The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of penalties totalling ₹70 lakh imposed under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, for failure to disclose a German bank account in Schedule FA of income tax returns.
The bench of Sandeep Singh Karhail (Judicial Member) and Om Prakash Kant (Accountant Member) observed that penalty under Section 43 is discretionary and cannot be imposed automatically merely because a foreign asset was not reported. The authority must consider the taxpayer’s explanation and the surrounding circumstances before deciding whether penal action is warranted.
The dispute arose from information received by the tax authorities under the Common Reporting Standard, indicating that the taxpayer maintained an account with Deutsche Bank in Frankfurt, Germany.
The taxpayer, who was treated as a resident of India, had not disclosed the account in Schedule FA of his income tax returns for Assessment Years 2016-17 to 2022-23.
During proceedings under Section 10 of the Black Money Act, the taxpayer admitted ownership of the account and furnished its details. The account reflected a balance of €155,175.28 as of April 6, 2015. At the applicable RBI reference rate of ₹68.2308 per euro, the balance was valued at approximately ₹1.06 crore.
Since the value exceeded the monetary threshold prescribed under the proviso to Section 43, the Assessing Officer initiated penalty proceedings for all seven assessment years.
The officer ultimately imposed a penalty of ₹10 lakh for each year, resulting in an aggregate penalty of ₹70 lakh.
The taxpayer argued that the expression “may” in Section 43 gave the Assessing Officer discretion to determine whether a penalty should be imposed. According to him, that discretion was required to be exercised judicially after considering whether the omission was deliberate or arose from bona fide circumstances.
It was submitted that the taxpayer was a senior citizen and a retired salaried engineer who had no specialised knowledge of international taxation or foreign-asset reporting requirements.
The taxpayer also stated that he was suffering from hepatocellular carcinoma and that his spouse was undergoing treatment for a similar serious medical condition. These circumstances allegedly affected his ability to personally monitor tax compliance.
He further contended that he had relied entirely upon his tax consultant to prepare and file his returns. The consultant filed a notarised affidavit accepting responsibility for the omission and stated that he had failed to advise the taxpayer about Schedule FA requirements and the Black Money Disclosure Scheme, 2015.
The taxpayer maintained that the omission was neither deliberate nor intended to conceal the account. He also pointed out that when the departmental notice mentioned an incorrect account number, he voluntarily furnished the correct account number and supporting bank statements.
The foreign bank account was subsequently disclosed in the return for Assessment Year 2023-24.
The Assessing Officer rejected the taxpayer’s explanation, observing that ignorance of law could not excuse the failure to comply with a statutory obligation.
The officer noted that the requirement to disclose foreign assets had existed in income tax return forms since Assessment Year 2012-13, even before the enactment of the Black Money Act.
According to the officer, the taxpayer had repeatedly failed to report the account over several years, despite its substantial value. The pleas concerning lack of awareness, illness and professional negligence were held insufficient to override the taxpayer’s personal responsibility to make a correct disclosure.
The officer also observed that accepting such explanations would undermine the deterrent purpose of the Black Money Act.
On appeal, the Commissioner of Income Tax (Appeals) deleted the penalties for all seven assessment years.
The appellate authority found that the non-disclosure was a bona fide and inadvertent omission rather than a deliberate act of concealment. It took into account the taxpayer’s age, medical condition, professional background, dependence on his consultant and cooperation with the Department.
The CIT(A) also relied on the Mumbai ITAT ruling in Mahendra Kumar Mehta v. ITO, which held that the word “may” in Section 43 conferred discretion upon the Assessing Officer and that a penalty should not be imposed mechanically in cases involving a genuine mistake.
Aggrieved by the deletion, the Revenue approached the Tribunal.
The Income Tax Department argued that all the statutory ingredients of Section 43 stood satisfied because the taxpayer was a resident, held a foreign bank account valued substantially above the prescribed threshold and failed to disclose it in his returns.
The Department maintained that the omission was repeated and material, rather than a minor or isolated mistake.
It further contended that age, illness, ignorance of the Black Money Act and reliance on professional advice could not dilute the taxpayer’s statutory responsibility to disclose a substantial overseas asset.
The Tribunal identified the central issue as whether penalty under Section 43 becomes mandatory whenever a resident fails to disclose a foreign asset or whether the Assessing Officer retains discretion to refrain from imposing it in appropriate cases.
It relied on the Mumbai ITAT Special Bench ruling in Vinil Venugopal v. DDIT (Investigation), which held that the expression “may” in Section 43 makes the decision to impose a penalty discretionary.
The Tribunal explained that Section 43 uses “may” in relation to the Assessing Officer’s decision to levy a penalty, while the word “shall” relates to the fixed amount of ₹10 lakh once the decision to impose the penalty has been taken.
It further noted that Section 46(3) requires an opportunity of hearing to be given before a penalty is imposed. Such a hearing would become meaningless if the penalty were an automatic consequence of every failure to disclose a foreign asset.
Accordingly, the taxpayer’s explanation must be considered, and the discretion to impose a penalty must be exercised judicially in light of the facts of each case.
The Tribunal found that the CIT(A) had recorded categorical findings that the taxpayer was a salaried person without specialised tax knowledge and that the omission occurred because of reliance on a professional consultant who had admitted the lapse on affidavit.
The taxpayer’s serious health problems had also affected his ability to supervise compliance. Further, when confronted by the Department, he cooperated and voluntarily furnished the correct particulars of the bank account.
The Revenue failed to produce any contrary material to dislodge these factual findings.
The Tribunal observed that a penalty should not be imposed merely because the law permits it. A technical or venial breach, in the absence of contumacious conduct, would not justify penal consequences.
It concluded that the non-disclosure had been reasonably explained as an inadvertent and bona fide omission and was not a deliberate attempt to suppress the foreign account.
Finding no infirmity in the CIT(A)’s order, the ITAT dismissed all seven Revenue appeals. The taxpayer’s cross-objections concerning the validity and jurisdiction of the penalty proceedings were treated as academic and were also dismissed without adjudication.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
Read More: Reassessment Beyond 3 Years Invalid Where Escaped Income Is Below Rs. 50 Lakh: ITAT
