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2022 (6) TMI 1191 - AT - Income TaxPenalty u/s 43 of the Black Money (Undisclosed Foreign Income Assets) and Imposition of Tax Act 2015 (hereinafter referred to as the BMA ) - non-disclosure of a foreign asset in the income tax return - HELD THAT - The assessee is a high net worth individual (HNI) with aggregate payment of taxes around Rs 2, 350.66 crores in the last seven years by her her husband and the private limited company she chairs- as noted by the Assessing Officer himself at page 8 of the impugned penalty order and when seen in the light of this financial position the amount held in the alleged undisclosed foreign bank account is a small if not trivial amount of UK 2, 34, 710 and that it is not by any stretch of logic or imagination a case of siphoning unaccounted wealth in India to the undisclosed bank accounts abroad. It is also important to bear in mind the fact that there is a categorical finding by the first appellate authority that even though the assessed may have been technically a signatory of the undisclosed foreign bank account her and her husband s conduct all along has unequivocally established complete detachment with the said asset so far as any personal interest is concerned- a typical hallmark of someone holding an asset in a fiduciary capacity and in trust. When the beneficial owner of the said bank account i.e. her late mother passed away she and her husband simply donated money to a well-known charity of global repute as was the wish of the departed soul. All the thirty years that she was the technical owner of this legacy left behind by her father which was for the benefit of her mother she simply did not touch the money- did not take a penny or add a penny. It is a somewhat rare situation with touching reverence almost to a fault to the wish of the assessee s late father that the money was kept intact for the benefit of the assessee s mother which mother never used and then donated it within weeks of her mother s death to a charity of her late mothers choice and a charity which has earned the prestigious Noble Peace Prize in 1999 for its humanitarian work. The degree of reverence for the feelings of the parents as unambiguously shown by the mother is undisputed. With this kind of detachment and truly dealing with this as trust money in letter and in spirit her belief that she was not required to disclose it as her bank account cannot be said to be lacking bonafides. While the amount held in the said account is donated to the charity the entire tax liabilities in respect of the same have been paid by the legal representative of Dr Pramila Gandhi and the matter has attained finality as such. It is also important to bear in mind the fact that the uncontroverted stand of the assessee is that the assessee as also her husband were signatories because Dr Pramila Gandhi was having health issues and was not in a position to travel. It was more of being a signatory for the operation of the bank account rather than holding the bank account even in a fiduciary capacity and as such the assessee s belief that she was not required to disclose this bank account cannot be said to be lacking bonafides. The scheme of penalty is of such a that essentially it does not cover the cases in which the lapses have occurred on account of good and sufficient reasons. A lapse per se cannot be reason enough to punish anyone and the controversy if at all is about as to who has the onus of demonstrating the bonafides of such cases- the assessee or the revenue authorities but once there is a clear finding of bonafides in conduct irrespective of whether such conduct is lawful or not the penalty is not impossible- unless of course the penalty is statutorily simply an automatic consequence in cause and effect relationship. That s certainly not the case here. The very fact that the Assessing Officer has the discretion to impose a penalty puts him under a corresponding obligation to exercise the said discretion with proper regard to the facts and circumstances of the case in a holistic manner and in totality. The total amount involved in the undisclosed foreign account is UK 2, 34, 710 (equivalent to Rs 2, 16, 58, 946 at the relevant point of time of assessing the said amount) which is relatively small considering the tax exposure of the assessee as discussed earlier. The money in the said account did not belong to the assessee was never used by the assessee and is part of the legacy left behind by her father in 1986- and this position is duly accepted by the revenue authorities. Not a rupee out of that bank account is held to be belonging to the assessee and the entire money has been brought to tax in the hands of the assessee s late mother. Even before the bank account was detected by the revenue authorities the entire balance in the said account as per instruction of the assessee s late mother has been donated to a bonafide charity of the global repute. In these circumstances the plea that such a lapse of non-disclosure even if that be so is only an inadvertent mistake and that conscious non-disclosure or any mens rea in the non-disclosure is completely contrary to human probabilities does merit acceptance. No reasonable person would consciously or deliberately withhold disclosure about this foreign bank account for an ulterior motive from the tax authorities and in any case admittedly the money does not belong to the assessee- as is the position accepted by the Assessing Officer himself. Viewed thus on merits of assessee s conduct it was not a fit case for the imposition of impugned penalty. It is also not a case of siphoning of unaccounted Indian wealth to the undisclosed foreign bank accounts prevention of which was the noble cause for which the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 was enacted immediately upon the present Government coming to the power. Such well-intended stringent legislation as the BMA enacted for the larger causes of public good and to check tax evaders cannot be so interpreted as to cause undue hardship to the citizenry for such harmless technical or venial breaches of the law. Thus it was not a fit case for invoking the penal provisions under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 even if it was lawful for the Assessing Officer to do so. In view of these twin reasons also the conclusions arrived at by the learned CIT(A) cannot be faulted. As we hold so we may add that there are consequences for the lack of appropriate disclosure in the income tax return and these consequences are provided under the Income Tax Act 1961 and our observations hereinabove must not come in the way of those proceedings under the Income Tax Act 1961.
Issues Involved:
1. Validity of penalty under Section 43 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 (BMA). 2. Non-disclosure of a foreign bank account in the income tax returns. 3. Application of the BMA and its retrospective effect. 4. Bonafide conduct of the assessee. 5. Discretionary power of the Assessing Officer in imposing penalties. Detailed Analysis: 1. Validity of Penalty under Section 43 of the BMA: The appeal concerns the correctness of the penalty imposed under Section 43 of the BMA for the assessment year 2017-18. The Assessing Officer argued that the penalty must be imposed for the non-disclosure of a foreign bank account in the income tax returns, irrespective of the non-taxability of the amount or the bonafide conduct of the assessee. The Tribunal noted that the penalty under Section 43 is triggered by the non-disclosure of a foreign asset in the income tax return, but the penalty is discretionary, as indicated by the use of the word "may" in the statute. 2. Non-Disclosure of a Foreign Bank Account: The assessee, a prominent businessperson, was a signatory to a foreign bank account which was not disclosed in the returns filed under Section 139 but was disclosed in the returns filed under Section 153A. The Tribunal observed that the return filed under Section 153A replaces the original return filed under Section 139(1), as per the jurisdictional High Court's ruling in the case of JSW Steel Limited. Therefore, the non-disclosure in the original return cannot be a ground for penalty if the disclosure was made in the return filed under Section 153A. 3. Application of the BMA and its Retrospective Effect: The BMA came into force on 1st April 2016, and the first assessment year in question is 2017-18. The Tribunal noted that the non-disclosure for the earlier assessment years, which were prior to the BMA coming into force, cannot be a basis for penalty under Section 43 of the BMA. The penalty is applicable only for the non-disclosure of foreign assets in returns filed after the BMA came into effect. 4. Bonafide Conduct of the Assessee: The Tribunal emphasized the bonafide conduct of the assessee, who held the foreign bank account in a fiduciary capacity for her late mother and did not use the money for personal gain. The entire amount in the account was donated to a charity, and the tax liabilities were paid by the legal representative of the late mother. The Tribunal found that the assessee's belief that she was not required to disclose the account was bonafide, and there was no mens rea or deliberate intention to evade tax. 5. Discretionary Power of the Assessing Officer: The Tribunal highlighted that the penalty under Section 43 is discretionary and should be imposed judiciously. The Assessing Officer must consider the overall conduct of the assessee and the materiality of the lapse. The Tribunal referred to the Supreme Court's judgment in Hindustan Steel Ltd Vs The State of Orissa, which states that penalty should not be imposed unless the conduct is contumacious or dishonest. The Tribunal concluded that the assessee's conduct did not warrant the imposition of a penalty under Section 43 of the BMA. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the penalty, noting that the assessee's conduct was bonafide and the non-disclosure was a venial breach. The Tribunal emphasized that the BMA's stringent provisions should not be applied to cases of harmless technical breaches and that the Assessing Officer's discretion must be exercised judiciously. The appeal was dismissed, and the penalty under Section 43 of the BMA was not upheld.
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