2024 (6) TMI 1438 - AT - Income Tax

Imposition of penalty u/s. 43 of the Black Money Act 2015 - failure to disclose immovable property located outside India - HELD THAT - We find that though the assessee has not disclosed the said property in the schedule FA of the return of income filed for the assessment year 2016-17 the said investment in the property claimed to be under construction in Dubai has always been shown in the returns of income in preceding years as well as in the succeeding years. Otherwise also during the assessment year under consideration the assessee has paid certain advances to the builder so it is wrong to say that the assessee has not disclosed his property to the income tax department. The appellant has already admitted that this is a bonafide and inadvertent clerical omission. Thus this is not a fit case where penalty u/s. 43 of BMA is imposable. Thus the appeal of the revenue is dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case revolves around the imposition of a penalty under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act). The specific questions considered are:

• Whether the penalty of Rs. 10 lakhs under Section 43 of the Black Money Act was rightly imposed on the assessee for failing to disclose a foreign asset in the Schedule FA of the Income Tax Return for the assessment year 2016-17.
• Whether the omission to disclose the foreign asset was a bona fide clerical error, and if so, whether such an omission warrants the imposition of a penalty under the Black Money Act.
• Whether the disclosure of the foreign asset in preceding and succeeding years impacts the applicability of the penalty for the assessment year 2016-17.
• Whether the legal precedents and interpretations support the imposition or deletion of the penalty in this context.

ISSUE-WISE DETAILED ANALYSIS

1. Legal Framework and Precedents

Section 43 of the Black Money Act imposes a penalty on residents who fail to disclose foreign assets in their income tax returns. The penalty is applicable if the information is not furnished or if inaccurate particulars are provided. The section uses discretionary language ("may impose"), indicating that penalties are not mandatory in every instance of non-disclosure.

Precedents considered include:

• Union of India Vs. Dharmendra Textile Processors: Established that penalty provisions are a civil liability and do not require willful concealment as an essential element.
• CIT Ahmedabad Vs. Reliance Petroproducts (P.) Ltd.: Emphasized that the return filed is crucial in determining the accuracy of disclosures.
• Leena Gandhi Tewari: Highlighted that penalties under the Black Money Act should not be imposed for bona fide mistakes.
• Shrem Alloys Pvt Ltd: Clarified that initial and consistent disclosure of foreign assets in books and returns can negate the justification for penalties.

2. Court's Interpretation and Reasoning

The Tribunal interpreted that the failure to disclose the foreign asset in the specific assessment year was a bona fide clerical error. The consistent disclosure of the asset in preceding and succeeding years supported the assessee's claim of inadvertence rather than deliberate concealment. The Tribunal emphasized that the penalty provision in Section 43 is discretionary, allowing for consideration of the nature of the omission.

3. Key Evidence and Findings

The evidence showed that the foreign asset was disclosed in the returns for years other than 2016-17. The assessee argued that the omission was a clerical mistake, not a deliberate act of concealment. The Tribunal found this argument credible, supported by the fact that the asset's status had not changed since its purchase.

4. Application of Law to Facts

The Tribunal applied the law by considering the nature of the omission and the history of disclosures. It determined that the omission did not constitute a breach warranting a penalty under Section 43, given the bona fide nature of the mistake and the consistent disclosure in other years.

5. Treatment of Competing Arguments

The Tribunal weighed the revenue's argument that each assessment year is distinct and requires separate disclosure against the assessee's claim of a clerical error. It concluded that the discretionary nature of Section 43 allows for leniency in cases of genuine mistakes, especially when there is no evidence of malafide intent.

6. Conclusions

The Tribunal concluded that the penalty under Section 43 was not justified due to the bona fide nature of the omission. It emphasized the importance of intent and the context of the omission in determining the applicability of penalties under the Black Money Act.

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

• The discretionary nature of Section 43 allows for consideration of bona fide mistakes, and penalties should not be imposed in such cases.
• Consistent disclosure of foreign assets in other years supports the claim of inadvertence rather than deliberate concealment.
• The Tribunal's decision aligns with precedents that emphasize the importance of intent and the discretionary application of penalties.

Verbatim Quotes of Crucial Legal Reasoning

"...this omission can at best be categorized as a bona fide inadvertent omission and cannot be held as a deliberate or malafide or dishonest action or breach or defiance of the law."

"The penalty of Rs. 10,00,000/- levied by the AO u/s. 43 of BMA in this case is accordingly deleted and these grounds of appeal are allowed."

Core Principles Established

• Penalties under the Black Money Act are not automatic and require consideration of the context and intent behind non-disclosure.
• Bona fide mistakes, especially those rectified in subsequent filings, do not warrant penalties.
• The Tribunal's decision underscores the importance of a fair and context-sensitive application of penalty provisions.

Final Determinations on Each Issue

• The penalty imposed under Section 43 was not justified and was deleted.
• The omission was deemed a bona fide clerical error, not warranting a penalty.
• The appeal by the revenue was dismissed, affirming the decision of the Ld. CIT (A).