Section 153A Return Substitutes Section 139 Return, Negating

Section 153A Return Substitutes Section 139 Return, Negating Penalty Under Black Money Act for Omissions in Original Filing

Issue

Whether a penalty under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 can be levied for failing to report foreign assets in the original Schedule FA of a Section 139(1) return, if the assessee subsequently and voluntarily discloses those assets in a search-abated assessment return filed under Section 153A of the Income-tax Act, 1961.

Facts

Asset Origin: For Assessment Years 2016-17 to 2019-20, the assessee held foreign assets in the USA, which were acquired using funds earned while he was a non-resident in India.
Initial Non-Disclosure: The assessee filed his original income tax returns under Section 139(1) but omitted the disclosure of these foreign assets in “Schedule FA” (Foreign Assets).
Search and Voluntary Disclosure: A search under Section 132 was conducted on the ADS Group. During the ensuing proceedings, the assessee voluntarily disclosed the foreign assets and formally reported them in the tax returns filed under Section 153A.
Penalty Imposition: The Assessing Officer (AO) levied a penalty under Section 43 of the Black Money Act, solely on the grounds that the mandatory disclosure was absent in the original filings submitted under Section 139(1).
AO’s Action: The AO accepted and acted upon the Section 153A returns containing the disclosures, and the Revenue brought no evidence to show a deliberate attempt by the assessee to evade taxes.

Decision

Held, in favor of the assessee: The penalty levied under Section 43 of the Black Money Act was deleted as it was not legally sustainable under these circumstances.
Principle of Substitution: A return filed in response to a notice under Section 153A completely substitutes and replaces the original return filed under Section 139. Therefore, once the disclosure is successfully integrated into the Section 153A return, it cannot be legally argued that the assessee failed to report the assets.
Absence of Evasion: Since the disclosure was made voluntarily in the operative Section 153A returns, and no evidence of a conscious or deliberate attempt to conceal income or evade tax was established, the penal provisions could not be mechanically triggered.

Key Takeaways

Legal Status of Section 153A Returns: For all legal and assessment purposes, a return filed under Section 153A overrides the initial Section 139 return. Defects or omissions in the original return are effectively cured if rectifications are made validly within the Section 153A filing.

Interplay Between I-T Act and Black Money Act: While the Black Money Act strictly penalizes non-disclosure of foreign assets, its provisions must be harmonized with the procedural realities of the Income-tax Act. If the operating assessment return recognizes the assets, a penalty for “non-disclosure” becomes contradictory.

Voluntary Compliance Mitigation: Voluntary disclosure during a search assessment, combined with a lack of proven tax-evasive intent, serves as a strong defense against harsh concealment penalties.

IN THE ITAT AHMEDABAD BENCH ‘D’

Additional Commissioner of Income -tax

Ansul Darshan Shah^*

Dr. B.R.R. Kumar, Vice President
and T.R. Senthil Kumar, Judicial Member

BMA Nos. 1 to 4 (Ahd) of 2024
[Assessment years 2016-17 to 2019-20]

MAY 27, 2026

Rameshwar P. Meena, Sr. DR for the Appellant. S.N. Soparkar, Sr. Adv. for the Respondent.

ORDER

Dr. B.R.R. Kumar, Vice-president. – The captioned four appeals have been filed by the Revenue against the separate appellate orders of even dated 27.06.2024 passed by the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, relating to the Assessment Years 2016-17 to 2019-20. Since the issues involved in all the appeals are common and identical, we extract the grounds of appeal raised in BMA No.01/Ahd/2024 for Assessment Year 2016-17 for the purpose of adjudication. The decision rendered in the said appeal shall apply mutatis mutandis to the other appeal bearing BMA Nos. 2 to 4/Ahd/2024 for Assessment Years 2017-18 to 2019-20.

BMA No.1/Ahd/2024 for AY 2016-17

2. The Revenue has raised the following grounds of appeal:

On the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.10,00,000/- u/s. 43 of the Black Money (Undisclosed Foreign Income and Assets) and imposition of Tax Act, 2015 ignoring the facts of the case that assessee had not disclosed Foreign Assets and Income from outside India in his original I.T.R but disclosed the same only after search and seizure action carried out u/s.132 of the Act in the case of the assessee.

The Revenue craves leave to add/alter/armed and/or substitute any or all of the grounds of appeal.

3. The brief facts of the case are that the assessee had acquired foreign assets in USA out of funds earned when he was a non-resident in India. However, while filing return of income under section 139(1) of the Income Tax Act, 1961, the assessee did not disclose such foreign assets in Schedule FA. A search and seizure action under section 132 of the Act was conducted in the case of ADS Group on 10.04.2019. During the course of search proceedings, the assessee voluntarily disclosed foreign assets held in USA and thereafter disclosed the same in Schedule FA in the return of income filed under section 153A of the Act for Assessment Years 2016-17 to 2019-20 and also in the return filed under section 139(1) for Assessment Year 2020-21. The Assessing Officer observed that the assessee had failed to disclose such foreign assets in the original return filed under section 139(1) of the Act and accordingly levied penalty of Rs.10,00,000/-under section 43 of the BMA.

4. Aggrieved by the penalty order, the assessee preferred appeal before the Ld.CIT(A).

5. The Ld.CIT(A), after considering the submissions of the assessee, deleted the penalty by observing that the return filed under section 153A substitutes the original return filed under section 139(1) of the Act and therefore, once the foreign assets were duly disclosed in the return filed under section 153A, penalty under section 43 of the BMA was not leviable. The Ld.CIT(A) relied upon the decision of the Hon’ble Gujarat High Court in the case of Kirit Dahyabhai Patel v. ACIT (Gujarat), wherein it was held that return filed under section 153A is to be treated as return filed under section 139 of the Act for the purpose of penalty proceedings. The Ld.CIT(A) further relied upon the decision of the Hon’ble ITAT in the case of Leena Gandhi Tiwari (Mumbai – Trib.), wherein it was held that once disclosure of foreign assets is made in the return filed under section 153A, the assessee cannot be penalized for non-disclosure in the original return filed under section 139(1) of the Act. The Ld.CIT(A) also observed that the assessee had voluntarily disclosed the foreign assets during search proceedings, the foreign income was duly offered to tax in India, no adverse inference or addition was made in assessment proceedings under section 153A, the lapse was technical and bona fide in nature, there was no intention to evade tax. Accordingly, the Ld.CIT(A) deleted the penalty of Rs.10,00,000/- levied under section 43 of the BMA.

6. We have heard the rival submissions and perused the material available on record. The undisputed facts are that the assessee had not disclosed the foreign assets in Schedule FA of the original return filed under section 139(1) of the Act. However, pursuant to search proceedings under section 132, the assessee disclosed the foreign assets in the return filed under section 153A of the Act and such disclosure has been accepted by the Revenue. No addition has been made in relation to such foreign assets in the assessment framed under section 153A read with section 143(3) of the Act. The principal issue before us is whether penalty under section 43 of the BMA can be levied despite disclosure of foreign assets in the return filed under section 153A of the Act. We find that the Hon’ble Gujarat High Court in the case of Kirit Dahyabhai Patel v. ACIT (supra) has categorically held that return filed pursuant to notice under section 153A is to be treated as return filed under section 139 of the Act. Therefore, once the return filed under section 153A substitutes the original return, the disclosure made therein cannot be ignored while examining levy of penalty. We further find that the coordinate bench of the Tribunal in the case of Leena Gandhi Tiwari (supra) has held that once disclosure of foreign assets is made in the return filed under section 153A, penalty under section 43 of the BMA cannot be levied merely because such disclosure was absent in the original return filed under section 139(1). In the present case also, the assessee has voluntarily disclosed the foreign assets in the return filed under section 153A and such return alone has been acted upon by the Assessing Officer. Further, no material has been brought on record to demonstrate any deliberate attempt on the part of the assessee to evade taxes.

7. The Ld.CIT(A) has rightly appreciated that the omission was a bona fide and technical lapse. It is also an admitted fact that no addition was made in assessment proceedings in respect of such foreign assets and income. Considering the entirety of facts and circumstances of the case and respectfully following the judicial precedents referred above, we do not find any infirmity in the order of the Ld.CIT(A) deleting the penalty levied under section 43 of the BMA.

8. Accordingly, the grounds raised by the Revenue in all the appeals are dismissed.