2025 (3) TMI 700 - AT - Income Tax

British citizen successfully challenges Rs. 10 lakh penalty for foreign asset non-disclosure under Section 43 Black Money Act

Timothy John Brinkman Versus Director of Income Tax (Inv.) FAIU-4 (1), Mumbai

Timothy John Brinkman Versus Director of Income Tax (Inv.) FAIU-4 (1), Mumbai - TMI ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this legal judgment are:(a) Whether the assessee disclosed the foreign asset to the Indian Taxation Authority in accordance with the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.(b) Whether the return was filed only after receiving a notice from the taxation authority.(c) Since the foreign asset was declared in the revised return within the prescribed time frame, whether the assessee is liable for the imposition of a penalty.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The case revolves around the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, particularly Section 43, which deals with the penalty for non-disclosure or inaccurate disclosure of foreign assets. The legal framework mandates that residents must disclose foreign assets and income in their returns, and failure to do so can result in penalties.Precedents cited include the ITAT decision in the case of Nirmal Bhanwarlal Jain vs. CIT, where it was held that inaccurate particulars about foreign assets could still attract penalties under Section 43. The judgment also references the Karnataka High Court decision in K Mohammad Haris vs. ITO, which emphasizes the importance of the initial burden of proof lying with the prosecution in cases of alleged non-disclosure.Court's interpretation and reasoning:The Tribunal interpreted that the legislative intent of the Black Money Act is to address undisclosed foreign income and assets. It emphasized that the Act should not be invoked for punishing technical or bona fide breaches of statutory obligations. The Tribunal noted that the assessee, a British citizen, filed a revised return within the prescribed time, disclosing the foreign assets, which indicated no willful non-disclosure.Key evidence and findings:The assessee, a British citizen who became a tax resident in India, initially failed to disclose foreign assets in the original return. However, upon receiving a notice, the assessee filed a revised return within the permissible time, declaring the foreign assets. The Tribunal found that the revised return was processed without objections, and there were no discrepancies identified by the revenue authorities.Application of law to facts:The Tribunal applied the principles from the Karnataka High Court ruling, emphasizing the need for the prosecution to establish willful non-disclosure. Since the assessee filed a revised return within the legal timeframe and disclosed all foreign assets, the Tribunal found no basis for imposing a penalty under Section 43.Treatment of competing arguments:The Tribunal considered the revenue's reliance on the ITAT decision in Nirmal Bhanwarlal Jain, which involved inaccurate particulars about foreign assets. However, it distinguished this case by noting that the assessee was a British citizen who had not previously been an Indian citizen, and the foreign investments were not made using undisclosed Indian income.Conclusions:The Tribunal concluded that the penalty imposed under Section 43 was unwarranted. It emphasized the absence of willful non-disclosure and the timely filing of the revised return. The appeal was allowed, and the penalty was deleted.SIGNIFICANT HOLDINGSThe Tribunal held that:'The legislative intent behind the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is to address the issue of undisclosed foreign income and assets. In the present case, the assessee is a British citizen, and the revenue authorities have failed to establish that the assessee was previously an Indian citizen or that the foreign investment was made using undisclosed income (black money) from India.'The Tribunal established the principle that bona fide actions of taxpayers must be excluded from the application of stringent legislation like the Black Money Act, as highlighted in the Supreme Court decision in Hindustan Steel Ltd.The Tribunal's final determination was to set aside the order of the Commissioner of Income Tax (Appeals) and allow the assessee's appeal, thereby deleting the penalty of Rs. 10,00,000/- imposed under Section 43.