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.
