Penalty u/s 43 of Black Money Act is levied for non-reporting of overseas investments and not for making investments from unaccounted money

The Mumbai Bench of Income Tax Appellate Tribunal upholds the Commissioner of Income Tax’s order confirming the levy of penalty under Section 43 of the Black Money Act (BMA) for non-disclosure of foreign assets in ‘Schedule FA’ of ITR.

While considering Assessee’s contention that the assets were not undisclosed assets as the source was explained and the income arising therefrom was offered to tax in the ITR, A Division Judge Bench of Justice Vikas Awasthy and Accountant Member Padmavathy S observed that “penalty under section 43 is levied for non-reporting of overseas investments and not for making investments from unaccounted money. The provisions of section 43 do not provide any room not to levy a penalty even if the foreign asset is disclosed in books since the penalty is levied only towards non-disclosure of foreign assets in schedule FA”.

Advocate B.N. Rao appeared for the Assessee/Petitioner whereas Advocate Prakash Kishinchandani appeared for the Revenue/Respondent.

The brief facts of the cases were that the Assessee made a joint investment (with her husband) in Global Dynamic Opportunity Fund having a 40% share but failed to disclose the said foreign asset in schedule FA of ITR filed for AYs 2016-17 to 2018-19. The Assessee appealed before Revenue but Revenue dismissed the Assesse’s Plea of bona fide error and levied a penalty under Section 43 of the BMA of Rs.10 Lacs for each AY. Further, the Assessee appealed before the Commissioner of Income Tax (CIT) but the same was rejected by CIT. Hence, the Assessee approached the Bench to seek relief. 

After considering the submission the Bench noted that the assessee has declared interest income from the foreign investment, sold and capital gain is offered to tax, however did not disclose the foreign asset while filing the return of income.

The Bench stated by the plain reading of Section 43 of BMA that a person who is resident and ordinarily resident while filing the return of income under Section 139(1), 139(4), or 139(5) fails to furnish or files inaccurate particulars of investment outside India, then the person is liable for penalty.

The Bench also stated that the disclosure requirement is not only for the undisclosed asset but any asset held by the Assessee as a beneficial owner or otherwise.

Consequently, the Bench rejected the Assessee’s argument that the penalty under Section 43 of BMA can be levied only with respect to undisclosed assets, holding the same to be untenable.

The Bench supported the CIT’s decision by stating that CIT(A) was correct in confirming the penalty since the Assessee did not disclose the foreign asset in ITR Schedule FA.

The Bench further stated while rejecting the Assessee’s alternate plea that non-disclosure of foreign assets in Schedule FA is an inadvertent and bona fide error and, therefore, does not warrant a penalty.

The Bench considers the Assessee’s argument that the levy of penalty under Section 43 is not mandatory but is at the discretion of the Revenue, by virtue of the word ‘may’ used therein.

The Bench also expressed that even assuming that the Revenue has the discretion to levy a penalty, the Assessee failed to substantiate that the Revenue exercised his discretion extravagantly.

The Bench stated that the Revenue exercised his discretion judiciously by levying a penalty only after examining the facts of the case.

Accordingly, on finding that no material was brought to show that Revenue levied a penalty in an arbitrary and unjustified manner, the Bench dismissed Assessee’s appeals. 

Cause Title: Shobha Harish Thawani Vs. Joint Commissioner of Income-tax [BMA 01/Mum/2023 / 2023-Enterslice-47-ITAT-Mum]

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