2025 (3) TMI 984 - AT - Income Tax

Penalty imposed u/s 43 of the Black Money Act - Failure to disclose foreign assets in the income tax return - HELD THAT -Admittedly the appeal filed by the assessee against the quantum assessment proceedings before Coordinate bench ITAT Jaipur Bench was allowed but the legal proposition as rightly put forth by ld. DR for the appellant and not controverted on behalf of the assessee is that quantum assessment proceedings are different from the proceedings for levy of penalty. Therefore the observations made by the Coordinate Bench in the quantum assessment proceedings were of no avail to the assessee in the penalty proceedings. CIT(A) was of the view that revised return replaces the original ITR and that same was accepted by the AO. From the above reason it is obvious that CIT(A) did not go into merits as to whether the appellant was required to disclose asset in Schedule FA or not and rather he set aside the penalty having regard to the disclosure made in the revised return. CIT(A) should have discussed the above said point first and then proceeded further to decide the validity of the impugned penalty order. We are in agreement with CIT(A) that furnishing of revised return certainly replaces the original ITR and accordingly for the year under consideration i.e. AY 2017-18 CIT(A) was justified in setting aside the penalty order once the assessee even though after search action came forward to disclose the foreign assets by furnishing revised return. Decided against revenue.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment were:

• Whether the penalty imposed under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereafter referred to as "the Act, 2015") for non-disclosure of foreign assets in the income tax return was justified.
• Whether the revised return filed by the assessee could replace the original return and negate the grounds for imposing the penalty.
• Whether the discretion exercised by the Assessing Officer in imposing the penalty was appropriate.
• Whether the non-disclosure of foreign assets was a bona fide mistake and if the penalty could be waived on these grounds.
• Whether the penalty proceedings are distinct from quantum assessment proceedings and the implications of this distinction.

ISSUE-WISE DETAILED ANALYSIS

1. Legal Framework and Precedents

The relevant legal framework is provided by Section 43 of the Act, 2015, which mandates penalties for failure to disclose foreign assets. Precedents considered include:

• Krishna Das Agarwal v. DIT/ADIT(Inv.), where it was held that revised returns could replace original returns for compliance purposes.
• Leena Gandhi Tiwari, which dealt with bona fide mistakes in non-disclosure.
• State of Jharkhand v. Ambay Cements, CIT v. Mangalore Chemicals, and Machine Tool Corpn. of India Ltd., which discuss the interpretation of statutory obligations and the discretion in imposing penalties.
• M/s Hindustan Steel Ltd vs. State of Orissa, which addresses the quasi-criminal nature of penalty proceedings and the necessity of deliberate defiance for imposing penalties.

2. Court's Interpretation and Reasoning

The Court interpreted the provisions of Section 43 as allowing discretion in imposing penalties. It emphasized that the discretion should be exercised judiciously and not arbitrarily. The Court also noted the distinction between quantum assessment proceedings and penalty proceedings, emphasizing that the latter is separate and distinct.

3. Key Evidence and Findings

The evidence primarily revolved around the non-disclosure of foreign assets in the original returns and the subsequent filing of revised returns. The Court found that the assessee had not disclosed the foreign assets in the original returns for the assessment years under consideration, which was a violation of the Act, 2015.

4. Application of Law to Facts

The Court applied the legal principles to the facts by determining that the revised return could replace the original return for the assessment year 2017-18, thus negating the grounds for penalty for that year. However, for the assessment year 2016-17, since the revised return could not be filed due to the closure of the portal, the original non-disclosure stood, justifying the penalty.

5. Treatment of Competing Arguments

The Court considered the Department's argument that the assessee, being a high-profile taxpayer, should have been aware of the legal requirements. It also considered the assessee's argument of a bona fide mistake and the inability to file a revised return for the assessment year 2016-17 due to the closure of the portal. The Court found merit in the Department's arguments for the year 2016-17 but sided with the assessee for the year 2017-18 due to the revised return.

6. Conclusions

The Court concluded that the penalty for the assessment year 2017-18 should be set aside due to the revised return, but upheld the penalty for the assessment year 2016-17 due to the original non-disclosure and the inability to file a revised return.

SIGNIFICANT HOLDINGS

• The Court held that "furnishing of revised return certainly replaces the original ITR," thus setting aside the penalty for the assessment year 2017-18.
• The Court emphasized that "quantum assessment proceedings are different from the proceedings for levy of penalty," indicating that the outcome of one does not necessarily affect the other.
• The Court reiterated that "ignorance of law is no excuse" and that the discretion to impose penalties must be exercised judiciously.
• The Court concluded that the "penalty is not warranted" for the year 2017-18 due to the revised return but upheld the penalty for 2016-17 as the original non-disclosure remained unrectified.