TaxTMI 
TaxTMI 
2001 (2) TMI 242
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....sein. He said that the money was the sale proceeds of various types of smuggled goods. Officers seized the currency under the belief that it was the sale proceeds of smuggled goods. 3.The resulting investigations brought to light the following facts. Rs. 92,28,625/- debited to the current account of Acrobond Exports and Hitesh Exports was in the pay order account of Syndicate Bank. Nahalchand Lallochand, Nucleas Securities Ltd. and Wall Street Finance Limited. These were the money-changers authorised by the Reserve Bank of India and had delivered foreign exchange in return for the pay orders issued by Acrobond and Hitesh Exports. Rs. 25,36,000/- debited to the account of Vijaya Agencies was in the pay order account of Moulana Azad Road Branch of Bombay Mercantile Cooperative Bank. Rs. 6.34 lakhs out of this account was paid to Trade Wings Limited, another money-changer, who had issued foreign exchange in return. Pay orders for Rs. 19.02 lakhs had been issued to Nucleas Securities Limited but foreign exchange had not been issued in return. The officers issued instructions to bank to stop payment of these amounts and also to block the various accounts in these banks. 4.Enquirie....
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....akh and Rs. 50.72 lakhs lying in the pay order accounts of Syndicate Bank, Rs. 6.34 lakhs and Rs. 19.02 lakhs lying in the pay orders account of BMC bank, Mohammed Ali Road branch, and Rs. 81,000/- seized from Ambalal Soni's residence was proposed for confiscation. A sum of Rs. 6,800/- being the commission charged by the bank for issue of pay order; a sum totalling Rs. 14.85 lakh in Syndicate Bank and Rs. 17,000/- with the BMC bank in the name of non-existent account holders were also ordered to be confiscated. 7.Ambalal Soni and various others did not reply to the notice or appear before the Commissioner. The other noticees did reply and were heard. The Commissioner thereupon passed the order impugned in these appeals. In that order, he has ordered confiscation of the currency referred to above and imposed combined penalties under Sections 112 and 114 on Ambalal Soni, the money-changers, Syndicate Bank, BMC Bank, and four employees of the BMC Bank, five employees of the Syndicate Bank. 8.We have heard at great length Mr. Sethna, Counsel for the department and counsel named above for each of the appellants. 9.We will first consider the appeal of Ambalal Soni. The case agai....
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....Moulana stopped doing this work for Mustafa Majnoo because of disagreements and how he (Hussein Secretary) picked up this work. He says "Mustafa Majnoo instructed to deliver the gold in future to Ambalal Soni at Pydhonie. ....... Ambalal Soni approached me in Manish Market in connection with the NRI passenger's gold. I started sending the said gold to him through Sayyed Munawar Rashid Hussein Abubaker sometimes on the instructions of Salim. Gold was also sent to other customers.... My job was to ensure safe delivery of NRI passenger's gold and collection of money". He said that he has sent the amounts collected to Bombay Mercantile Co-operative Bank and handed over to Zakir. He describes how Ambalal Soni and others were operating bank accounts in benami names and obtaining foreign exchange traveller's cheques and sending them to Dubai. He describes in detail the sending of the money to the bank on 21st February and says that this amount was received "from one of the gold dealers to whom gold was supplied earlier". 11.Only one statement of Ambalal Soni was recorded contrary to the usual practice of the Directorate of Revenue Intelligence of recording numerous statements. In that ....
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....uld presumably have learned that from Ambalal Soni, Hussein Secretary or anyone else. The notice does not indicate that they obtained this information in such manner. 13.At the same time it does not appear to us from the tener of the statements of the other persons, more immediately concerned with the receipts of the gold and their disposal that they were asked about the legal or illegal nature of the gold that they deal with. Hussein Secretary said that he bought "NRI passenger gold". It would have been the most natural thing in the world for the investigating officers to ask him whether, when and from whom he obtained this gold and whether he had evidence of payment of duty on it. Similarly, Ambalal Soni who was portrayed to us by the counsel for the department as a key player in the game, does not say anything about how he obtained the gold. Thus, persons who ought to know and would have been in a position to say, about the origin of the gold do not volunteer information and are not asked. Those who are evidently not in a position to know and voluble about the origin of the gold, but do not explain the source of their knowledge. It is not our role to comment upon the correctn....
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....ear before the Commissioner destroys his right to appeal, which he combines with the argument that if Ambalal Soni went back before the Commissioner that authority could hear him and pass orders on the matter. When we pointed out to the learned Counsel that, this course of action, if permitted would result the Commissioner reviewing his own order which is impermissible in law, he did not proceed further. The right of any person to appeal before the Tribunal is not conditional upon his having participated in the proceedings before the authority whose order is being appealed. The provisions of the law are clear and it does not need any great argument that this right is unaffected by the conduct of the appellants in the proceedings before the lower authority. 16.However, in our view, it is permissible to draw inference from the course of conduct of Ambalal Soni. There might be various acceptable reasons as to why a person may not wish to disclose or keep no record of income which he has obtained by legible means. The most obvious reason that strikes one is evasion of tax. Let us assume that Ambalal Soni was dealing in gold that was brought by passengers and cleared on payment of du....
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....em. 18.It was not disputed before us that the money which was found in the accounts with Syndicate Bank and Bombay Mercantile Co-operative Bank was deposited at the instance of Ambalal Soni nor that the accounts in which it was deposited are in fictitious names, there being no entities in the names of which the accounts were opened. No explanation was offered as to why, if the money was obtained by legitimate commerce, it was necessary to take recourse to fictitious names to bank it. 19.In the face of this overwhelming circumstantial evidence therefore the inference that the money was sale proceeds of gold smuggled into India is unavoidable. As we have noted already, that it is the proceeds of gold brought into India is not in dispute. In the total absence of evidence to show that it was brought into India and subsequent conduct of various parties this inference is unavoidable. We make a distinction between making an inference on circumstantial evidence and holding that the case against Ambalal Soni is established because he is unable to prove the contrary. The line, though fine, still exists. Our conclusion is on the facts of this case and does not lay down any general propo....
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....r special permission of the Reserve Bank or the written permission of the person authorised in this behalf by the Reserve Bank, take or send out of India any Indian currency or foreign exchange other than foreign exchange obtained by him from an authorised dealer or from a money-changer." It is true that the foreign exchange in question has been obtained from an authorised dealer or money-changer. The object of the exclusion in the sub-section is clearer. It does not prohibit taking or send out foreign exchange which has been released by an authorised dealer or money-changer for legitimate purpose. That would defeat the very object of obtaining of the foreign exchange by the person concerned to make use of it abroad. However, if read literally, the clause would except sending out or taking out of currency that a person as obtained from an authorised dealer or money-changer by any means, legal or otherwise such as by theft or misrepresentation. Surely it cannot be argued that such a prohibition against taking out such foreign exchange excepts to such sums of money too. The object of exception must be construed having regard to the object for which it was provided and not in such ....
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....the bank, it pending payment acquiring pay order kept the money in a separate account. The money also acquired the character of the proceeds of sale of foreign exchange. That foreign exchange, as we have noted, was not "smuggled goods" when it was issued by the moneychanger. It only acquired this character only later when it was smuggled out. The moneychanger therefore could not obviously have any knowledge that the foreign exchange was "smuggled out". Therefore as proceeds of sale of that foreign exchange the money is not liable to confiscation under Section 121. We have to see, whether by acquiring its character as sale proceeds of foreign exchange the money has lost its identity as sale proceeds of smuggled gold sold by Ambalal Soni and his associates. 27.Section 120 of the Act provides that smuggled goods may be confiscated notwithstanding any change in their form. It further provides whether that smuggled goods are mixed with other goods in such manner that the smuggled goods cannot be separated from such other goods, the whole of the goods shall be liable for confiscation. There is an exception. Where the owner of such mixed goods proves that he has no knowledge or reason ....
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....estion that we are presently concerned with was not under consideration of the bench in that matter. The situation of facts also is considerably different. The bench has found evidence of awareness and illegal issue of foreign exchange on the part of the moneychanger or his agent. The situation before us is different. 30.Penalty has been imposed on the banks and their employees for their abetment in the acts of Ambalal Soni. The Commissioner has found that the employees of the bank, managers of the branches and their employees, were negligent in their performance of their duties. They did not follow the guidelines issued by the Reserve Bank of India. He has not accepted the plea made on behalf of the employees that they had no knowledge of the origin of the funds in the accounts or of the suspicious operation of the account. He has emphasised that the banks "ought to have been concerned in the operation of the benami accounts and heavy deposit of cash and immediate withdrawal in the form of pay orders in favour of the full-fledged moneychanger firms should have raised strong reason to believe the suspicious nature of the transactions. The Commissioner relies upon the statement o....
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....sioner was at liberty to refer the matter to the Reserve Bank of India or to take appropriate action. We do not find that any such reference was made on action taken. 33.No gold has been seized or confiscated. There is not the slightest allegation that the banks or their employees directly abetted or were even aware of the smuggling of gold of any kind. The abetment is alleged against them on the ground that if they had not permitted the proceeds of the sale of such smuggled gold to be banked, the smuggling of gold would not have risen to "alarming proportions". This is somewhat simplistic thinking. One might well argue that every person, who buys smuggled gold is abetted smuggling, if there were no market for the gold it would not be smuggled. Conversely, larger the market greater the amount of smuggling. We do not find it possible to conclude that if these banks had not done what they did, the smuggling of the gold would have come to a stop. After all, there are many ways to dispose of currency, or smuggle it out. The size of the black market in the country is a matter of common knowledge. The fact that there is considerable sale outside the normal banking channels of foreign ....
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...., the penalty cannot be imposed under Section 114 unless it can be shown that they by doing so, abetted the export of the currency. They would in turn require that they knew, or had good reason to believe, that the traveller's cheques which they issued were not be utilised for the purpose for which they were issued i.e., for business or personal travel, and would be sent abroad, and despite this issued such cheques. We are unable to find anything either in the show cause notice or in the order of the Commissioner that cites evidence to show the existence of such conducts. The Commissioner cites evidence from the statement of Firoz Batliwala that Nahalchand Lalloochand sometimes issued foreign exchange without verifying the air tickets of the passenger. From this bare sentence alone it is not possible to say that any of the cheques with which we are concerned was issued without proper verification or not or alleges that this was the case, the absence of such verification was deliberate for the reason that moneychanger consciously abetted smuggling of foreign exchange. The fact that Mukesh Himatlal of the firm agreed to pay Firoz Batliwala commission, no doubt in turn for steering ap....