2025 (3) TMI 643 - AT - Income Tax

Levy of penalty u/s 43 of The Black Money Act - failure in furnishing information of the investments made by the appellant in the return of income filed for the assessment year under consideration without assigning proper reasons and justification - HELD THAT - Hon ble Supreme Court s judgment in the case of Hindustan Steel 1969 (8) TMI 31 - SUPREME COURT observes 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. The penalty will not also be imposed merely because it is lawful to do so. Whether a penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose a penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute . Essentially therefore the overall conduct of the assessee and materiality of the lapse as also its being in the nature of a technical or venial breach of law is the most critical factor so far as taking a call on the question of whether or not a penalty should be imposed for the assessee s failure to discharge a statutory obligation. The imposition of penalty under Section 43 is surely at the discretion of the Assessing Officer but the manner in which this discretion is to be exercised has to meet the well-settled tests of judicious conduct by even quasi judicial authorities. The bench also considered the objective of BMA legislation and finally confirmed the order of first appellate authority in deleting the impugned addition as imposed by Ld. AO. Similar favorable view has been taken in Ocean Driving Centre Ltd. 2023 (12) TMI 54 - ITAT MUMBAI wherein deleted similar penalty on the ground that it was not a case of total defiance or mala fide or dishonest breach on the part of the assessee. Penalty u/s 42 initiated on the ground that the assessee failed to file the return of income within prescribed time limit - AY 2017-18 - Assessee has filed return of income belatedly which is treated as non-est return since it was filed beyond statutory time limit. However in this return of income the assessee has duly disclosed the details of foreign assets. The late filing of return of income is mere technical breach. Similar details have been filed in return of income filed in response to notice issued u/s 153C. AO has adopted the income admitted by the assessee in the regular return of income and made further addition in the same. In other words the regular return of income though treated as non-est return the same has been considered while framing the assessment. We are also of the opinion that the return field u/s 153C would substitute the regular return of income as filed by the assessee. As in the case of Pr. CIT v. JSW Steel Ltd. 2020 (2) TMI 307 - BOMBAY HIGH COURT held that returns filed u/s 153A was to be treated to be returns of income furnished u/s 139 - Thus penalty would not be leviable.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the penalty imposed under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) for the Assessment Year (AY) 2016-17 was justified given the alleged failure to disclose foreign assets in the income tax return.
Whether the penalty under Section 42 of BMA for AY 2017-18 was valid, considering the late filing of the income tax return and the subsequent disclosure of foreign assets.

ISSUE-WISE DETAILED ANALYSIS

Penalty under Section 43 of BMA for AY 2016-17

Relevant Legal Framework and Precedents: Section 43 of BMA mandates a penalty for non-disclosure of foreign assets in the income tax return. The penalty is discretionary, as indicated by the use of "may" in the statute. The Tribunal referenced precedents such as the Mumbai Tribunal's decision in Addl. CIT vs. Leena Gandhi Tiwari, which emphasized the discretionary nature of penalties under BMA.
Court's Interpretation and Reasoning: The Court noted that the requirement to disclose foreign assets was newly introduced in AY 2016-17. The assessee's failure to disclose was deemed an inadvertent mistake rather than willful non-compliance. The Court emphasized the discretionary nature of the penalty and the need to consider the specific facts of the case.
Key Evidence and Findings: The assessee had previously maintained a non-resident status and only became a resident in the relevant assessment year. The foreign assets were acquired long before the introduction of BMA, and the sources of these assets were adequately explained.
Application of Law to Facts: Given the inadvertent nature of the omission and the satisfactory explanation of asset sources, the Court found that imposing a penalty was not warranted.
Treatment of Competing Arguments: The Court considered the arguments of the assessee regarding the inadvertent mistake and the lack of willful default, contrasting these with the Revenue's emphasis on statutory compliance.
Conclusions: The penalty under Section 43 was deleted, recognizing the non-willful nature of the omission and the discretionary nature of the penalty provision.

Penalty under Section 42 of BMA for AY 2017-18

Relevant Legal Framework and Precedents: Section 42 of BMA imposes a penalty for failing to file a return of income within the prescribed time when foreign assets are involved. Similar to Section 43, the penalty is discretionary.
Court's Interpretation and Reasoning: The Court noted that the return, although filed late, did disclose the foreign assets. The late filing was considered a technical breach, and the subsequent return filed under Section 153C substituted the regular return.
Key Evidence and Findings: The assessee filed the return late but disclosed all foreign assets. The assessment was based on the income declared in the original return, indicating its substantive consideration.
Application of Law to Facts: The Court found that the late filing did not constitute a willful default, and the disclosed information was considered in the assessment process.
Treatment of Competing Arguments: The Court weighed the technical breach against the substantive compliance demonstrated by the assessee in the subsequent return.
Conclusions: The penalty under Section 42 was deleted, recognizing the technical nature of the breach and the substantive compliance by the assessee.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: The Court emphasized that "the imposition of penalty is not mandatory since the provisions of Sec.43 uses the expression 'the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees' as against expression 'shall' which would show that the element of discretion was embedded in the statutory provisions itself."
Core Principles Established: The judgment reinforced the discretionary nature of penalties under Sections 42 and 43 of BMA, highlighting the need for judicial discretion based on the specific facts and circumstances of each case.
Final Determinations on Each Issue: Both penalties under Sections 42 and 43 were deleted, with the Court allowing the appeals for both assessment years, recognizing the non-willful nature of the omissions and the technical nature of the breaches.