ACIT Vs Panambur Nagesh Rao (ITAT Mumbai)
Summary: The Mumbai ITAT dealt with seven Revenue appeals and corresponding cross-objections concerning penalties of ₹10 lakh for each of AYs 2016-17 to 2022-23 under section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Information received under the Common Reporting Standard revealed that the assessee, a resident in India, maintained a foreign bank account with Deutsche Bank, Frankfurt, Germany, which had not been reported in Schedule FA of his income-tax returns. The account reflected €155,175.28 as on 06.04.2015, equivalent to ₹1,05,87,733.49 at the relevant RBI reference rate. The Assessing Officer considered the repeated non-disclosure sufficient to attract section 43 and levied ₹10 lakh for each assessment year. The assessee contended that the omission was bona fide, attributable to lack of knowledge, reliance on his tax consultant, health circumstances and professional oversight, and pointed to his subsequent cooperation and disclosure of the account.
The CIT(A) deleted the penalties after considering the assessee’s background, medical circumstances, the consultant’s affidavit accepting responsibility for the omission and the assessee’s conduct in furnishing the correct foreign-bank-account particulars. The CIT(A) also relied on Mahendra Kumar Mehta v. ITO for the proposition that the expression “may” in section 43 makes the power to levy penalty discretionary rather than automatic. Before the ITAT, the Revenue argued that the statutory ingredients of section 43 were fully satisfied and that repeated non-disclosure of a substantial foreign asset could not be treated as an inadvertent error. The Tribunal, however, noted that the legal issue had subsequently been settled by the Special Bench in Vinil Venugopal v. DDIT (Inv.) [2025] 179 taxmann.com 618 (Mumbai-Trib.). The Special Bench held that “may” in section 43 signifies discretion in deciding whether penalty should be imposed, whereas “shall” governs the fixed quantum once the decision to impose penalty is taken. It further held that the statutory opportunity of hearing reinforces that penalty is not automatic and that the assessee’s explanation and surrounding circumstances must be judicially considered.
Applying those principles, the ITAT found that the CIT(A)’s material factual findings remained uncontroverted: the assessee was a salaried individual without specialised tax knowledge; the omission resulted from reliance on a professional who admitted the lapse on affidavit; serious health circumstances impaired the assessee’s ability to supervise compliance; and, when confronted, the assessee cooperated and voluntarily furnished the correct particulars. The Revenue produced no contrary material dislodging these findings or distinguishing the assessee’s case from the bona fide circumstances considered in Mahendra Kumar Mehta. The Tribunal reiterated that penalty is not to be imposed merely because it is lawful to do so and that a technical or venial breach, reasonably explained as bona fide and inadvertent rather than deliberate suppression, does not by itself warrant penal consequences. It therefore upheld the CIT(A)’s deletion of the penalties and dismissed all seven Revenue appeals. Since the Revenue’s appeals failed on merits, the jurisdictional grounds raised in the assessee’s cross-objections were treated as academic and were not adjudicated. All Revenue appeals and the assessee’s cross-objections were consequently dismissed.
Cases Discussed
- Vinil Venugopal v. DDIT (Inv.) [2025] 179 taxmann.com 618 (ITAT Mumbai, Special Bench) – followed for holding that the expression “may” in section 43 of the Black Money Act makes levy of penalty discretionary and not automatic; “shall” relates to the quantum once penalty is imposed.
- Mahendra Kumar Mehta v. ITO, BMA No. 20/Mum/2025, dated 27.05.2025 (ITAT Mumbai) – relied upon by the CIT(A) on bona fide non-disclosure of a foreign asset arising from professional lapse and on the discretionary character of section 43 penalty.
- K.C. Builders v. ACIT, 265 ITR 562 (Supreme Court) – relied upon by the assessee in support of the principles governing penal consequences and absence of deliberate default.
- CIT v. Dalmia Dyechem Industries Ltd., 377 ITR 133 (Bombay High Court) – relied upon by the assessee in support of deletion of penalty for bona fide conduct.
- Hindustan Steel Ltd. v. State of Orissa, 83 ITR 26 (Supreme Court) – discussed for the principle that penalty is not to be imposed merely because it is lawful to do so and may be declined for technical or venial breach or bona fide conduct.
- Addl. Commissioner of Sales Tax v. Ankit International, Sales Tax Appeal No. 9 of 2011 (Bombay High Court) – discussed in the Special Bench ruling reproduced by the Tribunal for construing “may” as conferring discretion in imposition of penalty.
- Nirmal Bhanwarlal Jain – discussed and distinguished in the reproduced Special Bench ruling because the claim of bona fide mistake in non-reporting of foreign investments had remained unsubstantiated.
- Shobha Harish Thawani – discussed and distinguished in the reproduced Special Bench ruling; penalty was sustained on the facts because the assessee failed to establish bona fide non-reporting and the AO’s discretion was found to have been judicially exercised.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals by the Revenue and the cross-objections by the assessee arise from a common order passed by the learned Commissioner of Income Tax (Appeals)–15, Mumbai [“the Ld. CIT(A)”] for Assessment Years 2016–17 to 2022–23 under section 15 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“the BMA”). The controversy involves the exigibility of penalty under Section 43 of the BMA.
The genesis of the dispute lies in information received under the Common Reporting Standard (CRS), indicating that the assessee maintained an undisclosed foreign bank account with Deutsche Bank, Frankfurt, Germany, bearing account number 100604446500. Although the assessee maintained the status of a ‘Resident in India’, the said asset i.e account, carrying a substantial balance exceeding the statutory threshold, was not reported in the ‘Schedule FA’ of his Returns of Income filed for the years under consideration i.e. for A.Ys. 2016-17 to 2022-23.
2.1 During the course of proceedings under section 10 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“the BMA”), the assessee admitted ownership of the foreign bank account in question and furnished partial statements thereof. Upon verification, it was noticed that the account reflected a balance of €155,175.28 as on 06.04.2015, which, at the relevant RBI reference rate of ₹68.2308 per Euro, translated to ₹1,05,87,733.49—substantially exceeding the monetary threshold prescribed under the proviso to section 43 of the BMA. The said foreign asset remained undisclosed in the returns of income filed by the assessee up to Assessment Year 2022–23.
2.2 In view of the above, the Assessing Officer (“AO”) formed a prima facie satisfaction that the assessee had failed to discharge the statutory obligation of disclosing a foreign financial asset. Accordingly, penalty proceedings under section 43 of the BMA were initiated for Assessment Years 2016–17 to 2022–23, proposing levy of penalty of ₹10,00,000/- for each year of default.
2.3 In response, the assessee filed detailed submissions contesting the proposed penalty both on facts and in law. It was contended that the expression “may” employed in section 43 confers discretion upon the AO, and that such discretion ought to be exercised judiciously, particularly where the default is attributable to bona fide circumstances. The assessee submitted that he is a senior citizen who had been in salaried employment throughout his career and lacked exposure to the complexities of international taxation and foreign asset reporting. It was further urged that at the time of introduction of the BMA, the assessee was unaware of the disclosure requirements relating to foreign assets.
2.4 The assessee emphasised that his returns of income from Assessment Year 2012–13 onwards had been processed and accepted, including under scrutiny, without any adverse inference regarding non-disclosure of foreign assets, thereby reinforcing his bona fide belief that his tax affairs were in order. It was also brought on record that the assessee was suffering from serious medical conditions, including hepatocellular carcinoma, and that his spouse was likewise unwell, which materially impaired his ability to oversee compliance matters.
2.5 It was further submitted that the assessee had placed complete reliance on his tax consultant, who failed to advise him regarding the requirement of disclosure in Schedule FA as well as the availability of the Black Money Disclosure Scheme, 2015. The omission, therefore, was asserted to be neither deliberate nor contumacious, but attributable to lack of awareness, ill health, and professional lapse. The assessee also highlighted that upon becoming aware of the legal requirement, he suo motu disclosed the foreign bank account in the return of income for Assessment Year 2023–24, thereby evidencing his bona fides.
2.6 In support of these submissions, reliance was placed on judicial precedents, including K.C. Builders v. ACIT (265 ITR 562) (SC), CIT v. Dalmia Dyechem Industries Ltd. (377 ITR 133) (Bom), and Hindustan Steel Ltd. v. State of Orissa (83 ITR 26) (SC), to contend that penalty is not to be imposed merely because it is lawful to do so, and that absence of mens rea coupled with bona fide conduct constitutes a valid ground for non-imposition of penalty. The assessee accordingly prayed for deletion, or in the alternative, reduction of penalty.
2.7 The AO, however, was not persuaded by the aforesaid explanations. It was held that the plea of ignorance of law is untenable in view of the settled maxim ignorantia juris non excusat. The AO further observed that the requirement of disclosure of foreign assets had already been incorporated in the return forms from Assessment Year 2012–13 onwards, much prior to the enactment of the BMA, and thus the obligation existed independently under the Income-tax Act as well.
2.8 The AO also distinguished the judicial precedents relied upon by the assessee on the ground that they pertained to penalty provisions under the Income-tax Act or other statutes, whereas the BMA is a special legislation enacted with a specific deterrent objective to curb undisclosed foreign income and assets. It was noted that the assessee had consistently failed to disclose the foreign bank account over multiple assessment years, and that the value of the asset far exceeded the statutory threshold, thereby squarely attracting the provisions of section 43.
2.9 On a cumulative consideration of the facts, the AO concluded that the assessee, being a resident, was under a clear statutory obligation to disclose the foreign bank account and had failed to do so persistently. The explanations of ignorance, illness, or professional lapse were held insufficient to override such statutory duty. The AO further observed that permitting such explanations would defeat the very purpose and deterrent object of the BMA. Holding that the default was established and that the case warranted penal action, the AO proceeded to levy penalty of ₹10,00,000/- for each of the Assessment Years 2016–17 to 2022–23 for failure to disclose the foreign bank account in Schedule FA of the respective returns of income.
On appeal, the Ld. CIT(A) deleted the penalties in toto. The first appellate authority observed that the assessee is a senior citizen and a retired salaried engineer with no technical expertise in tax law. Various observation made by the ld CIT(A) can be summarised as : (a) Reasonable Cause: The assessee was battling Hepatocellular Carcinoma, and his spouse was similarly indisposed, severely impairing his ability to monitor complex tax compliances; (b) Professional Oversight: An affidavit from the tax consultant was filed, owning full responsibility for the clerical omission in Schedule FA; (c) Bona Fide Conduct: Upon being confronted, the assessee immediately provided the correct account details, demonstrating a lack of mens rea; and (d) Judicial Precedent: The Ld. CIT(A) placed reliance on the Coordinate Bench decision in Mahendra Kumar Mehta v. ITO, holding that the word “may” in Section 43 confers discretionary, not mandatory, power upon the Revenue.The relevant finding of ld CIT(A) is reproduced as under:
“5.3 The findings of the AO and the submissions of the appellant have been considered. It is an admitted fact that the appellant is a qualified engineer by profession and has served throughout his career in the salaried sector. The appellant does not have any background or technical knowledge in taxation or finance. It is also a matter of record that the appellant has been suffering from serious health ailments, including Hepatocellular Carcinoma, and that his spouse is also under treatment for a similar medical condition. These circumstances, coupled with the overall factual appellant’s advanced age, are relevant factors in appreciating the overall matrix of the case.
5.4 It is the appellant’s case that owing to his limited understanding of tax law, he had entrusted the task of preparing and filing his returns to an authorised tax consultant. The said consultant, by way of a duly notarised affidavit, has admitted that the omission to disclose the foreign bank account in Schedule FA of the return of income was inadvertent and unintentional, arising from his own lack of familiarity with the disclosure requirements introduced by the BMA. The consultant has also stated that he had not informed the appellant regarding the Black Money Disclosure Scheme, 2015, and that had he been aware, the appellant would have made voluntary disclosure without hesitation. The appellant has relied upon this affidavit to contend that the omission was not willful, but occurred on account of professional lapse.
It is further on record that upon receipt of notice from the Department based on the Common Reporting Standard (CRS) information, the appellant voluntarily clarified that the bank account number mentioned in the notice was incorrect and, on his own volition, furnished the correct bank account number along with supporting statements. This act of disclosure, rather than denial, has been relied upon by the appellant to establish that there was no intention to conceal or suppress. The appellant has contended that a person harbouring mala fide intent would have denied ownership of the account rather than voluntarily identifying it.
5.6 The appellant has also placed reliance on the decision of the Hon’ble Mumbai Tribunal in Mahendra Kumar Mehta v. ITO [BMA No. 20/Mum/2025, dated 27.05.2025], wherein the Tribunal held that penalty under section 43 of the BMA is discretionary, and that such discretion must be exercised judiciously, taking into account the bona fides of the assessee and the presence or absence of mens rea. In that case, the non-disclosure of a foreign asset arose due to inadvertent omission by the assessee’s representative, and the Tribunal observed that in the absence of deliberate concealment or revenue loss, penalty should not be imposed mechanically. The appellant submits that his case stands on a similar footing – the omission being a bona fide mistake of his representative, supported by affidavit, coupled with the appellant’s ill health and lack of technical knowledge.
5.7 The appellant further contends that the use of the expression “may” in section 43 of the BMA indicates that the provision is not mandatory but discretionary, and that the authority must evaluate whether the default was deliberate or arose due to reasonable cause. The appellant therefore urges that the mitigating factors, namely his professional background, medical condition, reliance on professional advice, and penalty.
5.8 The provisions of section 43 of the BMA, clearly envisage that where an assessee, being a resident, fails to furnish information or furnishes inaccurate particulars in the return of income relating to an asset located outside India, the AO may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees. It has already been held in a number of decisions of ITAT, Mumbai that the deliberate use of the expression. “may” instead of “shall” signifies that the legislature has consciously vested the AO with discretionary power, to be exercised judicially and not mechanically. And though the legislative intent is to ensure compliance with disclosure obligations under the Act, at the same time, protecting genuine taxpayers from penal consequences in cases of bona fide error or inadvertence.
5.9 In the present case, it is not in dispute that the appellant did not report the foreign bank account in Schedule FA of his return of income. However, the surrounding circumstances show that the non-disclosure was not accompanied by any element of mens rea or deliberate intent to conceal. The appellant, being an engineer by profession and a salaried individual, had no specialised knowledge of tax or foreign disclosure obligations. He relied entirely on a professional consultant, who has accepted responsibility for the omission by way of a sworn affidavit, admitting that the lapse occurred due to his own ignorance of the disclosure requirements introduced under the BMA. The appellant’s ill health and advanced age further impaired his ability to monitor such compliances personally. Moreover, the suo moto disclosure of the correct bank account number, upon noticing the error in the CRS information, demonstrates a conscious effort at transparency, inconsistent with the conduct of concealment.
5.10 It is pertinent to note that the facts of the appellant’s case bear a close and material resemblance to those considered by the Hon’ble Mumbai Tribunal in the case of Mahendra Kumar Mehta v. ITO [BMA No. 20/Mum/2025, dated 27.05.2025]. In that case, too, the assessee was an individual of advanced age, not professionally engaged in business or tax practice, who had inadvertently failed to disclose a foreign bank account in Schedule FA of his return of income. The omission had occurred due to an error on the part of his authorised representative, who was unaware of the newly introduced disclosure requirements under the BMA. The assessee in Mahendra Kumar Mehta had similarly demonstrated bona fide conduct, voluntary cooperation, and absence of any intention to conceal or mislead. The Tribunal, after appreciating these circumstances, held that such omission constituted a technical and unintentional lapse and not a case of deliberate concealment attracting penalty under section 43 of the Act. The appellant before me stands on an identical factual footing, being a salaried engineer, of advanced age and ill health, with no specialised tax knowledge, who relied entirely on his consultant for compliance and voluntarily furnished correct details when the issue was brought to notice. The parity between the two cases, both in substance and circumstance, therefore lends strong support to the appellant’s contention that the omission was inadvertent and not willful within the meaning and intent of section 43 of the Black Money Act.
5.11 Applying the ratio of the aforesaid decision to the facts of the present case, I find that the appellant has satisfactorily demonstrated the absence of malafide intention or deliberate suppression. The omission in not reporting the foreign bank account in Schedule FA is credibly explained as having arisen out of professional lapse and inadvertence, corroborated by an affidavit from the consultant. The appellant has also acted in good faith by subsequently furnishing full particulars of the account, both during the proceedings and in later returns. There is no material on record to suggest that the appellant derived any undisclosed benefit or attempted to frustrate the process of assessment. In the instant case, the cumulative effect of the appellant’s professional background, ill health, reliance on a consultant, and cooperative conduct establishes a bona fide omission rather than willful defiance of law.
5.12 In view of the totality of facts and circumstances, and respectfully following the decision of the Hon’ble Mumbai Tribunal in Mahendra Kumar Mehta v. ITO (supra), I am of the considered opinion that this is not a fit case for levy of penalty under section 43 of the BMA. Accordingly, the penalty of Rs.10,00,000/- levied by the AO for each of the assessment years 2016-17 to 2022-23 is hereby deleted.”
4. Aggrieved with the order of ld CIT(A) , the Revenue is in appeal before us. Since common grounds have been raised in all the appeals, therefore, for the sake of brevity, grounds raised by the Revenue in assessment year 2016-17 is reproduced as under:
1. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in cancelling the penalty of Rs. 10,00,000/ imposed u/s 43 of the Black Money Act for AY 2016-17, even though the assessee continued to maintain the same foreign bank account with Deutsche Bank, Frankfurt and did not report this asset in the prescribed foreign asset schedule or elsewhere in the return of income for the year.
2. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in not appreciating that for AY 2016-17 also the assessee satisfied every ingredient of section 43, inasmuch as he was resident in India, held an overseas bank account with a balance substantially exceeding the specified monetary threshold and failed to furnish information about this asset in the return, and therefore the fixed penalty of Rs. 10,00,000/ was a proper and lawful consequence.
3. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in characterizing the non disclosure of a high value foreign bank account in AY 2016-17 as an inadvertent or minor error, whereas viewed against the backdrop of similar omissions in earlier and later years it constitutes a repeated and material breach of the foreign asset reporting obligation and is precisely the kind of serious default for which section 43 has been enacted.
4. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in accepting explanations relating to age, illness, lack of awareness of the Black Money Act and reliance on professional advice as sufficient reasonable cause, although these factors do not displace the assessee s personal responsibility to ensure correct disclosure of a substantial foreign asset, and do not justify deletion of the penalty of Rs. 10,00,000/ for AY 2016-17.
5. It is prayed that the appeal is filed even though the tax effect is below the monetary limit since the case fall under exception specified in para-3.1(g) of the CBDT Circular 05/2024 dated 15.03.2024.
4.1 Similarly, there are common grounds raised in the cross-objections by the assessee, therefore, for the sake of brevity, the grounds raised in cross-objection for the assessment year 2016-17 are reproduced as under:
1. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the penalty proceedings initiated and the penalty order passed u/s. 43 of the Act is invalid and bad in the eyes of law.
2. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the penalty proceedings initiated and the penalty order u/s 43 of the Act passed by the Ld. AO being DDIT(Inv)-3(1), FAIU, Mumbai is without having valid jurisdiction over the case is invalid and bad in the eyes of law.
4.2 A preliminary objection was raised regarding a delay of 359 days in filing the Revenue’s appeal. Upon scrutiny, we find the Registry’s calculation was based on an erroneous transcription of the service date in Form No. 3 (recorded as 2024 instead of 2025). We find the appeal to be within the limitation period; the objection is accordingly overruled.
We have heard rival submissions of the parties and perused the relevant materials on record. In the case, the Assessing Officer has levied penalty u/s 43 of the BMA dated 13.09.2024 passed by the Ld. Assessing Officer i.e. DDIT Investigation -3 (1), FAIU, Mumbai for assessment year 2022-23. It is the contention of the Ld. Assessing Officer that the said penalty is mandatory in the case where information of foreign asset is not reported in the return of income filed by the resident assessee, whereas according to the Ld. CIT(A) word ‘may’ used in the provisions of section 43 gives discretion to the Assessing Officer to levy the penalty keeping in view the ‘reasonable and sufficient cause’.
5.1 The Revenue has challenged the deletion of penalty, contending that: (i)The conditions of section 43 stood fully satisfied; (ii) The non-disclosure was repeated and material, not inadvertent;and (iii) Personal circumstances such as age, illness, or reliance on professional advice do not dilute statutory obligations.
5.2 Thus, the core issue for adjudication is whether penalty under section 43 of the BMA is mandatory upon non-disclosure of foreign assets, or whether the provision vests discretion in the Assessing Officer.
5.3 This issue now stands settled by the Special Bench of the Tribunal in Vinil Venugopal v. DDIT (Inv.) [2025] 179 taxmann.com 618 (Mumbai–Trib.), wherein it has been held that:(i)The use of the expression “may” in section 43 signifies that the imposition of penalty is discretionary; (ii)The expression “shall” pertains only to the quantum of penalty, once the decision to levy penalty is taken; (iii) The statutory requirement of granting an opportunity of hearing reinforces that penalty is not automatic, but contingent upon consideration of the assessee’s explanation; and (iv) Penal provisions must be construed strictly, and discretion must be exercised judiciously, having regard to the facts of each case.The relevant finding of the Special Bench is reproduced as under:
“17. The BM Act was enacted with an avowed purpose to deal with the menace of stashing away of black money abroad by the resident individuals with the intent to evade taxes. The Act makes elaborate provisions for dealing with the undisclosed foreign income and assets and for imposition of tax on such undisclosed foreign income and assets. In the present reference, we are only concerned with the provisions of Section 43 of the BM Act providing for imposition of penalty on account of failure of the assessees to disclose foreign investment/asset/income in Schedule FA. Section 43 of the BM Act reads as under :-
“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 India, at any time during such previous year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees:
Provided that this section shall not apply in respect of an asset or assets (other than immovable property), where the aggregate value of such asset or assets does not exceed twenty lakh rupees.
Explanation— The value equivalent in rupees shall be determined in the manner provided 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) of the BM Act provides that no order imposing penalty shall be made unless the assessee has been given an opportunity of being heard. Such requirement cannot be said to be an empty formality. Thus, the interpretation that imposition of penalty is automatic, on the failure of the assessee to make the disclosure in Schedule FA, would make the provision for opportunity of hearing being granted to the assessee before imposition of penalty, redundant or superfluous. It is the fundamental principle of interpretation that the legislature can never be attributed with such redundancy or superfluousness.
20. In Hindustan Steel Ltd. (supra), arising out of the Odisha Sales Tax Act, 1947 the Supreme Court, inter alia, held in the context of penalty under Section 270 of the Income Tax Act, 1961 that even where the minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose the penalty when there is a technical or venial breach of the provisions of the Income Tax Act.
21. In Ankit International (supra), the jurisdictional Bombay High Court held that imposition of penalty under Section 61(2) of the Maharashtra Value Added Tax Act, 2002 (2002 Act, for short) is not mandatory where the dealer liable to get his accounts audited under Section 61(1) failed to furnish a copy of such report within the time as prescribed. It is significant to note that Section 61(2) of the 2002 Act also employs the word “may” in relation to the Commissioner’s power to impose the penalty in the face of a breach to get the accounts audited and failure to furnish a copy of such report within the time prescribed. In the context thereof, the Bombay High Court held as under :-
“9. The imposition of a penalty in sub-section (2) of section 61 is not mandatory. The Commissioner has been conferred with the discretion to determine as to whether a penalty should or should not be imposed, if a dealer who is liable to get his accounts audited under sub-section (1), fails to furnish a copy of the report within the time prescribed. The Legislature has provided that the Commissioner “may” impose a penalty after giving the dealer a reasonable opportunity of being heard. The use of the word “may” is clearly suggestive of the fact that imposition of a penalty is not 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.”
24. In Nirmal Bhanwarlal Jain (supra), the assessee had made investments in his own name and in the names of his children viz. Ms. Harshita Nirmal Jain (Daughter), Ms. Kalpita Nirmal Jain (minor Daughter) and Mst. Bhavya Nirmal Jain (minor Son). It was undisputed that out of the total investment during the year of Rs.21,70,69,320/-, investment only to the extent of Rs.3,91,04,805/- was reported in Schedule FA. The assessee, inter alia, claimed that the investment was made out of funds on which tax was already paid and there was no unaccounted money involved. Next, it was contended that the non-reporting was out of a bona fide mistake. A perusal of para 6 of the order would indicate that this Tribunal found that the claim about there being bona fide mistake went unsubstantiated. In that view of the matter, the appeal filed by the assessee challenging the imposition of penalty came to be dismissed.
In the first instance, we find that the case is distinguishable inasmuch as on facts it was found that the claim of assessee that non-reporting was out of a bona fide mistake was unsubstantiated. In other words, the assessee had failed to establish that there was a bona fide mistake in the non-reporting of the investment in Schedule FA. This finding has been recorded by the Bench after reproducing 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 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 (USA). The assessee held 40% share in the investment. The investment was made through Liberalised Remittance Scheme under the Foreign Exchange Management Act (FEMA). Even in this case, the assessee claimed that non-reporting was out of a bona fide mistake. The Bench found, on facts, that the claim that the failure to report in Schedule FA was out of a bona fide mistake cannot be accepted. This Tribunal observed that even if it is assumed that in the light of the expression “may” used in Section 43 of the BM Act the AO has the discretion to levy the penalty, the assessee failed to substantiate that the AO has exercised his discretion extravagantly. The following observations in para 11 are to the point :-
“11. The alternate plea of the assessee is that the non-disclosure of the foreign asset in schedule FA of the return is an inadvertent bona fide error and therefore does not warrant levy of penalty. In this regard it is noticed that, though the assessee claims that the non-reporting is a bona fide mistake, there is nothing on record in support of the said claim. It is also contended that the levy of penalty under section 43 is not mandatory but is at the discretion of the Assessing Officer since the word used in the section is that the Assessing Officer “may” levy penalty. In the given case it is an undisputed fact that the impugned foreign asset has not been disclosed in the return of income filed for all the three assessment years 2016-17 to 2018-19 in schedule FA. Even if it is assumed that in the light of expression “may” used in section 43 of BMA, the Assessing Officer has the discretion to levy penalty, the assessee failed to substantiate that the Assessing Officer has exercised his discretion extravagantly. The Assessing Officer after examining the facts of the case, formed his opinion to levy penalty. The Assessing Officer exercised his discretion judiciously. No material is brought before us to show that Assessing Officer levied penalty under section 43 of BMA in an arbitrary and unjustified manner. The contention that the assets are not undisclosed assets may be factually true, but 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 does not provide any room not to levy 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. 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 of the BM Act are possible, it is a settled position that it would be justified to adopt that construction which favours the assessee.
28. In the result, we answer the issue as framed in the negative. The word “may” used in Section 43 of the BM Act has to be given its plain meaning as being directory in nature and cannot be construed as “shall”. Thus, the imposition of penalty is not mandatory. There is a discretion in the AO to impose the penalty or otherwise depending upon the facts and circumstances of each case.”
5.4 In the present case, the Ld. CIT(A) has recorded a categorical finding that(i)The assessee is a salaried individual with no specialised tax knowledge; (ii) The omission occurred due to reliance on a professional, who has admitted the lapse on affidavit; (iii)The assessee was suffering from serious health ailments, limiting his ability to oversee compliance; (iv) Upon being confronted, the assessee cooperated and furnished correct particulars voluntarily; These findings remain uncontroverted. The Revenue has not brought on record any distinguishing feature or contrary material to dislodge the factual parity with the decision in Mahendra Kumar Mehta (supra).
5.5 It is trite law that penalty is not to be imposed merely because it is lawful to do so, but only where the conduct of the assessee warrants such penal consequences. A technical or venial breach, absent contumacious intent, does not justify imposition of penalty. The non-disclosure in the present case, stands reasonably explained as a bona fide and inadvertent omission, and not as a deliberate act of suppression.
5.6 In light of the above discussion, we find no infirmity in the order of the Ld. CIT(A) in deleting the penalty. The order is well-reasoned, consistent with the statutory framework, and supported by binding judicial precedent. Accordingly, the grounds raised by the Revenue are dismissed.
5.7 Since we have already dismissed the ground raised by the Revenue on the merit, the grounds raised in the cross-objection are rendered merely academic and accordingly, we are not adjudicating upon the same.
In the result, all the appeals of the Revenue and cross-objection of the assessee are dismissed.
Order pronounced in the open Court on 26/03/2026.
