2025 (3) TMI 797 - AT - Income Tax

Joint-holder of foreign assets not liable for Section 43 penalty when beneficial owner disclosed assets

Mr. Sanjay Bhupatrai Shah Versus Dy. Director of Income Tax, (INV) FAIU-3 (1), Mumbai

ITAT Mumbai held that a joint-holder of foreign assets is not liable for penalty under Section 43 of the Black Money Act, 2015 when the beneficial owner ... Penalty levied u/s. 43 of the Black Money Act, 2015 - assessee herein was shown as a joint-holder - AO received information that the assessee along with his son has made investment in MAURITIUS and assessee has not disclosed the above said assets held in a foreign Country in “Schedule FA” of income tax returns filed for these three years under consideration. Whether the joint holder is liable to disclose the foreign assets, even if he is not the beneficial owner and even if the beneficial owner has disclosed the same as 100% owner in his return of income as per his understanding of the provisions of BM Act? - HELD THAT:- In the instant cases, there is no dispute with regard to the fact that the investments have been made in the foreign asset by Shri Chinthan Sanjay Shah and he himself has declared as 100% of owner of the same in the Income tax return filed by him. The assessee has been included as a secondary owner, for administrative purposes and hence the assessee was under bonafide belief that he is not required to disclose the foreign assets, as it belongs to his son. Tax authorities have placed reliance on the fact that the assessee has lent money to his son Shri Chintan S Shah, who has, in turn, used those funds to make investments. Under the General law, merely for the reason that a person has purchased certain assets out of borrowed funds, the lender would not automatically become owner of those assets. The buyer would continue to remain owner of those assets, until it is recovered from him by the lender in accordance with law. In the event of failure of the borrower to adhere to the terms and conditions of loan. Further, the said loan transaction has taken place in India and it has been duly recorded in the books of both the lender and borrower. Hence the provisions of BMA will not extend to the loan transaction entered between the parties in India. We are of the view that the tax authorities are not justified in levying penalty of Rs. 10.00 lakhs in each of the three years under consideration. Appeals of the assessee are allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the assessee, as a joint holder of a foreign investment, is liable to disclose the foreign asset in the Schedule FA of the income tax returns, even if he is not the beneficial owner and the beneficial owner has disclosed the same as 100% owner in his return of income.Whether the penalty under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is justified in the circumstances where the assessee claims a bona fide belief that he was not required to disclose the foreign asset.The discretion of the Assessing Officer in imposing penalties under Section 43 of the Black Money Act and the requirement for judicial exercise of such discretion.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsSection 43 of the Black Money Act mandates a penalty for failure to furnish information or furnishing inaccurate particulars about an asset located outside India. The penalty is applicable to a resident who fails to disclose such assets in the income tax return. The provision includes a discretionary element, allowing the Assessing Officer to impose a penalty of Rs. 10 lakhs.Precedents from co-ordinate benches, such as in the cases of Nirmal Bhanwarlal Jain and M/s Ocean Diving Centre Ltd, emphasize the legislative intent behind the Black Money Act to curb undisclosed foreign assets and the necessity for judicial discretion in imposing penalties.Court's Interpretation and ReasoningThe Tribunal considered the legislative intent of the Black Money Act, which aims to address undisclosed foreign assets. It noted that the discretion to impose penalties should be exercised judicially, considering all relevant circumstances. The Tribunal emphasized that penalties should not be imposed if the omission to disclose was due to a bona fide belief or if the asset was already disclosed by the actual owner.Key Evidence and FindingsThe Tribunal found that the foreign investment was made by the assessee's son, Shri Chintan Sanjay Shah, who declared himself as the 100% owner in his tax returns. The assessee's name was included as a joint holder for administrative convenience. The funds for the investment were provided by the assessee to his son, but this did not automatically make the assessee the owner of the asset.Application of Law to FactsThe Tribunal applied the principles from previous cases, recognizing that the mere provision of funds does not confer ownership of the asset on the lender. The Tribunal acknowledged that the assessee's omission to disclose the asset was based on a bona fide belief, as his son had declared the asset in his returns.Treatment of Competing ArgumentsThe tax authorities argued that the assessee should have disclosed the asset due to his joint ownership status and the provision of funds. However, the Tribunal found this argument insufficient, emphasizing the importance of the beneficial ownership and the bona fide belief of the assessee.ConclusionsThe Tribunal concluded that the penalty under Section 43 was not justified, given the bona fide belief of the assessee and the actual declaration of the asset by the beneficial owner. The Tribunal directed the deletion of the penalties imposed for the assessment years in question.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal ReasoningThe Tribunal quoted from the case of M/s Ocean Diving Centre Ltd, emphasizing 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.'Core Principles EstablishedThe Tribunal established that the imposition of a penalty under Section 43 requires a judicial exercise of discretion, considering the bona fide beliefs and the actual ownership of the asset. The mere inclusion of a name for administrative convenience does not necessitate disclosure if the beneficial owner has already declared the asset.Final Determinations on Each IssueThe Tribunal determined that the penalties imposed on the assessee for the three assessment years were unjustified and directed their deletion. The Tribunal emphasized the importance of considering the actual ownership and the bona fide belief of the assessee in such cases.