special Director [2019 (10) TMI 173 - ATFEMA] is not applicable here. The moot question of non-admissibility of foreign origin document without being duly authenticated has been answered in affirmation in the judgment (supra) and to that extent, we agree that even in the present case, the critical document comprising of three pages of photocopy of the original in German language, patently arising abroad cannot be the basis of the Impugned Order in the absence of corroborative statements and other material. We find the Impugned Order to be devoid of merit. We, therefore, set aside the Order and allow the Appeals ISSUES: Whether a foreign-origin document received from the Income-Tax Department requires authentication under Section 39 of the Foreign Exchange Management Act, 1999 (FEMA) to be admissible as evidence in adjudication proceedings.Whether the statements recorded under Section 37 of FEMA denying knowledge of a foreign trust and foreign bank accounts can be disregarded in the absence of corroborative evidence.Whether reliance on a document not explicitly listed in the complaint and not duly authenticated can sustain a penalty under Section 13(1) of FEMA for contravention of Sections 3(a) and 4.Whether adjudication by the Special Director who issued the Show Cause Notice involves inherent bias affecting the validity of the proceedings.Whether the quashing or closure of related Income-Tax proceedings affects the viability of the FEMA penalty proceedings based on the same underlying document and facts. RULINGS / HOLDINGS: The provisions for authentication under Section 39 of FEMA apply to foreign-origin documents even if received from the Income-Tax Department; such documents must be duly authenticated to be admissible. The document in question, a photocopy in German language without proper authentication, cannot be the basis for the Impugned Order.The statements recorded under Section 37 of FEMA, wherein appellants categorically denied any knowledge of the Ambrunova Trust and foreign bank accounts, cannot be selectively disregarded; denial of knowledge constitutes denial of involvement and must be considered.Reliance on an unauthenticated foreign-origin document not explicitly listed in the complaint is insufficient to prove contravention under FEMA; the Impugned Order based primarily on such document is devoid of merit and is set aside.No evidence was produced to establish inherent bias of the Special Director adjudicating the case; this contention was not accepted.The closure or quashing of Income-Tax proceedings against certain appellants, and the pendency of related appeals for others, undermines the basis of FEMA proceedings which rely on the same document and facts; accordingly, the FEMA penalty proceedings cannot survive. RATIONALE: The Court applied the statutory framework of FEMA, particularly Section 39 which mandates authentication of documents of foreign origin to ensure evidentiary reliability. The judgment reaffirmed the principle that documents received indirectly from foreign sources through other government departments retain their foreign origin and thus require authentication.The Court relied on the principle that statements under Section 37 of FEMA are admissible in entirety and cannot be selectively interpreted; denial of knowledge of the trust and foreign accounts negates the presumption of involvement.The Court distinguished the present case from precedents where authenticated documents supported findings, emphasizing adherence to procedural safeguards and evidentiary standards under FEMA.The Court noted that the adjudicating authority complied with procedural safeguards and found no substantiation for claims of bias.The Court considered related judicial decisions including orders of the Income-Tax Appellate Tribunal and High Courts, recognizing their impact on the underlying factual matrix and the sustainability of FEMA proceedings based on the same evidence.