Omission of Transparent, Fully Tax-Paid Silverdale Fund Investment in Schedule FA Does Not Warrant Black Money Penalty

By | May 30, 2026
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Omission of Transparent, Fully Tax-Paid Silverdale Fund Investment in Schedule FA Does Not Warrant Black Money Penalty

Issue

Whether a penalty of ₹10 lakhs per assessment year under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is sustainable when an resident assessee fully discloses multiple foreign assets but inadvertently omits a specific investment in Schedule FA of their income tax return, despite the investment being made through regular banking channels using fully tax-paid domestic funds.

Facts

  • Profile: The assessee is an Indian resident individual employed with Vodafone.

  • Overseas Investments: He held various overseas investments, which included Employee Stock Ownership Plan (ESOP) related foreign assets and investments in Silverdale Fund Plc.

  • The Omission: In his Income Tax Returns (ITRs) for the Assessment Years 2020-21 to 2023-24, the assessee duly declared his other foreign assets in Schedule FA but omitted to disclose his investments held with Silverdale Fund Plc.

  • Source of Funds: The investment in Silverdale Fund Plc was made entirely out of tax-paid funds, specifically from the redemption proceeds of mutual funds. The gains derived from selling those mutual funds had already been appropriately taxed in India during AY 2020-21 and AY 2021-22.

  • Regulatory Compliance: All financial remittances for the overseas investments were processed through the assessee’s regular ICICI Bank account in strict compliance with the Reserve Bank of India’s Liberalised Remittance Scheme (LRS).

  • Penalty Imposed: The Assessing Officer (AO) discovered the omission, treated the asset as undisclosed foreign investment exceeding ₹20 lakhs, and levied a flat penalty of ₹10 lakhs for each of the four assessment years (totaling ₹40 lakhs) under Section 43 of the Act.

Decision

  • Bona Fide Omission: The appellate authority found that the overseas investments were demonstrably made out of tax-paid funds through proper, white banking channels in complete compliance with the statutory framework.

  • Lack of Undisclosed Asset Intent: The only mistake committed by the assessee was an inadvertent clerical error or omission to fill one specific column for Silverdale Fund Plc in Schedule FA, which cannot be equated to hoarding undisclosed “black money” abroad.

  • Penalty Deleted: Since there was no intent to conceal wealth and the asset’s money trail was fully transparent and taxed in India, the harsh penalty levied under Section 43 was deleted in full.

Key Takeaways

  • Clerical vs. Criminal Omissions: A purely technical or inadvertent omission to fill a column in Schedule FA will not attract severe penalties under the Black Money Act if the asset’s underlying funds are perfectly legitimate and transparent.

  • The Role of Tax-Paid Funds: The primary intent of the Black Money Act is to target untaxed, hidden wealth overseas. If a taxpayer can conclusively demonstrate a clean banking trail and that local taxes were paid on the capital utilized for the foreign asset, penal actions for mere disclosure slip-ups are unsustainable.

  • Substance Rules Over Form: While filing Schedule FA accurately remains highly critical for Indian residents with foreign holdings, appellate authorities will look at the comprehensive tax compliance history of the asset rather than punishing a clerical oversight mechanically.

IN THE ITAT CHENNAI BENCH ‘A’
Kumar Ramanathan
v.
DDIT/ADIT (Inv.)*
ABY T. VARKEY, Judicial Member
and Ms. Padmavathy S., Accountant Member
BM Appeal Nos. 20 to 23 (Chny) OF 2025
[Assessment years 2020-21 to 2023-24]
MAY  18, 2026
N. Rajagopalan, FCA and Dr. M.D. Vijay Kumar, JCIT for the Appellant.
ORDER
Aby T. Varkey, Judicial Member. – These are appeals preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter referred to as ‘Ld.CIT(A)’), Chennai-18, dated 12.09.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2020-21 to 2023-24, confirming the action of the AO passed u/s.43 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 (hereinafter referred to as ‘BM Act’).
2. The issues involved in the instant appeals are similar, therefore, for the sake of brevity; these appeals were heard together and are being disposed of by this consolidated. We take up the appeal in BMA No. 20/Chny/2025 (AY 2020-21) as the lead case, whose result would apply to the appeals in BMA Nos. 21-23/Chny/2025 for AYs 2021-22 to 2023-24 as well.
3. The facts as noted are that, the assessee is an individual who is a resident of India. The assessee is gainfully employed with Vodafone. It is noted that, in terms of the employment contract, the assessee is entitled to Employee Stock Options [in short ‘ESOPs’] of the foreign parent company i.e. Vodafone PLC UK, which were allotted to him from time to time. The assessee also invests his surplus in shares of foreign listed companies. In relation to the foregoing, the DDIT(Inv), Unit 4(1), Chennai [in short ‘AO’] was in receipt of CRS information that, the assessee held foreign accounts with Saxo Bank, ICICI Bank and held investments with Silverdale Fund Plc. Upon conducting investigation, he found that, though the assessee had disclosed other foreign assets, but he had omitted to disclose the investment held with Silverdale Fund Plc in his return(s) of income for AYs 2020-21 to 2023-24. The AO accordingly issued notice u/s 46 read with Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 [in short ‘BM Act’] on account of the fact that the assessee had failed to disclose the investments with Silverdale Fund Plc. in his return(s) of income. In response to the notice, the assessee submitted reply dated 04.04.2025, gist of which reads as under: –
“4….the assessee is an individual of significant financial standing, often referred to as a high-net-worth individual (HNI). As part of his compensation and employee benefits during his tenure at Vodafone, the assessee was granted shares in Vodafone PLC, a foreign company, under the Employee Stock Option Plan (ESOP). As a result of these investments, the assessee has accumulated foreign assets, which may include shares, and other forms of financial holdings in different countries.
5. The assessee stated that during the FY 2019-20, he had made investments totalling to 798.66 units in the Silverdale Fund SPC in two separate transactions: 606.50 units purchased on 11th October, 2019 amounting to Rs.71,31,023/-. The payments for these investments were made through recognized banking channels and are duly reflected in the ICICI Bank statement pertaining to the AY 2020-21 and AY 2021-22 (A/c No. 003401516016). This confirms the transparency of the transaction and they were not separately reported in “Schedule FA -Details of Foreign Assets and Income from any Source Outside India.”
6. The assessee also stated that the sale of these investments during the FY 2023-24, were duly reported in the return of income filed for the AY 2024-25, along with the details of date of acquisition and sale, units sold. Further, the banks reflecting the remittances were also duly disclosed in the return of income for the relevant years and hence the same cannot be considered as entire omission from the return of income.”
4. It is seen that, the AO did not dispute the fact that, the investment held in Silverdale Fund Plc formed part of the regular books of accounts of the assessee which was sourced out of redemption of mutual funds, which had been duly offered to tax in the return of income. Also, the investment in Silverdale Fund Plc had been made out of the disclosed ICICI Bank Account and that all related income derived from such investment had also been offered and assessed to tax in the respective years. The AO however observed that this particular overseas investment was not disclosed in Schedule FA (Foreign Asset) of the ITR and since the value of the impugned asset exceeded Rs.20,00,000/-, he levied penalty of Rs.10,00,000/- in each of the assessment year(s) 2020-21 to 2023-24 u/s 43 of the BM Act. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A), who confirmed the action of the AO. Now the assessee is in appeal before us.
5. At the time of hearing, the Ld. AR firstly narrated the background facts and the source of investments held in Silverdale Fund Plc. He pointed out that, the assessee had invested in Silverdale Fund SPC in December 2019 (606.50 units) and May 2020 (192.16 units) through authorised banking channels under the Liberalised Remittance Scheme (LRS). It was shown that the remittances were made from ICICI Bank account A/c no.003401516016, and the source of such investment was the redemption proceeds of Indian mutual funds i.e., HDFC Overnight Fund and SBI Overnight Fund. The Ld. AR submitted that, these redemption proceeds were taxed and disclosed in the ITR for AYs 2020-21 & 2021-22. He thus showed us that, all the remittances are traceable, documented, and fully compliant with FEMA and LRS requirements. The Ld. AR thereafter brought to our notice that such foreign investment in Silverdale Fund SPC (Total unit 798.66) was later on sold in August 2023, resulting in a capital loss of Rs.26,72,898, which was disclosed in AY 2024-25 return of income along with reporting in Schedule FA of the ITR. According to him therefore, though the investments held in Silverdale Fund Plc was made through disclosed sources and in compliance with all statutory norms, the details of such investments were inadvertently not disclosed in Schedule FA of the respective ITRs. He showed us that, when the assessee realized this omission, he had acted in a bonafide manner and filed rectification returns under section 154 on 28.02.2025 disclosing the overseas investments, as otherwise also, there was no reason for the assessee not to have disclosed the same in his ITRs. In light of this factual background, the Ld. AR submitted that the purported nondisclosure was purely inadvertent and unintentional in nature, and since since the omission was bona fide, the levy of penalty u/s 43 of BM Act was unjustified. The ld. AR laid emphasis on the decision of the Special Bench of this Tribunal in the case of Vinil Venugopal v. DDIT (Inv.)  (Mumbai – Trib.) wherein the Hon’ble Tribunal held that penalty under Sections 42 and 43 of the Black Money Act is discretionary in nature, and that inadvertent non-disclosure of foreign assets, when the source of investment is duly explained and no undisclosed foreign income exists, does not warrant levy of penalty. He also placed reliance on the following decisions: –
i. Addl. CIT v. Leena Gandhi Tiwari (Mumbai – Trib.)
ii. Ocean Diving Centre Ltd. v. CIT (Appeals)  (Mumbai – Trib.)
iii. Prasad Nimmagadda v. DIT (ITAT Hyd) (para 5))
iv. Palanirajan Rajarajan v. Addl. CIT (Chennai – Trib.)
6. In view of the above, he urged us to delete the penalty levied by the AO.
7. Per contra, the Ld. DR appearing for the Revenue supported the action of the AO. He submitted that the requirement of such disclosure of foreign assets in Schedule FA was introduced from AY 2012-13 and onwards to ensure tracking of the foreign assets and income generated thereon in foreign jurisdictions by the Indian Residents and that, Section 43 of the BM Act prescribes for a penalty of Rs.10 lacs in the event of failure by the assessee to disclose the foreign investment in Schedule FA. According to him therefore, the levy of penalty u/s 43 of the BM Act is for non-reporting of foreign assets and the fact that the foreign asset was accounted for is of no consequence. He thus does not want us to interfere with the order of Ld. CIT(A) confirming the action of the AO.
8. We have heard both the parties and perused the material placed before us. Before we advert to the impugned issue, let us first peruse the provisions of section 43 of the Act, which for ready reference and clarity reproduced hereinbelow:
“43. If any person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, who has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of the said Act, fails to furnish any information or furnishes inaccurate particulars in such return relating to any asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside India, at any time during such previous year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees:
Provided that this section shall not apply in respect of an asset or assets (other than immovable property), where the aggregate value of such asset or assets does not exceed twenty lakh rupees.”
9. Reading of the above provisions shows that, a person who is a resident in India, shall pay by way of penalty of sum of Rs. 10,00,000/-where he fails to furnish any such information or furnishes inaccurate particulars qua any asset located outside India or sourced from outside India in the return of income filed under sub-section (1) or (5) of section 139 of the Act. It is seen that, the legislature has consciously used the word “may” so far as the decision to impose penalty is concerned. It cannot be said that, any non-disclosure of foreign asset would automatically lead to imposition of penalty, because, then opportunity to hear before imposing penalty would not have been provided by section 46 of the BM Act. The statutory discretion implied by the word ‘may’ demands a judicial rather than whimsical application. The AO must exercise this power reasonably and in good faith. The term ‘may’ vests the AO with discretionary power to impose penalties, which discretion must be exercised fairly, and not arbitrarily, justly and not fancifully (refer Hon’ble Supreme Court decision in the case of S.G. Jaisinghani v. Union of India [1967] 65 ITR 34 (SC). When, a discretion is conferred on an authority, the same must be exercised fairly, judicially and within the tenets of law. Such authority is not arbitrary and it requires a reasoned approach that accounts for all relevant circumstances. Hence, where the assessee is able to establish his bonafides or reasonable cause, then AO must exercise his discretion with caution and conscious regard for justice in a judicious manner.
10. In this context, we gainfully rely on decision rendered by the Special Bench of this Tribunal in the case of Vinil Venugopal (supra), wherein it was explained that the usage of the word ‘may’ in Section 43 of BM Act clearly indicated and that there is a discretion vested with the Assessing Officer to impose penalty or otherwise depending upon facts and circumstances of each case in as much as the imposition of penalty upon failure to disclose foreign assets in Schedule FA is not automatic. The relevant excerpts of the judgment are reproduced below:-
“18. The question is whether such non-disclosure would automatically lead to imposition of penalty or whether there is discretion in the AO to waive imposition of penalty in the appropriate circumstances. It is trite that charging/penal provisions of a taxing statute have to be construed strictly. Even otherwise, it is well established principle of interpretation of statutes, that the words must be given their plain and ordinary meaning, unless it leads to absurd results or consequences which could never be intended. Applying this test, the use of the word “may” would clearly indicate that it is discretionary in nature. It is significant to note that the concluding part of Section 43 of the BM Act employs both “may” so far as the imposition of penalty is concerned and “shall” as far as the quantum of Rs. 10 lacs is concerned. We hasten to add that although we are not concerned with the interpretation of later part, about the quantum, the fact remains that the legislature has consciously used the word “may” so far as the decision to impose penalty is concerned.
19. It is necessary to note that Section 46(3) of the BM Act provides that no order imposing penalty shall be made unless the assessee has been given an opportunity of being heard. Such requirement cannot be said to be an empty formality. Thus, the interpretation that imposition of penalty is automatic, on the failure of the assessee to make the disclosure in Schedule FA, would make the provision for opportunity of hearing being granted to the assessee before imposition of penalty, redundant or superfluous. It is the fundamental principle of interpretation that the legislature can never be attributed with such redundancy or superfluousness.
20. In Hindustan Steel Ltd. (supra), arising out of the Odisha Sales Tax Act, 1947 the Supreme Court, inter alia, held in the context of penalty under Section 270 of the Income Tax Act, 1961 that even where the minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose the penalty when there is a technical or venial breach of the provisions of the Income Tax Act.
21. In Ankit International (supra), the jurisdictional Bombay High Court held that imposition of penalty under Section 61(2) of the Maharashtra Value Added Tax Act, 2002 (2002 Act, for short) is not mandatory where the dealer liable to get his accounts audited under Section 61(1) failed to furnish a copy of such report within the time as prescribed. It is significant to note that Section 61(2) of the 2002 Act also employs the word “may” in relation to the Commissioner’s power to impose the penalty in the face of a breach to get the accounts audited and failure to furnish a copy of such report within the time prescribed. In the context thereof, the Bombay High Court held as under :-

“9. The imposition of a penalty in sub-section (2) of section 61 is not mandatory. The Commissioner has been conferred with the discretion to determine as to whether a penalty should or should not be imposed, if a dealer who is liable to get his accounts audited under sub-section (1), fails to furnish a copy of the report within the time prescribed. The Legislature has provided that the Commissioner “may” impose a penalty after giving the dealer a reasonable opportunity of being heard. The use of the word “may” is clearly suggestive of the fact that imposition of a penalty is not mandatory. The legislative intent has been emphasized in the requirement of furnishing to the dealer a reasonable opportunity of being heard before a penalty is imposed. The fact that the Legislature contemplated an opportunity of being heard is indicative of the intent of the Legislature that the explanation which the dealer may have, has to be considered before the Commissioner determines as to whether penalty should be imposed. That the imposition of the penalty under sub-section (2) of section 61 is not mandatory has been emphasized in a judgment of a Division Bench of this court in Nitco Paints Ltd. v. State of Maharashtra [2011] 42 v. 71 (Bom) in the following terms (para 3 at page 74 in 42 VST):

“Section 61(2) clearly specifies that upon the failure of the dealer to get his accounts audited and to furnish a copy of the report within the time as prescribed, the Commissioner may after furnishing a reasonable opportunity of being heard, impose a penalty at the rate stipulated. The law provides that the penalty may be imposed and contemplates that a reasonable opportunity should be furnished to the dealer. Obviously there would be no occasion to furnish a reasonable opportunity of being heard if the liability to levy the penalty was automatic. Since the legislation has used the expression ‘may’, the imposition of a penalty is discretionary. Undoubtedly such a discretion has to be exercised in accordance with law and judiciously.”

22. Thus, in the case of Nitco Paints Ltd. v. State of Maharashtra [2011] 42 v. 71 (Bombay), [which is relied upon in the case of Ankit International (supra)] the requirement of grant of an opportunity of hearing (which is also the requirement in Section 46(3) of the BM Act) is held to be indicative of the imposition of penalty being discretionary. It is not necessary to multiply authorities on the point.
23. We now propose to briefly deal with the two decisions of the Division Bench of the Tribunal in Ms. Shobha Harish Thawani (supra) and Nirmal Bhanwarlal Jain (supra) on which strong reliance is placed on behalf of the Revenue.
24. In Nirmal Bhanwarlal Jain (supra), the assessee had made investment in offshore mutual fund Global Dynamic Opportunities Fund Ltd. (in short ‘GDOF’) based in Mauritius. The investments were made by the assessee in his own name and in the name of his children viz. Ms. Harshita Nirmal Jain (Daughter), Ms. Kalpita Nirmal Jain (minor Daughter) and Mst. Bhavya Nirmal Jain (minor Son). It was undisputed that out of the total investment during the year of Rs.21,70,69,320/-, investment only to the extent of Rs.3,91,04,805/- was reported in Schedule FA. The assessee, inter alia, claimed that the investment was made out of funds on which tax was already paid and there was no unaccounted money involved. Next, it was contended that the nonreporting was out of a bona fide mistake. A perusal of para 6 of the order would indicate that this Tribunal found that the claim about there being bona fide mistake went unsubstantiated. In that view of the matter, the appeal filed by the assessee challenging the imposition of penalty came to be dismissed. In the first instance, we find that the case is distinguishable inasmuch as on facts it was found that the claim of assessee that non-reporting was out of a bona fide mistake was unsubstantiated. In other words, the assessee had failed to establish that there was a bona fide mistake in the non-reporting of the investment in Schedule FA. This finding has been recorded by the Bench after reproducing the break-up of the total investment and the amount which was actually reported. This Tribunal found that even insofar as the investment in his own name of Rs.5,50,44,320/- is concerned, assessee only reported an amount of Rs.3,91,04,805/-. It was in these circumstances found that the assessee had furnished inaccurate particulars of investment in his own name and there was altogether nonreporting of the investment made in the name of the children. That apart, we find that the Division Bench had no occasion to consider the provisions of Section 46 of BM Act requiring an opportunity of hearing being given to the assessee before imposition of penalty and the necessary implication of such a requirement on the question whether the imposition of penalty is automatic or otherwise. The decision therefore cannot be said to be an authority holding that the imposition of penalty is mandatory/automatic, upon failure to disclose foreign assets in Schedule FA.
25. In Shobha Harish Thawani (supra), the Tribunal has relied on the decision of Nirmal Bhanwarlal Jain (supra). In that case, the assessee jointly made certain investments in Global Dynamic Opportunities Fund Ltd. (GDOF) out of funds transferred from India to HSBC Bank at Jersey (USA). The assessee held 40% share in the investment. The investment was made through Liberalised Remittance Scheme under the Foreign Exchange Management Act (FEMA). Even in this case, the assessee claimed that non-reporting was out of a bona fide mistake. The Bench found, on facts, that the claim that the failure to report in Schedule FA was out of a bona fide mistake cannot be accepted. This Tribunal observed that even if it is assumed that in the light of the expression “may” used in Section 43 of the BM Act the AO has the discretion to levy the penalty, the assessee failed to substantiate that the AO has exercised his discretion extravagantly. The following observations in para 11 are to the point :-
…..
26. It can thus clearly be seen that even the case of Ms. Shobha Harish Thawani (supra) turned on its own facts as the Bench found that the AO had formed an opinion to levy penalty upon examination of the facts of the case and the discretion was exercised judiciously. It is necessary to note that although the Bench has not noticed the provisions of Section 46 of the BM Act and the effect thereof on the interpretation to be placed on Section 43 of the BM Act, the Bench was not oblivious of the fact that there is a discretion with the AO, which in that case was found to have been exercised in a judicious manner.
27. Thus, both these decisions cannot come to the aid of the Revenue. In any event, if two views with regard to interpretation of Section 43 of the BM Act are possible, it is a settled position that it would be justified to adopt that construction which favours the assessee.
28. In the result, we answer the issue as framed in the negative. The word “may” used in Section 43 of the BM Act has to be given its plain meaning as being directory in nature and cannot be construed as “shall”. Thus, the imposition of penalty is not mandatory. There is a discretion in the AO to impose the penalty or otherwise depending upon the facts and circumstances of each case.”
11. It is particularly observed that the Special Bench had taken note of both the decisions relied upon by the ld. CIT(A) i.e., Shobha Harish Thawani (supra), and Nirmal B Jain (supra) to and held that they cannot aid the case of the Revenue. The Special Bench (supra) is found to have inter alia observed that, the coordinate benches had not taken judicial note of the provisions of Section 46 of the BM Act and the effect thereof on the interpretation to be placed on Section 43 of the BM Act. Hence, the ratio emerging from the decisions relied upon by the Revenue to support automatic levy of penalty u/s 43 of BM Act for non-disclose of foreign asset in Sch-FA, is found to have been overruled in the decision (supra).
12. Having regard to the above prevailing legal position, we now revert back to the facts before us. The assessee is noted to be an individual who is employed with Vodafone. It is seen that, he had invested his surplus savings in foreign overseas investments with Silverdale Fund Plc. As shown to us by the Ld. AR, these investments were made through regular banking channel out of redemption proceeds of his mutual funds. The gains derived from sale of mutual funds which formed the source of such overseas investments is found to have been taxed in AYs 2020-21 & 2021-22. The remittances were made by the assessee through his regular ICICI Bank Account in compliance with the LRS Scheme of the FEMA laws. These overseas investments are found to have been later on sold in AY 2024-25 and the losses derived therefrom was also disclosed in the return of income for that year. We thus note that, the impugned non-disclosure was not on account of any undisclosed or out of books foreign assets. Rather, the overseas investments were years out of tax-paid funds through proper banking channels and in compliance with the statutory laws and that the only inadvertence committed by the assessee was the omission to fill one particular column in Schedule FA of the ITR.
13. According to us, the action of the AO in seeking to penalize an otherwise compliant taxpayer for a minor and unintended omission reflects a mechanical and hyper-technical approach. The order of the AO appears to suggest that if the omission to report any foreign asset relates to an asset valued at Rs.20,00,000/- or more, then the levy of penalty is automatic. This however is not the correct approach. As has often been observed, law is not a trap for the unwary but a guide for the just; it cannot be reduced to a ritual of fault-finding where substance is sacrificed at the altar of procedural rigidity. Having regard to the facts as discussed above, to sustain such a penalty in the given facts would not only be unjust in the present case but would also set an undesirable precedent, whereby bonafide individual taxpayers are exposed to punitive consequences for inconsequential lapses.
14. In this context, we gainfully refer to the decision to the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) wherein the Hon’ble Supreme Court authoritatively held that, “”. penalty will not ordinarily be imposed unless the party obliged has acted deliberately in defiance of law or is guilty of contumacious or dishonest conduct.” Similarly, the Hon’ble Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) underscored that the burden lies on the Revenue to establish conscious concealment and that mere technical lapses cannot justify penal action.
15. We also rely on the decision of the Hon’ble Supreme Court in Price Waterhouse Coopers (P.) Ltd. v. CIT  (SC) wherein it was reiterated that a mere omission or incorrect claim, absent any finding of mala fides, does not amount to furnishing inaccurate particulars so as to attract penalty.
16. The alleged default, in the present case, is at best, a venial and technical omission viz., the non-filling of a single disclosure column in the return of income, despite the undisputed position that the underlying foreign asset was acquired from fully disclosed, tax-paid sources, and that all income arising therefrom has been duly reported and subjected to tax in the respective years. It is further not in dispute that the transactions were lawful, duly authorized, and in complete compliance with all applicable regulatory frameworks, including FEMA. In such circumstances, to visit the assessee individual, with penal consequences would be to elevate form over substance and to punish inadvertence where there is neither concealment nor contumacious conduct.
17. The Ld. AR has rightly relied on the decision rendered by coordinate Bench of this Tribunal in the case of Palanirajan Rajarajan (supra) which we find involved similar facts and circumstances as involved in the present case. In the instant case also, the assessee had demonstrated the source of investment and there was no undisclosed foreign income as well. There was only inadvertent nondisclosure of foreign assets. We find that this Tribunal had deleted the penalty levied under Section 43 of the BM Act, upon observing as under:-
“4. Subsequently, the assessee was searched on 09-11-2017 and notices were issued u/s 153C for various assessment years on 13092019. In response, the assessee filed return of income on 21-11-2019 which was scrutinized under Income Tax Act and an assessment was framed u/s 143(3) r.w.s. 153C on 31-12-2019 wherein Ld. AO made certain addition of rental income as well as certain other addition u/s 69A. However, whatever income was earned from foreign sources, the same was offered to tax which was accepted by Ld. AO. No addition has been made for foreign income. At the same time, an assessment was also framed u/s 10(3) of BMA Act on 30-03-2021. In this order, Ld. AO noted that the details of foreign asset viz. financial interest in various entities, details of foreign bank account and details of immoveable properties was not furnished by the assessee in original return of income filed on 30-11-2016. The financial interest was held by the assessee in various entities since November, 2001 latest being July, 2005. Similarly, the foreign bank account was opened during February, 2001. One immoveable property was acquired during June, 2005 whereas another property was acquired on August, 2010. Upon perusal of all these details, it could be seen that the specified foreign assets were acquired long ago. The assessee has maintained not ordinarily resident status upto AY 2013-14 and accordingly, there was no requirement to disclose such assets in the return of income. This requirement has arisen for the first time since AY 2016-17 wherein the assessee failed to disclose the same in original return of income filed on 30-11-2016. Nevertheless, the assessee duly explained sources of all specified foreign assets and there was no foreign undisclosed asset which would require substantive addition under BMA. Under these circumstances, the claim that there was inadvertent mistake on the part of the assessee for not disclosing such asset was to be accepted. In our opinion, 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 and the issue of levy of penalty was to be examined with reference to specific facts of the case.
5. Our view is duly supported by the order of Mumbai Tribunal in the case of Addl. CIT v. Leena Gandhi Tiwari (Mumbai – Trib.)) holding that mere non-disclosure of a foreign asset in the income tax return, by itself, is not a valid reason for a penalty under the BMA. While disclosure of all foreign assets is mandatorily required to be made in an income tax return, the penalty under Section 43 of BMA comes into play only when the aggregate value of these assets exceeds Rs. 5 Lacs. Therefore, even statutorily, it is not a simple cause and effect relationship between non-disclosure of an undisclosed foreign asset in the income tax return and penalty under BMA. The unambiguous intent of the legislature thus was to exclude trivial cases of lapses which could be attributed to a reasonable cause. It could also be noted that Sec.43 provide that the Assessing Officer “may” impose the penalty, and the use of the expression “may” signifies that the penalty is not to be imposed in all cases of lapses and that there is no cause and effect relationship simplicitor between the lapse and the penalty. As to what should be the considerations for the exercise of this inherent discretion by the Assessing Officer, some guidance could be taken from Hon’ble Supreme Court’s judgment in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC),which, inter alia, 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.
6. Similar favorable view has been taken in subsequent decision of Mumbai Tribunal in Ocean Diving Centre Ltd. v. CIT (Appeals) (Mumbai – Trib.).The bench 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. In the case law of Addl. CIT v. Tejal Ashish Mehta [BMA No. 5 (Mum) of 2022 dated 03-042023], the bench has upheld the order of first appellate authority deleting similar penalty on bona-fide mistake.
7. Therefore, considering the facts and circumstances of the case as well as favorable views taken by various benches of Tribunal, we delete the impugned penalty. The appeal stand allowed accordingly.
18. We also gainfully rely on the decision of the ITAT, Hyderabad in the case of Prasad Nimmagadda(supra) which is found to be applicable with equal force in the present case. The operative portion of the decision is as under:-
“No fresh investment was made during year under consideration, with previous investments simply being continued, indicating that failure to disclose assets was due to bona fide mistake, rather than mala fide or attempt to evade law.”
“The assessee, though had pleaded ignorance or omission or technical glitch to justify non-disclosure in the return of income, the same has been rejected by the Assessing Officer /CIT(A). We are of the opinion that though Section 43 has been couched in the mandatory manner which commands the Assessing Officer to impose the penalty unless some reasonable cause has been demonstrated by the assessee for not disclosing the assets in the return of income. There is sacrosanct purpose for providing this imposition of penalty i.e., to curb the menace of Black Money and the assets possessed outside India with the help of Black Money in foreign countries. But the question arises whether the imposition of penalty is automatic in case there was a venial or technical breach also. In our considered opinion, that cannot be the inference and conclusion. 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 Legislature has deliberately provided and mandated for issuance of the show cause notice so that the assessee can explain the reasonable cause for not disclosing the investment in Foreign countries in the return of income. In the present case, the Assessing Officer after examining the case of the assessee had not made any addition under Section 10 of the B.M.A Act as the Assessing Officer was satisfied that the assessee had explained the source of investment which was containing for the earlier years starting from A.Y. 2012-13onwards. 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 bona fide 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. Furthermore, we may follow the reasoning given by the co-ordinate Bench of the Tribunal in the case of Ocean Diving Centre (supra) wherein on identical facts, the Tribunal had deleted the penalty imposed upon the assessee.
19. For the above discussed reasons and following the decisions (supra), we allow the appeal of the assessee and direct the AO to delete the penalties levied u/s 43 of the Act in toto, for all AYs 2020-21 to 2023-24.
20. In the result, all the appeals of the assessee stands allowed.