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2013 (4) TMI 1021
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.... for short), obtained the approval of the Reserve Bank of India (RBI, for short) for establishing a foreign concern in the United States of America (the USA, for short) in the field of animation software. The Company invested US $ 1,75,000 through two installments in August, 1999. The Company however did not follow Regulation 15(iii) of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 (the Regulations, 2000, for short) vide Notification No. FEMA 19/RB-2000, dated 03-5-2000, as it failed to submit Annual Performance Report (APR, for short). The Company also failed to furnish the information called for under Section 37 of the Foreign Exchange Management Act, 1999 (FEMA, for short) read with Section 131(1A) of the Income Tax Act, 1961, by failing to furnish information and details such as copies of the Audited Annual Accounts, APRs, copies of the Share Certificates and other documents in evidence of investment in foreign equity together with the details of dividend and royalty. 2. The Company responded to the Notice dated 27-02-2003 through reply dated 30-6-2004 that the Company obtained approval from the RBI on 02-02-1999 for investment of ....
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.... the Deputy Director imposed a penalty of Rs. 30,00,000/- upon the Company and Rs. 20,00,000/- upon the Managing Director of the Company. Aggrieved by the same, the Company preferred Appeal No. 124 of 2006 before the Appellate Tribunal whereas the Managing Director preferred Appeal No. 125 of 2006. After considering the respective claims, the Appellate Tribunal dismissed the appeals. Hence, the present civil miscellaneous second appeals. 6. The point for consideration is whether the Company and the Managing Director are liable for imposition of penalty, and if so at what rate ? 7. Sri S. Ashok Anand Kumar, learned counsel for the appellants, contended that there was no violation, much less intentional violation on the part of the Company and the Managing Director, so much so, neither of them is liable for prosecution and imposition of penalty. 8. Sri P.S.P. Suresh Kumar, learned counsel representing the Enforcement Directorate (respondents 2 and 3 herein), on the other hand, submitted that the appellants did not submit the APRs within the statutory period and never submitted the audited accounts and that the appellants consequently are liable to pay penalty under Section 1....
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....igation Co. Ltd. AIR 1961 SC 1633 (1), a question arose as to the maintainability of an appeal under Section 66(1) of the Income Tax Act, 1922. The majority considered a four-fold circumstance. The Supreme Court held that when a question is raised before the Appellate Tribunal and is answered by the Appellate Tribunal and a question is raised before the Appellate Tribunal but is not answered by the Appellate Tribunal, such question shall be considered to be points arising out of the order of the Appellate Tribunal. While the Supreme Court further observed that if a question is not raised before the Appellate Tribunal but is answered by the Appellate Tribunal, such a question shall be treated as a question arising out of the order of the Appellate Tribunal; the Supreme Court further held that if a question is neither raised nor answered by the Appellate Tribunal, it would not be considered to be a question arising from the order. 17. The learned counsel for the appellants contended that the issue relating to the violation of the Regulations is indeed considered by the Primary Authority as well as the Appellate Tribunal and that the question relating to the violation of the Regula....
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....of Income Tax, Bombay AIR 1969 SC 460, in an appeal arising under Sections 66(1) and 66(2) of the Income Tax Act, 1922, the Supreme Court elaborately considered the limits under Section 66 of the Income Tax Act, 1922; in the process of which, the Supreme Court also considered the meaning of question of law. The Supreme Court held that the conclusions of fact arrived at by the Tribunal or the Appellate Tribunal can be challenged on the ground that they are not supported by legal evidence or on the ground that the conclusions are perverse and that the High Court cannot otherwise go into the conclusions of fact arrived at by the Tribunal while exercising its powers under Section 66 of the Income Tax Act, 1922. Admittedly, Section 66 of the Income Tax Act, 1922, is pari materia Section 35, FEMA, insofar as it relates to the jurisdiction of the High Court. 20. In J.K. Baruah v. Commissioner of Income Tax, Assam [1984] 146 ITR 341, a Division Bench of the Gauhati High Court held: If the Tribunal ignores or excludes admissible and relevant evidence and takes into consideration material irrelevant to the inquiry or considers material which is irrelevant to the inquiry, then thi....
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....e appellants violated the terms of Regulation 15(iii) of the Regulations, 2000, under FEMA. Inter alia, the learned counsel for the appellants contended that there was no violation of the Regulations by the appellants and that in fact, Regulation 15(iii) under FEMA is not a statutory Regulation, so much so, the violation of the same cannot attract penal consequences. 24. Section 47 of the FEMA empowers the RBI to make Regulations under the FEMA. The Regulations in question were made in exercise of the powers under Section 47 of the FEMA as well as under Section 6(3)(a) of the FEMA. Consequently, these Regulations have statutory force. The contention of the learned counsel for the appellants that the Regulations, 2000 are not statutory Regulations and are directory but not mandatory, therefore, cannot be accepted. The consequent contention of the appellants that the violation of Regulation 15(iii) of the Regulations, 2000 does not attract penal consequences also cannot be sustained. 25. In the Show Cause Notice dated 18-02-2005 issued by the Deputy Director of Enforcement, it was alleged that the approval of the RBI for setting up a foreign concern in the USA involving equity ....
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....ccounts audited. The copy of the APR's filed with RBI, Hyderabad up to 31st March 2003 were enclosed. The explanation further claimed in para 9: The local regulations for LLC's (Limited Liability Company) in US exempts the company from the conduct of regular meetings, annual general meetings, auditing of accounts etc. (The write downloaded from the Website is enclosed duly highlighted the relevant para). 28. The learned counsel for the appellants contended that in the light of detailed explanation, the appellants cannot be considered to have violated Regulation 15(iii) of the Regulations, 2000 and that the appellants are not liable for levy of any penalty. It is contended by the appellants that it must be shown by the respondents 2 and 3 that the appellants contravened the provisions of the Regulations, 2000 and that there should be an adjudication of the contravention. Section 16, FEMA, deals with the adjudication by the Primary Authority while Section 28, FEMA, provides for the procedure and powers of the Appellate Tribunal. The main case of the appellants is that the host country did not provide for compulsory audit of the accounts of the Limited Companies....
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....nd loss account together with the Directors' Report on the working of the Overseas Foreign Concern during the year and also APRs. The only contingency is that the concerned documents ought to be submitted within 30 days after the expiry of the statutory period for the finalization of the audited annual accounts as applicable in the host country and in the absence of such a period for the host country, within 6 months from the date of the closure of the relevant accounting period of the foreign concern. As there is no provision of compulsory auditing of the accounts of the foreign concern, the appellants should have submitted the documents within 6 months from the date of the closure of the accounting period for the host country. It is not open for the appellants to now claim that the 30 days time as mentioned has become irrelevant, that such a contingent event did not take place, that the condition has not been fulfilled and that there is no obligation on the part of the appellants to submit the documents envisaged by Clause (6) of the Sanction Letter. It is not as though the appellants were not aware about their obligation. The appellants in fact submitted APRs from 2000 to 20....
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....es for every day after the first day during which the contravention continues. (2) .... Explanation.-- For the purposes of this subsection, "property" in respect of which contravention has taken place, shall include-- (a) deposits in a bank, where the said property is converted into such deposits; (b) Indian currency, where the said property is converted into that currency; and (c) Any other property which has resulted out of the conversion of that property. 33. The contravention of the provisions of the FEMA, the Rules or the Regulations attracts penalty which may extend up to thrice the sum involved in the contravention if the amount can be quantified and up to Rs. 2,00,000/- if the amount covered by the contravention cannot be quantified and a further penalty up to an extent of Rs. 5,000/- for each day's contravention. Regarding the penalty, as an alternative relief, the learned counsel for the appellants contended that the contravention in this case is not quantifiable and that the appellants consequently can be penalised to a maximum extent of Rs. 2,00,000/-. 34. In Hindustan Steel Ltd. v. State of Orissa 1969 (2) SCC 627,....
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....on 15(iii) of the Regulations, 2000, as well as Clause (6) of the Sanction Letter are mandatory. The failure to comply with them certainly attracts penal consequences under Section 13 of the FEMA. The question consequently is as to the quantum of penalty leviable against the two appellants. 37. The Primary Authority imposed penalty of Rs. 30,00,000/- against the Company and Rs. 20,00,000/- against the Managing Director of the Company. I may assume for the purpose of quantifying the penalty that the contravention cannot be quantified. The penalty in such a circumstance is not more than Rs. 2,00,000/-. The rider however is that the contravener is liable to penalty up to an extent of Rs. 5,000/- for each day's contravention. While the Sanction Letter was issued on 02-02-1999, the Company would appear to have utilised the sanction in 1999 itself. Right from the beginning of 2000, the non-filing of the statements and returns envisaged by Clause (6) of the Sanction Letter is a violation attracting penalty of not more than Rs. 5,000/- per each day. Even if the penalty is worked out at Rs. 2,00,000/- and penalty at the rate of Rs. 5,000/- per day is added to the same, it would be mu....