Case Law Details
PC Financial Services Private Ltd Vs Directorate of Enforcement & Anr. (Delhi High Court)
Conclusion: The allegation of Bogus import of service through the Cash Bean app which was contravention in the Foreign Exchange Management Act,1999 must be based on the ‘reason to believe’ having certain tangible material and should be reasonable and not be arbitrary or whimsical, at the same time, the Court in the exercise of its powers under Article 226 of the Constitution of India could not act as an Appellate Authority and substitute its own opinion for that of the Competent Authority. The allegations of the respondents and the defense of assessee would need to be tested by the Adjudicatory Authority.
Held: Assessee-company was engaged in the business of providing unsecured short-term loans to its customers/borrowers in India via its Digital Application based platform called the ‘CashBean‟. The CashBean application had 60.3 million users, and 39.2 million registered customers, out of which only 3.75 million unique customers were selected after an assessment of creditworthiness for the loan. Assessee-company had engaged a Hong Kong based Company, namely Hong Kong Fintango Limited for procurement of an IP licence and had entered into a Software Licence Agreement with it for providing IP and Digital Lending Software Licence, that is, the CashBean App to assessee for the Indian digital micro-lending market. It was contended that Mobimagic was the original developer of the CashBean software, which was subsequently transferred by it to HK Fintango on 26.09.2019. Post such transfer, HK Fintango had been awarded with the new Software Copyright Certificate for the same. Assessee stated that for the business of assessee, HK Fintango had granted access to its Software App in a source code format and technical support had been received from Mobimagic; management and other support had been received from another related party entity, namely, Ten Spot Pesa Limited. Assessee claimed that for the above transactions, assessee had maintained Transfer Pricing Documentation required under Rule 10D of the Income Tax Rules, 1962 read with Section 92D of the Income Tax Act, 1961, and proper forms had been filed with the Income Tax Authorities. Assessee claimed to have also deducted the Tax at Source for payments made to these Companies and as having greatly contributed to the tax base of the country. Respondent alleged that assessee had made foreign remittances equivalent to Rs.429,29,65,295.87/- to different foreign companies under the guise of payments against the bogus import of services and that these amounts were held outside India by the related foreign companies of assessee. It was alleged that assessee had, therefore, contravened Section 4 of the Foreign Exchange Management Act, 1999 and an equivalent value of the property was liable to be seized from assessee in India. It was held that the Impugned Order was to be based merely on ‘reason to believe’ that any foreign exchange situated outside India was suspected to have been held in contravention of Section 4 of the Act by the person against whom the order under Section 37A of the Act was being passed. At the stage of passing the order under Section 37A(3), the Competent Authority was not to arrive at a conclusive finding on the above. Though it might be true that the ‘reason to believe’ must also be based on certain tangible material and should be reasonable and not be arbitrary or whimsical, at the same time, the Court in the exercise of its powers under Article 226 of the Constitution of India could not act as an appellate authority and substitute its own opinion for that of the Competent Authority. Therefore, assessee had been unable to make out such a case which would warrant an interference of this Court with the Impugned Order. The allegations of the respondents and the defence of assessee would need to be tested by the Adjudicatory Authority. On facts, it could not be said that the action of the respondents was ultra vires the Act or so whimsical as to warrant an interference of this Court at this stage, when the proceedings were pending before the Adjudicatory Authority. This Court was also cognizant of the fact that pursuant to the Impugned Order, the respondents had also filed a complaint before the Adjudicating Authority. This Court had been informed that substantial hearings had already taken place before the Adjudicating Authority on such complaint, and the same was likely to be disposed of in near future.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This petition has been filed by the petitioner praying for the following reliefs: –
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