Penalty under Section 43 Black Money Act set aside for inadvertent non-disclosure when spouse declared foreign assets

ITAT Mumbai held that penalty under section 43 of Black Money Act was unjustified where assessee failed to declare foreign assets in return but spouse had disclosed the same foreign bank accounts with interest income in his returns. Assessee subsequently filed updated return disclosing foreign assets and provided supporting documents evidencing bona fide compliance. ITAT found no willful concealment or tax evasion intent, noting the lapse was inadvertent and non-malicious. Following coordinate bench precedents, tribunal ruled mere technical breaches from bona fide belief, especially when primary holder disclosed assets, do not warrant penal consequences. Revenue failed to prove assessee was beneficial owner. Appeal allowed.

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The core legal questions considered by the Tribunal in this matter include:

• Whether the assessee was liable to disclose foreign assets held jointly with her husband in the return of income under the provisions of section 43 of the Back Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA Act).
• Whether non-disclosure or inaccurate disclosure of foreign assets in the Income Tax Return (ITR) filed by the assessee attracts penalty under section 43 of the BMA Act.
• The scope and exercise of discretion vested in the Assessing Officer (AO) and appellate authorities in imposing penalty under section 43 of the BMA Act.
• The relevance of bona fide belief and absence of willful concealment or tax evasion in cases of non-disclosure or inaccurate disclosure of foreign assets.
• The applicability of judicial precedents regarding penalty imposition under section 43 of the BMA Act in cases involving joint ownership or secondary ownership of foreign assets.

Issue-wise detailed analysis:

1. Liability to disclose foreign assets held jointly with spouse under section 43 of BMA Act

The legal framework mandates disclosure of foreign assets held by a resident individual in the Income Tax Return, specifically in the Foreign Assets Schedule (FA Schedule), introduced from Assessment Year (AY) 2012-13 onwards. Section 43 of the BMA Act imposes penalty for failure to furnish information or for furnishing inaccurate particulars relating to foreign assets.

The AO found that the assessee did not disclose foreign bank accounts held jointly with her husband in Barclays Bank PLC, Isle of Man branch, in her returns from AY 2009-10 to AY 2022-23. The AO imposed penalty under section 43 for this non-disclosure.

The assessee contended that she was a joint holder but not the first holder of the foreign accounts, which were opened and maintained by her husband. The husband had disclosed these assets and income therefrom in his returns. The assessee also filed updated returns disclosing the accounts. The Tribunal noted that the AO did not establish that the assessee was the beneficial owner or that there was any intention to conceal.

The CIT(A) upheld the penalty, observing that section 43 imposes liability for failure to furnish any information or furnishing inaccurate particulars, regardless of ownership status. The Tribunal, however, examined judicial precedents and the facts to determine the scope of this obligation.

2. Imposition of penalty under section 43 of BMA Act for non-disclosure or inaccurate disclosure

Section 43 penalizes failure to furnish information or furnishing inaccurate particulars relating to foreign assets. However, the penalty is discretionary ("may" impose penalty) and not automatic upon non-disclosure.

The Tribunal relied on decisions of coordinate benches which held that mere non-disclosure or technical lapses, especially where the primary owner has disclosed the asset and income, do not warrant penalty if there is bona fide belief and absence of malafide intent.

In the case of Aditi Avinash Athavankar, the Tribunal held that the secondary owner's failure to disclose was bona fide and not motivated by concealment, thus penalty was deleted. Similarly, in Palanirajan Rajarajan, the Chennai Bench emphasized that penalty under section 43 should be imposed only where there is deliberate defiance, dishonest conduct, or conscious disregard of obligation, not for venial or technical breaches arising from bona fide belief.

The Tribunal further observed that the legislative intent excludes trivial lapses and that the discretion to impose penalty must be exercised judiciously, considering the facts and conduct of the assessee.

3. Application of law to facts and evidence

The assessee furnished comprehensive evidence including bank statements, source of funds, husband's ITRs showing disclosure of the foreign assets and income, and details of remittances under Liberalised Remittance Scheme (LRS). The assessee's explanation of non-disclosure as a clerical error and absence of intention to evade tax was supported by the updated returns filed.

The Tribunal noted that the revenue did not produce evidence to rebut the assessee's bona fide belief or to prove beneficial ownership or tax evasion. The facts showed that the husband was the primary owner and disclosed the assets and income, and the assessee was a joint holder for administrative purposes.

The Tribunal also relied on the principle that loan transactions in India used to fund foreign investments do not automatically confer ownership of foreign assets on the lender, as held in Sanjay Bhupatrai Shah case.

4. Treatment of competing arguments and exercise of discretion

The revenue argued for strict application of section 43 and upheld the penalty. However, it failed to cite contrary judicial precedents or establish willful concealment or beneficial ownership by the assessee. The Tribunal found the revenue's case unsubstantiated and the penalty order unsustainable.

The Tribunal emphasized that the discretion under section 43 must be exercised judicially, considering the legislative intent, nature of breach, and bona fide conduct. Mere possibility of imposing penalty does not justify its imposition where the breach is technical and unintentional.

5. Conclusions

The Tribunal concluded that the penalty under section 43 of the BMA Act was unjustified and deleted the penalty of Rs. 10,00,000 imposed on the assessee. The decision in the lead case was applied mutatis mutandis to other appeals with identical facts.

Significant holdings include the following verbatim excerpts and principles:

"Section 43 of the Act has two limbs with respect to non-disclosure the first being failure to furnish any information sought in the return filed under section 139(1) and second being furnishing of inaccurate particulars in such return relating to any asset located outside India, held by her as a beneficial owner or otherwise or in respect of which she was a beneficiary, or in relation to any income from a source located outside India."

"The discretionary power would have to be exercised having regard to the facts of each case in a fair, objective and judicious manner and the intention of the relevant legislation."

"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 conscious disregard of its obligation. The penalty will not also be imposed merely because it is lawful to do so."

"The explanation tendered by the assessee... clearly establishes the assessee's bona fide belief and absence of any willful concealment or intention to evade tax."

"In view of the above facts, legal position, and judicial precedents cited, we are of the considered view that the penalty levied under section 43 of the Act in this case is unjustified and unsustainable."

The Tribunal thus established the core principle that the imposition of penalty under section 43 of the BMA Act is discretionary and must be exercised judiciously, taking into account bona fide belief, absence of malafide intent, and actual disclosure by the primary owner of foreign assets. Mere technical or clerical lapses without concealment or evasion do not attract penalty.

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