Appeals dismissed for penalty under section 43 Black Money Act for failing to disclose foreign assets in Schedule FA despite declaring income

ITAT Mumbai dismissed appeals challenging penalty under section 43 of Black Money Act for non-disclosure of foreign assets in Schedule FA of income tax returns for AY 2016-17 to 2018-19. Assessee held 40% share in Global Dynamic Opportunity Fund Ltd through HSBC Jersey, declared interest income and capital gains but failed to disclose asset in Schedule FA. ITAT held that section 43 requires disclosure of all foreign assets regardless of whether they are undisclosed or acquired from legitimate sources. Court rejected assessee's plea of inadvertent error, finding AO exercised discretion judiciously in levying penalty for non-reporting of overseas investments in required schedule.

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Issues Involved:
1. Levy of penalty under section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) for non-disclosure of foreign assets in Schedule FA of the Income-tax return for A.Ys. 2016-17 to 2018-19.

Detailed Analysis:

1. Levy of Penalty under Section 43 of BMA:
The core issue in these appeals is the imposition of penalty under section 43 of the BMA due to the non-disclosure of foreign assets in the Income-tax returns for the assessment years 2016-17 to 2018-19. The assessee, along with her husband, invested in the Global Dynamic Opportunity Fund Ltd, holding 40% of the shares. These investments were made from funds transferred from her Indian bank account to HSBC Bank at Jersey under the liberalized remittance scheme permitted by the Reserve Bank of India.

2. Show Cause Notice and Assessee's Response:
The Assessing Officer (AO) issued a show cause notice to the assessee, questioning why the penalty should not be levied under section 43 of the BMA. The assessee responded, stating that the non-disclosure of the foreign asset was an inadvertent error and not intentional. She also mentioned that the foreign assets were disclosed in the return filed for A.Y. 2019-20. Despite these submissions, the AO imposed a penalty of Rs. 10 lakhs for each assessment year, relying on the Supreme Court decisions in the cases of Union of India vs Dharmendra Textile Processors & Ors and CIT, Ahmedabad vs Reliance Petroproducts Pvt Ltd.

3. Appeal before CIT(A):
The assessee reiterated her submissions before the Commissioner of Income-tax (Appeals) [CIT(A)], arguing that the foreign assets were not undisclosed and the income arising from them was already taxed. The CIT(A) upheld the penalty, stating that the source of the investment was explained, and the income from the foreign assets was included in the returns. However, the CIT(A) emphasized that the failure to disclose the foreign assets in the return of income under section 139(1) of the Income Tax Act, 1961, warranted the penalty under section 43 of the BMA.

4. Legal Provisions and Interpretation:
Section 43 of the BMA mandates a penalty for failure to furnish information or furnishing inaccurate particulars about an asset located outside India in the return of income. The CIT(A) clarified that the penalty is not related to the quantum of assets but to the non-disclosure of the assets in the return. The disclosure of foreign accounts in the return is crucial for proper investigation, and non-disclosure is viewed unfavorably even if there is no contumacious conduct.

5. Assessee's Arguments before ITAT:
The assessee's representative (Ld.AR) argued that the non-disclosure was an inadvertent mistake and that the power to levy penalty under section 43 of BMA is discretionary. The Ld.AR also highlighted that no penalty was levied on the husband for the same foreign assets, and the same set of evidences was submitted in both cases. The Ld.AR relied on the decision of the co-ordinate bench in the case of Leena Gandhi Tiwari vs ACIT, where the penalty was deleted.

6. Department's Arguments:
The Department's representative (Ld.DR) contended that the penalty under section 43 of BMA is for non-disclosure of foreign assets, irrespective of whether the source of the investment is explained or the income is offered to tax. The Ld.DR argued that the penalty was rightly levied as the assessee failed to disclose the foreign assets in Schedule FA.

7. Tribunal's Decision:
The Tribunal examined the provisions of section 43 of the BMA, which requires disclosure of foreign investments/assets in the return of income-Schedule FA. The Tribunal agreed with the CIT(A) that the penalty under section 43 is for non-disclosure of foreign assets, not for undisclosed assets. The Tribunal noted that the assessee did not provide any evidence to support the claim of inadvertent error. The Tribunal also observed that the AO exercised discretion judiciously in levying the penalty and that the penalty is for non-reporting of overseas investments, not for making investments from unaccounted money.

8. Conclusion:
The Tribunal found no infirmity in the order of the CIT(A) confirming the levy of penalty under section 43 of the BMA for non-disclosure of foreign assets in the return of income filed by the assessee. Consequently, the appeals for the assessment years 2016-17 to 2018-19 were dismissed.

Final Order:
The appeals of the assessee are dismissed, and the penalty under section 43 of the BMA is upheld. The order was pronounced in the open court on 09/08/2023.

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