Vinil Venugopal Vs DDIT (Inv) (ITAT Mumbai)
The Special Bench of the Income Tax Appellate Tribunal (ITAT), Mumbai, was constituted to resolve a conflict in co-ordinate bench decisions regarding the interpretation of Section 43 of the Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (BM Act). The core issue was the meaning of the word “may” in the penalty provision: whether the imposition of a penalty is mandatory once a failure to disclose foreign assets is established, or if the Assessing Officer (AO) retains the discretion to impose or waive the penalty.
Facts of the Case and Dispute
The case involved two appellants, a husband and wife, who were each subjected to a penalty of Rs. 10 lacs under Section 43 of the BM Act for Assessment Year 2020-21. The penalty was imposed because the assessees failed to disclose their foreign investments, specifically with Avestar Global Opportunities SPC (Cayman Islands), in the Schedule FA (Foreign Assets) of their Income Tax Returns (RoI).
The assessees argued that:
- The investment was made through tax-paid income via the Liberalised Remittance Scheme (LRS) of the RBI and was not an ‘undisclosed asset’ under the BM Act.
- The non-disclosure in the relevant year was a genuine oversight or a bona fide mistake.
- The assets were subsequently disclosed in the returns for AY 2021-22 and 2022-23.
The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] held that once a non-disclosure of foreign assets in Schedule FA occurs, the penalty under Section 43 is warranted, implying the provision is mandatory or imposes strict liability. The AO relied on Circular No. 13 of 2015 issued by the CBDT.
