2025 (3) TMI 829 - AT - Income Tax

Penalty u/s. 43 of the Black Money - failure to disclose foreign assets in the return of income - HELD THAT - In the present assessment year no fresh investment was made by the assessee and the previous investments made by the assessee were required to be disclosed during the year under consideration. Undoubtedly the explanation of source of investment as per Sections 3 and 10 of B.M.A Act and failure to disclose as per Section 43 of B.M.A Act per se may be independent but both are required to be read together and find out the intention of the Legislation. In the present case since the explanation relating to the source of investment has been accepted and therefore the failure on the part of the assessee to disclose the assets for the year under consideration cannot be vitiated on account of malafide or an attempt to evade the rigours of the Act. No fresh investment has been made and all the investments made in the earlier years simply have been continued in the year under consideration. All these aspects clearly show that there was bonafide mistake on the part of the assessee to mention and disclose the same in the return of income. In view of the above the penalty imposed by the lower authority is required to be deleted. Respectfully following the decision of Ocean Diving 2023 (12) TMI 54 - ITAT MUMBAI and the judgment of Mylan Laboratories 2022 (1) TMI 1353 - TELANGANA HIGH COURT we hereby allow the appeal of the assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the penalty imposed under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA Act, 2015) for failure to disclose foreign assets in the return of income for the Assessment Year (AY) 2017-18 is justified.
Whether the failure to disclose certain foreign assets in the return of income constitutes a technical or venial breach that could exempt the assessee from penalty under Section 43 of the BMA Act, 2015.
Whether the principles of judicial discretion and reasonable cause apply in the imposition of penalties under Section 43 of the BMA Act, 2015.
Whether the assessee's consistent disclosure of assets in other assessment years affects the imposition of the penalty.
Whether the decision of the Mumbai Tribunal in a similar case is applicable to the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Penalty under Section 43 of the BMA Act, 2015:

Relevant legal framework and precedents: Section 43 of the BMA Act, 2015 mandates a penalty of Rs. 10 lakhs for failure to furnish information or furnishing inaccurate particulars about foreign assets in the return of income. The provision is intended to curb black money and undisclosed foreign assets.
Court's interpretation and reasoning: The Tribunal noted that the imposition of penalty under Section 43 is not automatic and should be exercised with judicial discretion, considering the reasonable cause for non-disclosure.
Key evidence and findings: The assessee failed to disclose certain foreign assets in the AY 2017-18 but had disclosed these assets in prior and subsequent years. The assessee also provided the source of investment during the assessment proceedings for AY 2019-20.
Application of law to facts: The Tribunal found that the non-disclosure was not due to malafide intent or an attempt to evade tax, but rather a bonafide mistake. The consistent disclosure in other years supported this conclusion.
Treatment of competing arguments: The Revenue argued for the imposition of penalty based on the statutory mandate, while the assessee contended that the breach was inadvertent and technical. The Tribunal favored the assessee's argument, emphasizing judicial discretion and the absence of malafide intent.
Conclusions: The Tribunal concluded that the penalty was not warranted in this case due to the bonafide nature of the mistake and the consistent disclosure in other years.

Judicial Discretion and Reasonable Cause:

Relevant legal framework and precedents: The Tribunal referred to the discretion granted to the Assessing Officer under Section 43 and the principles established by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa, which emphasize that penalties should not be imposed for technical or venial breaches.
Court's interpretation and reasoning: The Tribunal emphasized the need for judicial discretion and the importance of considering the reasonable cause for non-disclosure. The issuance of a show-cause notice under Section 46 of the BMA Act, 2015, allows the assessee to explain the non-disclosure.
Conclusions: The Tribunal held that the penalty should not be imposed automatically and that judicial discretion should be exercised, taking into account the assessee's explanation and the absence of malafide intent.

Applicability of Mumbai Tribunal's Decision:

Relevant legal framework and precedents: The Tribunal considered the decision in Ocean Diving Centre Ltd vs. CIT, where a similar issue was addressed, and the penalty was deleted due to the bonafide nature of the breach.
Court's interpretation and reasoning: The Tribunal found the facts of the present case to be similar to those in Ocean Diving Centre and followed the reasoning of the coordinate bench, which emphasized the importance of judicial discretion and the absence of malafide intent.
Conclusions: The Tribunal applied the reasoning from the Ocean Diving Centre case to the present case, leading to the deletion of the penalty.

3. SIGNIFICANT HOLDINGS

Core principles established: The Tribunal reaffirmed the principle that penalties under Section 43 of the BMA Act, 2015, should not be imposed automatically and must consider the reasonable cause for non-disclosure. Judicial discretion and the absence of malafide intent are crucial factors in determining the imposition of penalties.
Final determinations on each issue: The Tribunal allowed the appeal of the assessee, deleting the penalty imposed under Section 43 of the BMA Act, 2015, due to the bonafide nature of the mistake and the consistent disclosure of assets in other assessment years.
Verbatim quotes of crucial legal reasoning: "The law has contemplated to issue show cause notice to the assessee as per Section 46 of B.M.A Act and if the penalty is necessarily being required to be imposed then there was no purpose of issuing the show cause notice to the assessee." The Tribunal emphasized the importance of judicial discretion and reasonable cause in penalty imposition.

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