ITAT Mumbai deletes penalty under Section 43 Black Money Act for disclosed foreign assets reported in wrong ITR schedule

ITAT Mumbai deleted penalty u/s 43 of Black Money Act imposed for non-reporting of foreign assets in Schedule FA of ITR. Assessee had disclosed Mauritius offshore fund investment in Schedule AL and offered perquisite value for taxation with TDS deducted. Tribunal held the Act targets undisclosed foreign income/assets, not technical breaches. Since foreign asset was disclosed elsewhere in return with supporting documents and no malafide intent existed, penalty was deleted favoring assessee.

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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 for non-reporting of foreign assets in Schedule FA of the income tax return.

Detailed Analysis:

Levy of Penalty under Section 43 of the Act:
The core issue in the appeals was the levy of penalty under section 43 for non-reporting of foreign assets in Schedule FA of the income tax return. The assessee had made investments in offshore funds, which were not disclosed in Schedule FA for the Assessment Years 2020-21 and 2021-22. However, these investments were included in Schedule AL as part of "Shares and Securities."

The assessee argued that the omission was inadvertent and not intentional, as the investments were declared in the year they were made (AY 2019-20) and were part of Schedule AL in AY 2020-21. The assessee contended that the Act applies to undisclosed foreign income and assets, and since the investments were disclosed elsewhere in the return, the penalty should not apply. Additionally, the assessee relied on the discretionary nature of penalty imposition under section 43, which states that the Assessing Officer "may" levy a penalty, suggesting that it is not mandatory.

The assessee also referenced the decision in Hindustan Steel Ltd. vs. State of Orissa, which held that penalty should not be imposed for a technical or venial breach of the law or where there is a bona fide belief of non-liability.

Judicial Precedents and Discretionary Power:
The assessee relied on several judicial precedents, including the ITAT Mumbai's decision in Rohit Krishna vs. CIT, which dealt with similar issues and concluded that penalty is not warranted if the foreign assets are disclosed elsewhere in the return. The assessee argued that the discretionary power under section 43 should be exercised judiciously, considering the legislative intent to track undisclosed foreign income and assets, not to penalize bona fide errors.

The Revenue, on the other hand, argued that the provisions of the Act require strict compliance, and non-disclosure in Schedule FA should lead to penalty imposition. The Revenue emphasized that disclosure in Schedule FA is crucial for proper investigation and monitoring of foreign assets.

Tribunal's Findings:
The Tribunal considered the facts and circumstances, noting that the foreign assets were disclosed in Schedule AL and that there was no malafide intention or ulterior motive by the assessee. The Tribunal emphasized the legislative intent behind the Act, which is to address undisclosed foreign income and assets, not to penalize technical or bona fide breaches.

The Tribunal referred to the decision of the Hon'ble Supreme Court in Hindustan Steel Ltd., which supports not imposing penalties for technical breaches or when there is a bona fide belief of non-liability. Considering these aspects, the Tribunal concluded that the penalty under section 43 should not be imposed in this case.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, deleting the penalty imposed under section 43 for non-reporting of foreign assets in Schedule FA. The decision underscores the importance of considering the legislative intent and the discretionary nature of penalty imposition, especially in cases of bona fide errors and technical breaches.

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