2024 (12) TMI 899 - AT - Income Tax

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 - assessee had made investments in offshore fund in MAURITIUS but not disclosed his foreign investment in schedule FA of ITR - 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. Further, 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. As per 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 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. In this regard, we draw our force from the decision of Hindustan Steel Ltd. 1969 (8) TMI 31 - SUPREME COURT Thus, 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 - thus penalty deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 for non-reporting of foreign assets in Schedule FA of the income tax return.

Detailed Analysis:

Levy of Penalty under Section 43 of the Act:
The core issue in the appeals was the levy of penalty under section 43 for non-reporting of foreign assets in Schedule FA of the income tax return. The assessee had made investments in offshore funds, which were not disclosed in Schedule FA for the Assessment Years 2020-21 and 2021-22. However, these investments were included in Schedule AL as part of "Shares and Securities."

The assessee argued that the omission was inadvertent and not intentional, as the investments were declared in the year they were made (AY 2019-20) and were part of Schedule AL in AY 2020-21. The assessee contended that the Act applies to undisclosed foreign income and assets, and since the investments were disclosed elsewhere in the return, the penalty should not apply. Additionally, the assessee relied on the discretionary nature of penalty imposition under section 43, which states that the Assessing Officer "may" levy a penalty, suggesting that it is not mandatory.

The assessee also referenced the decision in Hindustan Steel Ltd. vs. State of Orissa, which held that penalty should not be imposed for a technical or venial breach of the law or where there is a bona fide belief of non-liability.

Judicial Precedents and Discretionary Power:
The assessee relied on several judicial precedents, including the ITAT Mumbai's decision in Rohit Krishna vs. CIT, which dealt with similar issues and concluded that penalty is not warranted if the foreign assets are disclosed elsewhere in the return. The assessee argued that the discretionary power under section 43 should be exercised judiciously, considering the legislative intent to track undisclosed foreign income and assets, not to penalize bona fide errors.

The Revenue, on the other hand, argued that the provisions of the Act require strict compliance, and non-disclosure in Schedule FA should lead to penalty imposition. The Revenue emphasized that disclosure in Schedule FA is crucial for proper investigation and monitoring of foreign assets.

Tribunal's Findings:
The Tribunal considered the facts and circumstances, noting that the foreign assets were disclosed in Schedule AL and that there was no malafide intention or ulterior motive by the assessee. The Tribunal emphasized the legislative intent behind the Act, which is to address undisclosed foreign income and assets, not to penalize technical or bona fide breaches.

The Tribunal referred to the decision of the Hon'ble Supreme Court in Hindustan Steel Ltd., which supports not imposing penalties for technical breaches or when there is a bona fide belief of non-liability. Considering these aspects, the Tribunal concluded that the penalty under section 43 should not be imposed in this case.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, deleting the penalty imposed under section 43 for non-reporting of foreign assets in Schedule FA. The decision underscores the importance of considering the legislative intent and the discretionary nature of penalty imposition, especially in cases of bona fide errors and technical breaches.