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2026 (2) TMI 859
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..... 2. The ground of appeal raised by the assessee is that the impugned order of levying penalty under section 43 of the Act is not sustainable. The grounds of appeal shows that: - (i) the assessment order as well as the appellate order is unsustainable in law and the facts of the case. (ii) the penalty under section 43 of the black money Act is imposed and finalised by the first appellate authority on an assessee who was not assessed to any tax under the black money Act as per section 10, the penalty was imposed on flimsy grounds without establishing Manchuria or intentional default which is the prime requirement of imposing any penalty under any act as per the various judicial pronouncements. (iii) The appellate authority has conveniently ignored the fact that investment in foreign entity was made in assessment year 2016 - 17 where the penalty is imposed in assessment year 2017 - 18. The disclosure of the assessee about the investment in the year assessment year 2016 - 17, 2018 - 19, 2019 - 20, 2020 - 21, 2021 - 22, 2022 - 23 and 2023 - 24 was totally brushed aside for mechanically applying the hearts provisions of the black money act. (iv) Th....
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....r the BMA act, the assessee's investment in the foreign entity was found to be amounting to Rs. 6,686,689/- during the financial year 2015 - 16 wherein assessee has purchased 1 lakh shares worth one dollar each on 24/11/2015 in the above company and thus assessee has invested US$ 1 lakh. The learned assessing officer found that the investment made by the assessee in the foreign entity was out of tax paid income in India and was found to be an order and therefore the total income under black money Act was computed at Rs. Nil for assessment year 2020 - 21 as per order under section 10 dated 29 March 2023. 7. However the assessee has failed to disclose her investment in schedule FA in her return of income for assessment year 2017 - 18 therefore penalty proceedings under section 43 of the Act was initiated. 8. The notice was issued on 29th of March 2023. The assessee submitted that the investment in the firm has been duly declared in the income tax return of the assessee for the assessment year 2017 - 18 under the head (loans and advances given) in schedule AL (B) (iv) (d) financial assets and not in schedule FA. Thus the claim of the assessee is that the above amount of inve....
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....on 43 of the Act do not provide any room not to levy penalty if the foreign asset is disclosed in the books but not disclosed in schedule FA. 12. Recently the Special Bench in Vinil Venugopal vs. DDIT (Inv.) [2025] 179 taxmann.com 618 (Mumbai - Trib.)[14-10-2025] has held that Imposition of penalty for non-disclosure of foreign assets in return of income as prescribed under section 43 is not mandatory and there is a discretion in Assessing Officer to impose penalty or otherwise depending upon facts and circumstances of each case. The bench held that :- "Rival submissions : 10. We have heard Ms. Namrata Chande, learned counsel for the appellants as well as Shri V. Sridharan, Sr. Advocate for the intervenor and Shri Ritesh Misra, learned CIT-DR. The learned CIT-DR has filed written notes of arguments dated 29.01.2025 which are taken on record. We have gone through the same. 11. It is submitted by the learned AR that imposition of penalty under Section 43 of the BM Act is not mandatory merely on account of nondisclosure of foreign assets in Schedule FA. It is pointed out that the assets in the present case also cannot be said to be 'undisclosed assets....
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....ndya [BMA No. 6 (Mum.) of 2024, dated 26-6-2024] (iii) Asstt. CIT v. Rohit Krishna [BMA Nos. 36 to 40 (Mum.) of 2024, dated 27-11-2024] (iv) Prasad Nimmagadda v. ADIT [BMA No. 2 (Hyd.) of 2024, dated 16-1-2025]. 15. The learned CIT-DR has submitted that the BM Act was enacted with the specific legislative intent to ensure full and accurate disclosure of the foreign income and assets. It is submitted that Section 43 of the BM Act mandates imposition of penalty for any failure to disclose such assets in Schedule FA, which is a strict liability. It is submitted that the provision apart from being mandatory has a deterrent effect and mere omission leads to an automatic imposition of penalty and the bona fides or inadvertence of the assessee are not relevant considerations. It is submitted that the question whether non-disclosure was intentional or inadvertent is not relevant. It is submitted that the Supreme Court in Union of India v. Dharamendra Textile Processors, [2008] 174 Taxman 571/306 ITR 277 (SC) has held that provision for imposition of penalty is compensatory and not penal in nature. Therefore, it is submitted that the contention on behalf of the AR....
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.... in the Explanation to section 42." (Emphasis supplied) 18. The question is whether such non-disclosure would automatically lead to imposition of penalty or whether there is discretion in the AO to waive imposition of penalty in the appropriate circumstances. It is trite that charging/penal provisions of a taxing statute have to be construed strictly. Even otherwise, it is well established principle of interpretation of statutes, that the words must be given their plain and ordinary meaning, unless it leads to absurd results or consequences which could never be intended. Applying this test, the use of the word "may" would clearly indicate that it is discretionary in nature. It is significant to note that the concluding part of Section 43 of the BM Act employs both "may" so far as the imposition of penalty is concerned and "shall" as far as the quantum of Rs. 10 lacs is concerned. We hasten to add that although we are not concerned with the interpretation of later part, about the quantum, the fact remains that the legislature has consciously used the word "may" so far as the decision to impose penalty is concerned. 19. It is necessary to note that Section 46(3) ....
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.... the requirement of furnishing to the dealer a reasonable opportunity of being heard before a penalty is imposed. The fact that the Legislature contemplated an opportunity of being heard is indicative of the intent of the Legislature that the explanation which the dealer may have, has to be considered before the Commissioner determines as to whether penalty should be imposed. That the imposition of the penalty under sub-section (2) of section 61 is not mandatory has been emphasized in a judgment of a Division Bench of this court in Nitco Paints Ltd. v. State of Maharashtra [2011] 42 v. 71 (Bom) in the following terms (para 3 at page 74 in 42 VST): "Section 61(2) clearly specifies that upon the failure of the dealer to get his accounts audited and to furnish a copy of the report within the time as prescribed, the Commissioner may after furnishing a reasonable opportunity of being heard, impose a penalty at the rate stipulated. The law provides that the penalty may be imposed and contemplates that a reasonable opportunity should be furnished to the dealer. Obviously there would be no occasion to furnish a reasonable opportunity of being heard if the liability to levy the pen....
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....ich was actually reported. This Tribunal found that even insofar as the investment in his own name of Rs. 5,50,44,320/- is concerned, assessee only reported an amount of Rs. 3,91,04,805/-. It was in these circumstances found that the assessee had furnished inaccurate particulars of investment in his own name and there was altogether non-reporting of the investment made in the name of the children. That apart, we find that the Division Bench had no occasion to consider the provisions of Section 46 of BM Act requiring an opportunity of hearing being given to the assessee before imposition of penalty and the necessary implication of such a requirement on the question whether the imposition of penalty is automatic or otherwise. The decision therefore cannot be said to be an authority holding that the imposition of penalty is mandatory/automatic, upon failure to disclose foreign assets in Schedule FA. 25. In Shobha Harish Thawani (supra), the Tribunal has relied on the decision of Nirmal Bhanwarlal Jain (supra). In that case, the assessee jointly made certain investments in Global Dynamic Opportunities Fund Ltd. (GDOF) out of funds transferred from India to HSBC Bank at Jersey ....
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....he penalty is levied only towards non-disclosure of foreign assets in schedule FA. In the light of these discussions we see no infirmity in the order of CIT(A) confirming levy of penalty under section 43 of the BMA for non disclosure of foreign assets in the return of income filed by the assessee. Accordingly, appeals of the assessee for all assessment years i.e. 2016-17 to 2018-19 are dismissed." (Emphasis supplied) 26. It can thus clearly be seen that even the case of Ms. Shobha Harish Thawani (supra) turned on its own facts as the Bench found that the AO had formed an opinion to levy penalty upon examination of the facts of the case and the discretion was exercised judiciously. It is necessary to note that although the Bench has not noticed the provisions of Section 46 of the BM Act and the effect thereof on the interpretation to be placed on Section 43 of the BM Act, the Bench was not oblivious of the fact that there is a discretion with the AO, which in that case was found to have been exercised in a judicious manner. 27. Thus, both these decisions cannot come to the aid of the Revenue. In any event, if two views with regard to interpretation of Section 43....