2025 (4) TMI 385 - 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 preceding year. 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. In the course of impugned proceedings assessee had offered all the details and explanations corroborated with documentary evidences in respect of foreign asset. 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 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. Also taking into account detailed discussions on long line of judicial precedents referred by the ld. Counsel we delete the penalty in the appeal under consideration before us. Appeal of the assesse is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered in this appeal is the imposition of a penalty under section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, for the non-reporting of foreign assets in Schedule FA of the income tax return for the assessment year 2017-18. The core legal questions include whether the non-disclosure in Schedule FA constitutes a breach warranting a penalty, and whether the discretion to impose such a penalty was appropriately exercised by the Assessing Officer.

ISSUE-WISE DETAILED ANALYSIS

1. Relevant Legal Framework and Precedents

The legal framework revolves around the Black Money Act, specifically section 43, which mandates penalties for non-disclosure of foreign assets. The Act aims to address undisclosed foreign income and assets, imposing tax and penalties on such undisclosed entities. The precedent set by the Supreme Court in Hindustan Steel Ltd. vs. State of Orissa is pivotal, establishing that penalties should not be imposed for technical or venial breaches or when there is a bona fide belief that no breach occurred.

2. Court's Interpretation and Reasoning

The Tribunal interpreted section 43 as providing discretionary power to the Assessing Officer, indicated by the use of "may" in the statute. The Tribunal emphasized that this discretion must be exercised judiciously, considering the legislative intent to address black money rather than penalizing technical breaches. The Tribunal noted that the non-disclosure was not due to malafide intent but was a bona fide mistake, as the foreign asset had been disclosed in other parts of the tax return and was subject to tax deductions.

3. Key Evidence and Findings

The assessee had disclosed the foreign asset in the previous year's Schedule FA and included the perquisite value of the ESOPs in the current year's income, which was taxed through TDS. The Tribunal found that the omission in the current year was not indicative of an intention to conceal but rather an oversight, as the asset was disclosed in other sections of the return.

4. Application of Law to Facts

The Tribunal applied the principles from Hindustan Steel Ltd., considering the bona fide nature of the omission and the absence of malafide intent. The Tribunal concluded that the penalty under section 43 was not warranted, as the non-disclosure did not align with the Act's objective to combat black money.

5. Treatment of Competing Arguments

The Tribunal considered the Revenue's argument that non-disclosure in Schedule FA is a breach warranting penalty. However, it found this argument insufficient, given the bona fide nature of the omission and the comprehensive disclosure in other parts of the tax return. The Tribunal also referenced multiple precedents where penalties were not imposed for similar technical breaches.

6. Conclusions

The Tribunal concluded that the penalty was not justified under the circumstances, as the omission was not deliberate or indicative of an attempt to conceal the foreign asset. The appeal was allowed, and the penalty was deleted.

SIGNIFICANT HOLDINGS

The Tribunal held that "penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation." This principle from Hindustan Steel Ltd. was central to the Tribunal's decision. The Tribunal established that the discretionary power under section 43 must be used judiciously, considering the legislative intent and the facts of each case.

The Tribunal determined that the non-disclosure in Schedule FA was a technical breach without malafide intent, and therefore, the penalty was not warranted. The appeal was allowed, and the penalty was deleted, reinforcing the principle that penalties should not be imposed for bona fide mistakes or technical breaches.