2024 (11) TMI 1437 - AT - Income Tax

Levy of penalty u/s 43 of the Black money Act - non-reporting of assets/bank account/investment in schedule FA of the income tax return filed for the respective assessment years by the assessee - HELD THAT - Admittedly assessee did not disclose his foreign asset in particular Schedule i.e. Schedule FA though the same was duly disclosed in the Schedule AL in the item shares and securities in the Income tax return. Assessee had offered perquisite value of the foreign asset i.e. ESOPs in his return of income which was subjected to tax by way of TDS. Further in the course of impugned proceedings assessee had offered all the details and explanations corroborated with documentary evidences in respect of foreign asset. Also for Assessment Years 2020-21 and 2021-22 assessee had filed updated return u/s.139(8A) of the IT Act duly disclosing the details of foreign asset in Schedule FA. We also take note of the provisions of section 43 of the Act as well as the preamble to the said Act to understand the discretionary power vested with the AO for imposition of penalty vis- -vis object sought to be achieved keeping in mind the legislative intent. The purpose of reporting requirement of foreign assets/income in Schedule FA of the Income tax return is for tracking and monitoring the investments held abroad by the residents of India. Preamble to the Act describes its objective to deal with problem of black money i.e. undisclosed foreign income and assets. The said Act must not be invoked for punishing a technical /venial /bonafide breach of any statutory obligation and therefore bonafide actions of the tax payers must be excluded from the application of provisions of this stringent legislation. We draw our force from the decision of Hindustan Steel Ltd. 1969 (8) TMI 31 - SUPREME COURT Admittedly it is not a case where foreign asset remained undisclosed in entirety and that there is any malafide intention or ulterior motive on the part of the assessee for not disclosing the same. Decided against revenue.

1. ISSUES PRESENTED and CONSIDERED

The core legal issue considered in these appeals was whether the penalty under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, was correctly imposed on the assessee for non-reporting of foreign assets in Schedule FA of the income tax return for the relevant assessment years.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The relevant legal framework involves Section 43 of the Black Money Act, which mandates a penalty for failing to furnish information or furnishing inaccurate particulars related to any asset located outside India. The Act's preamble indicates its purpose is to address undisclosed foreign income and assets, implying a focus on black money.

Precedents considered include the Supreme Court's decision in Hindustan Steel Ltd. vs State of Orissa, which established that penalty should not be imposed for a technical or venial breach of law without malafide intent.

Court's Interpretation and Reasoning:

The Tribunal interpreted Section 43 as discretionary, given the use of the word "may" in the legislation. It emphasized that the penalty should not be automatically imposed for technical breaches where there is no malafide intention or ulterior motive. The Tribunal also considered the legislative intent behind the Act, which is to track and bring undisclosed black money into the tax net.

Key Evidence and Findings:

The assessee disclosed the foreign assets in Schedule AL rather than Schedule FA. The ESOPs were included as perquisites in the income tax return and taxed appropriately. The assessee argued that the assets were not undisclosed as they were reported in another schedule and taxed.

Application of Law to Facts:

The Tribunal applied the principles from Hindustan Steel Ltd., considering the absence of malafide intent and the fact that the foreign assets were disclosed in another part of the tax return. The Tribunal also considered the assessee's updated returns for some years, which included the required disclosures in Schedule FA.

Treatment of Competing Arguments:

The Tribunal weighed the Revenue's argument that non-disclosure in Schedule FA warranted a penalty against the assessee's position that the assets were disclosed elsewhere and taxed. The Tribunal favored the assessee's argument, emphasizing the discretionary nature of the penalty and the absence of malafide intent.

Conclusions:

The Tribunal concluded that the penalty under Section 43 was not warranted due to the absence of malafide intent and the technical nature of the breach. The Tribunal emphasized the need for discretion in imposing penalties, aligning with the legislative intent of the Act.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"The purpose of reporting requirement of foreign assets/income in Schedule FA of the Income tax return is for tracking and monitoring the investments held abroad by the residents of India. Preamble to the Act describes its objective to deal with problem of black money, i.e., undisclosed foreign income and assets. The said Act must not be invoked for punishing a technical /venial /bonafide breach of any statutory obligation and therefore bonafide actions of the tax payers must be excluded from the application of provisions of this stringent legislation."

Core Principles Established:

The Tribunal established that the penalty under Section 43 should be discretionary and not imposed for technical or venial breaches without malafide intent. The legislative intent of the Black Money Act is to target undisclosed foreign income and assets, not to penalize technical non-compliance.

Final Determinations on Each Issue:

The Tribunal determined that the penalty imposed under Section 43 was not justified in these cases, as the foreign assets were disclosed in another schedule and appropriately taxed. The Tribunal dismissed the Revenue's appeals, emphasizing the discretionary nature of the penalty and the absence of malafide intent on the part of the assessee.

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