Amritraj S. Punamiya, Huf vs Ito, Ward 24(15)

ORDER D.C. Agarwal, A.M.

1. In this appeal the assessee has raised the following grounds:

"1. One the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition of Rs. 2,57,000 made by the assessing officer to the total income of your Appellant in respect of credit to this capital account invoking the provisions of section 68 of the Income Tax Act, 1961.

2. The lower authorities failed to appreciate that your Appellant has satisfactorily explained the nature and source of the credit in his capital account out of foreign remittance under the Remittance in Foreign Exchange (Immunities) Scheme, 1991 and therefore, the recipient is eligible for the immunities granted under the said Act."

2. The main grievance of the assessee is that the assessing officer has not granted immunity to him under Foreign Exchange Immunity Scheme 1991 and has added the sum of Rs. 2,57,000 as his income under section 68 of the Income Tax Act. The facts of the case are described by the assessing officer in his order passed under section 143(3) read with section 147 of the Act. In brief assessee claimed before the assessing officer that it received a remittance of Rs. 2,57,000 from NRE A/c of one Shri Vinod Goel on or about 1-1-1992. The said receipt was credited in his saving bank A/c. No. 21999 of Dena Bank, Parel, on account of realisation of DD No. 734768 dated 1-1-1992 issued by ANZ Grindlays Bank, 90, M.G. Road, Mumbai branch. The money was transferred from NRE saving bank A/c No. OIS/BP/23639/00 of Mr. Vinod Goel/Ms. Ciril Goel. The assessee claimed immunity before him under "Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds" (Immunities and Exemptions) Act, 1991 (Act No. 41 of 1991) and contended that no enquiries can be made for nature, source and purpose of the remittances received under said scheme. In support of his claim orders from FER Appellate Board were filed. The assessing officer, however, did not accept the contention of the assessee on the ground that FERA authorities had conducted searches at the premises of Vinod Goel and his associated five parties, viz., Sanjeev Goel, Thomas Cook (I) Ltd., and their officers, Shri Deepak Malwani, C.A., Shri Rajnesh Parmar and M/s. ANZ Grindlays bank and its officers. They had found that huge sum of Rs. 9,26,42,399 was deposited in NRE A/c of Vinod Goel as per enquiries carried by RBI. The FERA authorities issued notices to Shri Vinod Goel and blocked his NRE A/c. Shri Vinod Goel challenged the said blocking of his A/c through writ petition which and revision petition was dismissed. In their order in Revision Petition Honourable Bombay High Court held that the claim of Vinod Goel brought foreign exchange in India and deposited in NRE account was not acceptable because he did not obtain Currency Declaration Form for the foreign currency in access of US $ 10,000, which he allegedly brought in India as per requirement under FERA. Based on this finding their lordship further held that neither the petitioner (Vinod Goel) nor any person claiming to be recipient from his enjoy any immunity. Further a person receiving foreign exchange from his NRE account cannot be covered by definition of "recipient" and cannot thus enjoy immunity. The assessing officer did not place any reliance on the order from FER Appellate Board given in 37 such recipients because assessees case was not covered in the said order and the same is not final. The said orders only remanded cases back to the assessing officer of the ED to be redone in the light of observation made in that order. Thus the assessing officer treated the said sum of Rs. 2,57,000 undisclosed income of the assessee and taxed it under section 68. In appeal, the CIT(A) confirmed the order of the assessing officer by observing as under :

"4. I have carefully considered the submissions made by the learned counsel for the appellant, the legal position in the matter and the facts available on record. I do not find any force in the arguments put forth on behalf of the appellant. The assessing officer has relied on the order of the Hon. Bombay High Court passed on 14-2-1996, which is a recent one. He has also considered in detail the submission made by the appellant vide his letter dated 30-8-1999. I agree with the finding of the assessing officer that the order passed by the FERA Board is not applicable to the facts of the appellants case. In fact, the appellant was also a part of the Foreign Exchange Racket, which was unearthed by the Enforcement Directorate, Mumbai. The Enforcement Authorities discovered that one Shri Sanjiv Goel holding power of Attorney to operate the NRE account of Shri Vinod Goel, a Canadian citizen was operating the said account by flouting the various provisions of FERA. The large amount of foreign currencies were purchased from the local market and credited to the NRE account of Shri Vinod Goel, through M/s. Thomas Cook. These amounts were then, utilised for issuing chequcs to the various persons as gifts under the Immunity Scheme, 1991, after charging the beneficiaries the amount of NRE cheques plus the premium. Shri Sanjiv Goel admitted before the Enforcement Authorities that the said NRI account was being misused for issuing bogus cheques.

5. The assessing officer has passed a well reasoned and a speaking order. He has discussed all aspects of the case. The submissions made by the appellant before him has been duly considered by him.

6. Having regard to the facts and circumstances stated above, I hold that the provisions of section 68 are applicable to the facts of the present case and accordingly, the addition of Rs. 2,57,000 made to the total income of the appellant by the assessing officer is hereby confirmed."

3. Before us the learned counsel of the assessee submitted that the assessment of the assessee was originally completed under section 143(1). Later the assessment was reopened on 22-12-1997 under section 148. The said sum of Rs. 2,57,000 was received by the assessee in foreign exchange. The FERA authorities have not taken any action against assessee for violation of the FER Act, which means that the assessee has not committed any offence and his transactions from Vinod Goel were, therefore, in order. The assessee has filed a declaration with the assessing officer, which is placed at page No. 5 of his Paper Book. This declaration was accepted by Dena Bank, Parel Branch, who were the authorised dealer. They have accepted the declaration by endorsing "issued under the Remittances in Foreign Exchange (Immunities) Scheme, 1991 (not valid for refund reconversion purpose)". The Assistant Director, ED has given finding on identical facts in the case of one Smt. Meenu Agrawal. According to the Asstt. Director, it is not permissible for the investigating officer to investigate or enquire into the matter of the receipt of that remittance or for the adjudicating officer to adjudicate any transaction on the fact of receipt of such remittances even in all those cases where gift cheques were received and the recipient thereof has been granted immunity. According to learned AR Smt. Meenu Agrawal obtained a NRI gift cheque for a sum of Rs. 2,57,200 during January, 1992 from the A/c of Shri Vinod Goel and Mrs. Cirilla Goel for which a sum of Rs. 2,82,920 was paid to Shri Sanjeev Goel on behalf of Shri Vinod Goel, Smt. Meenu Agrawal claimed immunity under FERA Exchange Immunity Act. It was on this plea the Asstt. Director recorded finding that investigation cannot be done. Learned AR for the assessee further submitted that in the case of Ramesh C. Mehta v. Director of Enforcement (1999) 104 Taxman 421 (Bom), (FERAB) decided by Foreign Exchange Regulation Appellate Board that no enquiry was done against Sanjeev Goel (who used to collect Indian rupees, as alleged, and the money deposited worth Rs. 10.08 crores was not charged for violation of FERA). Then cheques issued and credited to NRE A/c would have to be treated as valid. According to the learned counsel his assessee has also obtained cheques from the NRE A/c of Vinod Goel and, therefore, as are in Ramesh C. Mehtas case (supra), the credit into the A/c of assessee from NRE A/c should be treated as valid. In particular, learned counsel referred to para 25 of the above order [Ramesh C. Mehtas case (supra)]. The FER Appellate Board held that the remittances contemplated for the immunities is the remittance to a recipient from a NRE A/c and not the remittances into the NRE A/c. From this learned counsel inferred that remittances from NRE A/c of Vinod Goel to his client should get immunity. In brief, the learned counsel emphasized that similarly placed persons like Smt. Meenu Agrawal and Shri R.C. Mehta have been given immunity by the FERA Appellate Board. In view of this the assessee is also entitled for immunity. The learned counsel then referred to sections 3 and 4 of the Remittance of Foreign Exchange Immunity Act, 1991 to highlight the point that such remittances cannot be questioned under Income Tax Act.

4. On the other hand learned departmental Representative from the department relied on the order of the authorities below. In particular, he emphasised on the order of Bombay High Court given in Vinod Goels case wherein it was held that any person receiving foreign exchange from Shri Vinod Goel cannot be covered by the definition of recipient and cannot thus be held to enjoy any immunity.

5. We have heard rival submissions and considered the material placed on record. Question involved in short is whether the assessee is entitled to immunity under Foreign Exchange Remittance Scheme, 1991 and if not, whether the deposit of Rs. 2,57,000 in his Dena bank A/c can be said to be otherwise satisfactorily explained. To resolve this issue it is necessary to deal with the case of Shri Vinod Goel (supra) in detail. The facts of the case of Shri Vinod Goel from whose NRE A/c the assessee had obtained a remittance of Rs. 2,57,000 as per the Bombay High Courts order (supra) are as under :

6. Shri Vinod Goel is a Canadian citizen and holding Canadian passport. According to him he had foreign currency in excess of declaration limit and while coming to India he encountered huge rush at the customs. He did not tender the currency declaration form before the custom authorities. Therefore, such foreign currency was brought by him into India without submitting necessary declaration form. After coming to India he intended to encash the foreign currency. He was advised to contact Thomas Cook India Ltd., whose main business was money changing. Shri Vinod Goel on several such visits to India encashed foreign currencies and deposited the encashment proceeds into his NRE A/c on the strength of encashment certificates and cheques issued by Thomas cook in favour of assessees NRE A/c. Shri Vinod Goel considered that he would get immunity under Foreign Exchange Remittance Act and because of that his relatives and friends who had requested him to gift money out of amounts standing in his NRE A/c would also get immunity as the same is exempted under Gift Tax Act. Thereafter, the FERA authorities on the basis of informations received from RBI blocked the accounts of Vinod Goel and also carried out searches at the premises of Vinod Goel and other associates including Thomas Cook and ANZ Grindlays bank who were considered party to the racket. The blocking of the bank A/cs were challenged before Bombay High Court in review Petition No. 22 of 1995 in writ petition No. 647 of 1995 and Appeal No. 729 of 1995 in writ petition No. 1537 of 1995. The Govt. of India through Dr. B.Y. Chandrachud for RBI, one of the respondents, submitted before the court that as far as petitioner Vinod Goel was concerned investigations so far carried out showed that the story put up by the petitioner (Vinod Goel) in the petition is totally false that he had, in fact, during the period November 1991 to March 1992, through his CA, illegally purchased foreign currency Worth Rs. 10 crores approximately from local market and encashed the same through Thomas Cook India Ltd., Bombay as per the arrangements made by the petitioner with Thomas Cook and on the basis of authority letter given by the petitioner to the said CA in fictitious name, viz., "V. Goel", that said CA had signed the encashment certificate as V. Goel and Thomas Cook issued cheques against the encashment of the above illegally purchased foreign currencies, that the proceeds of the above cheques were deposited into NRE A/c No. BP 2365900 of the petitioner jointly held by him with his wife with ANZ Grindlays Bank. Further investigations revealed that draft in favour of SBI was issued by ANZ Grindlays bank from the said bank A/c for purchase of India Development Bonds and for other purposes.

7. After considering the arguments of the RBI counsel and the counsel of the petitioner, honourable Bombay High Court dismissed the review petition and observed that (as per para 5 page 18) that :

"1. (Para 5) ... In view of the above, we do not see any substance in the Review Petition. In our opinion, the show-cause notices issued do not leave out any area and cover the entire matter and also the action of Respondent No. 3 cannot be faulted. Although Mr. Chinai as well as Dr. Chandrachud and Mr. Shah addressed us on the factual aspect of the matter, we now purposely restraining ourselves from expressing any final opinion as it might affect pending adjudication of six show-cause notices. However, prima facie it appears to us that the story put up by the petitioner as to his coming in the country carrying foreign currency, the particulars whereof, the learned counsel Mr. Chinai was hesitant to (not legible), and not approaching the customs counter is not found believable by us. The very idea of not giving particulars of currency, which according to, the petitioner he had brought in this country is obviously not to jeopardise his possible defences. The petitioner had obviously chosen to suppress all material facts from this court and has sought discretionary reliefs under writ jurisdiction of the court. Yet we say that the above observation regarding the story of the petitioner being unbelievable in only a prima facie observation and should not be taken into consideration at the time of adjudication. (From para 6, page 19)

2. (para 6) ... Section 2(a) of the Immunities Act defines the word ,recipient and says that this would mean a person as defined in clause 31 of section 2 of the Income Tax Act, 1961 who received any remittance under this chapter and coming to definition of remittance giving in the section 2(b) pointed out that foreign exchange brought inside the country in the manner done by the petitioner could also be covered by the definition of remittance. We are, however, unable to agree with Mr. Chinai. The definition of recipient refers to a person receiving any remittance under Chapter 2 of the said Immunities Act. However, remittance as defined in section 2(b) means remittance made in foreign exchange by any person resident outside India to a person resident in India in the form of drafts, cheques drawn on banks situated outside India, etc. The said definition in our opinion does not cover a situation which .... (not legible) that a foreign citizen entering the country with foreign currency choosing not to declare the same and depositing the same in NRE A/c. (page 2 1) ......

3. In our opinion there is no question of either the petitioner or any person claiming to be recipient from his (Vinod Goel enjoying and immunity). Thus a person allegedly (not legible) received the foreign exchange from his NRE A/c cannot be covered by the definition of the recipient and cannot thus be held to enjoy any immunity."

8. Thus the story of Vinod Goel that he brought foreign exchange into India though without declaration form, was not believed by Honourable Bombay High Court.

9. Section 2(a) and 2(b) of Remittance of Foreign Exchange Immunities Act, 1995 defines "recipient" and "remittance" as under :

(a) "recipient" means a person as defined in clause (31) of section 2 of the Income Tax Act, 1961 (43 of 1961), who receives any remittance under this Chapter :

(b) "remittance" means remittance made in foreign exchange by any person resident outside India to a person resident in India or after the date of commencement of this Act but before the specified date, in the form of drafts, travellers cheques, cheques drawn on banks situated outside India, telegraphic transfers, mail transfers, money orders, or by way of transfer from Non-resident (External) Account. Foreign Currency Non-resident Account or Foreign Currency Nonresident Special Deposit Account maintained in India under the rules made under the Foreign Exchange Regulation Act, 1973 (46 of 1973).

10. Thus remittance entitled for immunity would be the one, which is made in foreign exchange by a person outside India to a person in India or a transfer from NRE account. The assessee has claimed to have received remittance from NRE account of Vinod Goel and according to him what he has received from NRE account is remittance within the meaning of section 2(b) of the "Immunities Act" and he should be entitled for immunity under Income Tax Act also because section 4 of Immunities Act prohibits any enquiry under Income Tax Act for the purpose of any proceedings there under. We are not convinced so long as deposits made by Shri Vinod Goel in his account remained questionable. Honourable Bombay High Court has clearly said that Shri Vinod Goel or any person claiming to be recipient from him cannot enjoy immunity.

11. So far as decisions of Foreign Exchange Regulation Appellate Board are concerned on which learned counsel has placed heavy reliance, we are of the view that they will not create any binding precedence in the case of persons other than persons in whose case the decision was given by the Board. Thus above decision would be a decision in persona and not a decision in rem which would be applicable to all persons at large. Firstly there is no evidence on record whether the decision of Bombay High Court in review petition has been reversed and secondly it does not seem that the Appellate Board has considered the observations made by the honourable Bombay High Court in Vinod Goels case (supra) stated above as to whether Vinod Goel or any other person receiving remittance from him would not be entitled for immunity.

12. It is clear from the definition of remittance that two types of persons are entitled for immunity. One is who is receiving money from abroad in this NRE Account. The other is who is receiving money from his NRE account. In the present case, the assessee has received money from NRE account of Mr. Vinod Goel. If Vinod Goel gets immunity then consequently assessee will also get immunity under that Act. Therefore it becomes necessary to enquire as to whether the finding of Bombay High Court in the case of Shri Vinod Goel in the above Review Petition has become final or not. If these findings as quoted above in his order are final and Vinod Goel has not got any immunity from FERA authorities, then certainlv assessee also will not get such immunity. Therefore, the amount claimed to have been received by him from NRE account of Vinod Goel will be taxable under section 68 or 69 as the case may be. But where courts have accepted immunity in the case of Vinod Goel then question of taxing the sum received from the NRE account of Vinod Goel by the assessee would not arise. Therefore, the issue is set-aside into the file of CIT(A) to enquire into the following aspects :

(i) Whether the finding of honourable Bombay High Court in the order given in review petition as per numbers given in this order have become final or have been reversed in favour of Shri Vinod Goel.

(ii) In case the findings of the honourable Bombay High Court are final, then whether additions of the impugned sum can be made under section 68 or 69.

(iii) Notwithstanding any immunity, whether assessee can explain otherwise the sum credited in his books under section 68 or credited in his bank account under section 69.

13. The CIT(A) will consider the above aspects and decide the issue afresh. The matter is restored to his file to consider, the above issue. The appeal of the assessee is, therefore, allowed for statistical purposes.