TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 258
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....mittance scheme between February 2011 and 8th February 2013 to remit USD5,99,999 equivalent to (at prevailing exchange rate at the time) Rs. 2.97 crores to the LGT Bank of Singapore. b. The purpose of such remittance was to invest in international bonds, securities and mutual funds through a foreign currency denominated portfolio investment account. c. The amount invested by the petitioner was used to earn profit for the LGT Bank from its own portfolio bank. d. The bank would give short term advances for optimising gains against the pledge of investment held in the appellant's portfolio account. e. Such investment resulted in large gains for the petitioner. f. The petitioner, some time in 2015, closed the account with a profit of approximately USD 66,773 equivalent to Rs. 1.24 crores. g. The petitioner had offered such gains for tax purposes and had paid the tax in 2015 itself. h. The trouble erupted some time in 2020 when the Enforcement Directorate initiated proceedings on 17th April 2020 by way of complaint of contravention of provisions of the Foreign Exchange Management Act, 1999 (hereinafter referred to as the Act). i. Pursuant to the complaint, a show....
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....plication can be entertained after the order of adjudication had been passed by the competent authority. 4. Mr. P. Chidambaram, learned senior advocate appearing for the appellant, had raised a singular issue: whether a compounding application can be filed after adjudication by the concerned authority. In support of his contention that such a compounding could be made, learned senior counsel has raised the following points:- a. The power of compounding is vested primarily in Section 15 of the Act read with Rule 7 of the Compounding Proceedings Rules, 2000 read with Rule 11 thereof. b. He has also placed reliance on the provisions of Section 3, 4, 13, 15, 17 and 19 of the Act and also referred to the Compounding Rules 2000, relying on Rules 3, 4 and 5. c. Learned senior counsel has argued that the charges under Sections 3(a), 3(b), and 4 are separate and distinct, and that Section 15 of the Act expressly differentiates between violations under these provisions by assigning two separate authorities for compounding such offences. Furthermore, Section 19 establishes a distinct appellate authority for contraventions of the aforesaid provisions. Consequently, prior to adjudicati....
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....plication as it was yet to be determined as to whether the appellant had contravened the provisions of Section 3(a) or any other provision of the Act. It is only upon such determination the appellant could have filed the compounding application. It would be further explicit from the provisions of Clause 6.4 of the master circular being FED Master Direction No. 4 of 2015 - 2016 that the right to compound contravention under the provisions of the Act is left ajar till the date of issuance of the order of the Adjudicating Authority or till filing of an appeal against the order passed by the Adjudicating Authority under the provisions of FEMA. 5. We have also heard Mr. Jaideep Gupta, learned senior advocate appearing for the respondent nos. 1 and 2. a. Mr. Gupta has drawn our attention to Section 15(2) of the Act relating to the power to compound contravention, which clearly states that where a contravention has been compounded no proceeding or further proceeding shall be initiated or continued, as the case may be, against the person committing such contravention in respect of the contravention so compounded. The stress is on the words "initiated" and "continued". According to him,....
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....res curtailment of the process of inquiry and adjudication by the specified authority. 13. Thus, compounding rests on an admission of the contravention alleged. This admission may be simply stated as "I am guilty of the violation of provisions of the Act as charged". If this admission is not forthcoming, there is no question of entertaining any compounding application. 14. Thus, it would stand to reason that such an admission of contravention is made by the person charged at a stage prior to the adjudication. This is because, on adjudication once a person is found guilty he does not have to admit his guilt or contravention as he is already found to be guilty of the contravention. 15. Compounding can be done at two stages. The first, upon a notice of contravention being received by the person concerned, prior to commencement of any inquiry, investigation or adjudication by the directorate of enforcement or by RBI (Rule 4). The second, is post commencement of any enquiry, investigation or adjudication by the directorate of enforcement, but prior to its completion. There cannot be any other stage at which the compounding application can be made. 16. It is in this conspectus that w....
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....approach prior to adjudication is rather ill founded. 23. The second compounding application affirmed by the appellant on 6th May 2024 and filed on 10th May, 2024 left serial 4 blank. Serial 4 mandates disclosure of the name of the adjudicating authority before whom the case is pending. Though several sub paras have been added, beyond the statutory mandate, seeking to explain why the application for compounding was being made at such a belated stage. 24. Such explanation does not in any manner refer to the non-identifiability of the compounding authority, prior to the adjudication, the ground so vociferously argued by the appellant before us. 25. Rule 6 of the Compounding Rules, 2000 makes it clear that once a contravention is compounded before adjudication, no enquiry shall be made for adjudication of such contravention. 26. Rule 7 brings further clarity to a situation where compounding of a contravention is made after a complaint under the Act. 27. In fact, Rule 7 in no uncertain term spells out the authority to whom the compounding application should be made. 28. Rule 11 of the Compounding Rules 2000, states that no contravention will be compounded if any appeal under Sect....
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....together and not in isolation. A particular clause cannot be taken up and highlighted. 34. The decision relied upon by Mr. Jaideep Gupta, particularly the one of the Hon'ble Supreme Court in 2008 (4) SCC 175, is clear and unequivocal. Though it relates to a case under the Customs Act, 1962, the principle thereof is aptly applicable to the present case, that the compounding mechanism is to prevent needlessly proliferating litigation and holding up of collection. 35. Though reference was made to the Foreign Exchange (Compounding Proceedings) Rules, 2024 and particularly to Rule 9 thereof, which makes it clear in no uncertain terms that contravention shall not be compounded where the adjudicating authority has already passed an order imposing penalty under Section 13 of the Act. However, it was agreed by all parties appearing before us that the same shall not apply to the present case in view of Rule 14 thereof. 36. The Act, to consolidate and amend the law relating to foreign exchange, was made with an object to facilitate external trade and payments and for promoting the orderly development and maintenance of the foreign exchange market in India. In order to enhance the object of....