TaxTMI 
TaxTMI 
2026 (5) TMI 1335
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....s. 21-23/Chny/2025 for AYs 2021-22 to 2023-24 as well. 3. The facts as noted are that, the assessee is an individual who is a resident of India. The assessee is gainfully employed with Vodafone. It is noted that, in terms of the employment contract, the assessee is entitled to Employee Stock Options [in short 'ESOPs'] of the foreign parent company i.e. Vodafone PLC UK, which were allotted to him from time to time. The assessee also invests his surplus in shares of foreign listed companies. In relation to the foregoing, the DDIT(Inv), Unit 4(1), Chennai [in short 'AO'] was in receipt of CRS information that, the assessee held foreign accounts with Saxo Bank, ICICI Bank and held investments with Silverdale Fund Plc. Upon conducting investigation, he found that, though the assessee had disclosed other foreign assets, but he had omitted to disclose the investment held with Silverdale Fund Plc in his return(s) of income for AYs 2020-21 to 2023-24. The AO accordingly issued notice u/s 46 read with Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 [in short 'BM Act'] on account of the fact that the assessee had failed to discl....
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....et exceeded Rs. 20,00,000/-, he levied penalty of Rs. 10,00,000/- in each of the assessment year(s) 2020-21 to 2023-24 u/s 43 of the BM Act. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A), who confirmed the action of the AO. Now the assessee is in appeal before us. 5. At the time of hearing, the Ld. AR firstly narrated the background facts and the source of investments held in Silverdale Fund Plc. He pointed out that, the assessee had invested in Silverdale Fund SPC in December 2019 (606.50 units) and May 2020 (192.16 units) through authorised banking channels under the Liberalised Remittance Scheme (LRS). It was shown that the remittances were made from ICICI Bank account A/c no.003401516016, and the source of such investment was the redemption proceeds of Indian mutual funds i.e., HDFC Overnight Fund and SBI Overnight Fund. The Ld. AR submitted that, these redemption proceeds were taxed and disclosed in the ITR for AYs 2020-21 & 2021-22. He thus showed us that, all the remittances are traceable, documented, and fully compliant with FEMA and LRS requirements. The Ld. AR thereafter brought to our notice that such foreign investment in Silve....
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....e foreign investment in Schedule FA. According to him therefore, the levy of penalty u/s 43 of the BM Act is for non-reporting of foreign assets and the fact that the foreign asset was accounted for is of no consequence. He thus does not want us to interfere with the order of Ld. CIT(A) confirming the action of the AO. 8. We have heard both the parties and perused the material placed before us. Before we advert to the impugned issue, let us first peruse the provisions of section 43 of the Act, which for ready reference and clarity reproduced hereinbelow: "43. If any person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, who has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of the said Act, fails to furnish any information or furnishes inaccurate particulars in such return relating to any asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside I....
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....e to disclose foreign assets in Schedule FA is not automatic. The relevant excerpts of the judgment are reproduced below:- "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 co....
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....mandatory. The legislative intent has been emphasized in 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 opp....
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.... the break-up of the total investment and the amount which 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 nonreporting 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 o....
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.... that, the coordinate benches had not taken judicial note of 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. Hence, the ratio emerging from the decisions relied upon by the Revenue to support automatic levy of penalty u/s 43 of BM Act for non-disclose of foreign asset in Sch-FA, is found to have been overruled in the decision (supra). 12. Having regard to the above prevailing legal position, we now revert back to the facts before us. The assessee is noted to be an individual who is employed with Vodafone. It is seen that, he had invested his surplus savings in foreign overseas investments with Silverdale Fund Plc. As shown to us by the Ld. AR, these investments were made through regular banking channel out of redemption proceeds of his mutual funds. The gains derived from sale of mutual funds which formed the source of such overseas investments is found to have been taxed in AYs 2020-21 & 2021-22. The remittances were made by the assessee through his regular ICICI Bank Account in compliance with the LRS Scheme of the FEMA laws. These overseas investments are found to have been later on sold in AY 2....
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....e column in the return of income, despite the undisputed position that the underlying foreign asset was acquired from fully disclosed, tax-paid sources, and that all income arising therefrom has been duly reported and subjected to tax in the respective years. It is further not in dispute that the transactions were lawful, duly authorized, and in complete compliance with all applicable regulatory frameworks, including FEMA. In such circumstances, to visit the assessee individual, with penal consequences would be to elevate form over substance and to punish inadvertence where there is neither concealment nor contumacious conduct. 17. The Ld. AR has rightly relied on the decision rendered by coordinate Bench of this Tribunal in the case of Palanirajan Rajarajan v. Addl. CIT (172 taxmann.com 817) which we find involved similar facts and circumstances as involved in the present case. In the instant case also, the assessee had demonstrated the source of investment and there was no undisclosed foreign income as well. There was only inadvertent non-disclosure of foreign assets. We find that this Tribunal had deleted the penalty levied under Section 43 of the BM Act, upon observing as un....
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....ecific facts of the case. 5. Our view is duly supported by the order of Mumbai Tribunal in the case of Addl. CIT v. Leena Gandhi Tiwari [2022] 136 taxmann.com 409 (Mumbai - Trib.)) holding that mere non-disclosure of a foreign asset in the income tax return, by itself, is not a valid reason for a penalty under the BMA. While disclosure of all foreign assets is mandatorily required to be made in an income tax return, the penalty under Section 43 of BMA comes into play only when the aggregate value of these assets exceeds Rs. 5 Lacs. Therefore, even statutorily, it is not a simple cause and effect relationship between non-disclosure of an undisclosed foreign asset in the income tax return and penalty under BMA. The unambiguous intent of the legislature thus was to exclude trivial cases of lapses which could be attributed to a reasonable cause. It could also be noted that Sec.43 provide that the Assessing Officer "may" impose the penalty, and the use of the expression "may" signifies that the penalty is not to be imposed in all cases of lapses and that there is no cause and effect relationship simplicitor between the lapse and the penalty. As to what should be the considerati....
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.... mistake. 7. Therefore, considering the facts and circumstances of the case as well as favorable views taken by various benches of Tribunal, we delete the impugned penalty. The appeal stand allowed accordingly. 18. We also gainfully rely on the decision of the ITAT, Hyderabad in the case of Prasad Nimmagadda vs DIT (173 taxmann.com 444) which is found to be applicable with equal force in the present case. The operative portion of the decision is as under:- "No fresh investment was made during year under consideration, with previous investments simply being continued, indicating that failure to disclose assets was due to bona fide mistake, rather than mala fide or attempt to evade law." "The assessee, though had pleaded ignorance or omission or technical glitch to justify non-disclosure in the return of income, the same has been rejected by the Assessing Officer /CIT(A). We are of the opinion that though Section 43 has been couched in the mandatory manner which commands the Assessing Officer to impose the penalty unless some reasonable cause has been demonstrated by the assessee for not disclosing the assets in the return of income. There is sacrosanct ....