Penalty for foreign asset disclosure lapse is held unsustainable where omission was bona fide and income had already been taxed.

Penalty under Section 43 of the Black Money Act is discussed as not being automatic where foreign asset non-disclosure in Schedule FA is inadvertent and the related income has already been taxed. The foreign assets were ESOP shares received as employment compensation; tax was deducted at source on the perquisite value, and capital gains on sale were offered to tax. The omission was confined to the inaugural reporting year and arose in a fiduciary holding structure. Applying the principles that a mere technical or venial breach, without deliberate defiance or guilty intent, should not attract penalty, the lapse was treated as bona fide and technical, with no indication of concealment or tax evasion, and the penalty was deleted.

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Issues: Whether penalty under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was leviable for non-disclosure of foreign assets in Schedule FA where the omission was claimed to be inadvertent and the related income had otherwise suffered tax.

Analysis: The foreign assets were ESOP shares forming part of employment compensation, with tax having been deducted at source on the perquisite value and the capital gains on sale having been duly offered to tax. The omission was confined to non-reporting in Schedule FA in the inaugural year of the reporting requirement and in the context of a fiduciary holding structure. The penalty provision was treated as discretionary rather than automatic, and the principles that penalty should not be imposed for a mere technical or venial breach, and that absence of deliberate defiance or guilty intent is material, were applied. On the facts, the lapse was held to be bona fide and technical, with no material indicating concealment or tax evasion.

Conclusion: The penalty under Section 43 was not sustainable and was directed to be deleted; the assessee succeeded on merits.

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