No Section 43 BMA Penalty for Bona Fide Schedule FA Non-Disclosure of Foreign ESOPs

Krishore Kumar Rajagopal Vs DDIT/ADIT (ITAT Chennai)

The appeals were filed by the assessee against three orders of the Commissioner of Income Tax (Appeals), Chennai-18, all dated 18.08.2025, passed under Section 15 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) for Assessment Years 2016-17 to 2018-19. Since identical grounds were involved, the appeals were heard together and disposed of by a consolidated order. The Tribunal decided BMA No.16/CHNY/2025, with its findings applying mutatis mutandis to BMA Nos.17 and 18/CHNY/2025.

The assessee also raised an additional ground contending that the Assessing Officer lacked jurisdiction to levy the penalty. However, the Tribunal ultimately left this legal ground open after deciding the matter on merits.

The issue before the Tribunal was whether the penalty levied under Section 43 of the BMA for non-disclosure of foreign assets in Schedule FA of the return of income was sustainable.

The assessee, an individual employed overseas with Vedanta Limited, had been granted ESOPs of the foreign parent company, Vedanta Resources PLC (UK). The shares were administered through a fiduciary arrangement involving Sanne Fiduciary Services Limited, Jersey. While filing the return of income for Assessment Year 2016-17 on 22.02.2018, the assessee failed to disclose these foreign assets in Schedule FA. Consequently, penalty proceedings under Section 43 of the BMA were initiated, resulting in a penalty of ₹10,00,000, which was confirmed by the CIT(A).

Before the Tribunal, the assessee submitted that the omission was purely inadvertent and arose from lack of clarity during the inaugural year of the reporting requirement. It was argued that the perquisite value of the ESOPs had already been subjected to tax deduction at source, while the capital gains arising from the sale of the shares were duly offered to tax in Assessment Year 2019-20. According to the assessee, there was neither concealment of income nor tax evasion. Reliance was placed on the coordinate bench decision in Shri Vasanthan Jayaraman vs. Addl. CIT and the Mumbai Special Bench decision in Vinil Venugopal vs. DDIT (Inv.), particularly for the proposition that the expression “may” in Section 43 conferred discretion upon the Assessing Officer and did not make imposition of penalty mandatory.

The Department supported the orders of the lower authorities and submitted that non-disclosure of foreign assets attracted penalty under Section 43 irrespective of taxability.

After considering the rival submissions, the Tribunal observed that it was undisputed that the ESOPs formed part of the assessee’s employment compensation, that their perquisite value had been subjected to TDS, and that capital gains on their subsequent sale had been offered to tax in Assessment Year 2019-20. Thus, the entire transaction relating to the foreign asset had remained within the tax net. The only lapse was the failure to disclose the asset in Schedule FA. The Tribunal accepted the assessee’s contention that, considering the first year of introduction of the reporting requirement and the fiduciary structure through which the shares were held, the omission was bona fide and attributable to lack of clarity in the reporting requirements.

The Tribunal referred to the Mumbai ITAT Special Bench decision in Vinil Venugopal v. DDIT (Inv.), which held that the word “may” in Section 43 is directory, confers discretion upon the Assessing Officer, and does not make penalty automatic. It also noted that the requirement of providing an opportunity of hearing under Section 46(3) of the BMA necessarily required application of mind to the facts and conduct of the assessee.

The Tribunal further referred to the Supreme Court decision in Hindustan Steel Ltd. v. State of Orissa, observing that penalty should not be imposed for a mere technical or venial breach of law and that penalty proceedings require deliberate defiance or contumacious conduct. It also referred to CIT v. Reliance Petroproducts Pvt. Ltd., noting that an inadvertent or clerical error or mere failure to substantiate a claim does not amount to furnishing inaccurate particulars attracting penalty. Applying these principles, the Tribunal found the impugned penalty unsustainable.

The Tribunal also relied upon its earlier coordinate bench decision in Shri Vasanthan Jayaraman, where under similar facts penalties under Sections 41 and 43 of the BMA had been deleted after holding that the omission was a technical and venial breach. The extracted findings from that decision noted, among other things, that the foreign ESOPs had already been taxed as perquisites, the capital gains had subsequently been offered to tax, the BMA provisions had been newly introduced, and the omission was considered bona fide and inadvertent.

Applying the same reasoning, the Tribunal held that there was no material to suggest any intention on the part of the assessee to conceal foreign assets or evade taxes. It observed that the assessee had fully disclosed the income arising from the foreign assets and paid the applicable taxes. The non-disclosure in Schedule FA was therefore treated as a technical breach that did not warrant levy of penalty under Section 43 of the BMA. Accordingly, the Tribunal set aside the order of the CIT(A), directed the Assessing Officer to delete the penalty of ₹10,00,000 levied under Section 43 of the BMA, and allowed the appeals. Since the appeals were allowed on merits, the Tribunal did not adjudicate the jurisdictional ground, leaving it open. The order was pronounced on 1 April 2026 at Chennai.

Cases Discussed

• Vinil Venugopal vs. DDIT (Inv.) (ITAT Special Bench), BMA No.33/MUM/2024 (order dated 14.10.2025)
• Shri Vasanthan Jayaraman vs. Addl. CIT (ITAT Chennai), BMA Nos.4 & 5/CHNY/2025 (order dated 08.09.2025)
• CIT v. Reliance Petroproducts Pvt. Ltd. (SC), 322 ITR 158
• Hindustan Steel Ltd. v. State of Orissa (SC), 83 ITR 26

FULL TEXT OF THE ORDER OF ITAT CHENNAI

These appeals filed by the assessee are directed against three orders of Commissioner of Income Tax (Appeals), Chennai-18, all dated 18.08.2025, passed under section 15 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter called the ‘BMA’). The relevant Assessment Years are 2016-17 to 2018-19.

2. were heard together and are being disposed of by this consolidated order. Identical grounds are raised except for variation in figures. The grounds raised for assessment year 2016-17 read as follows:-

That Honourable Commissioner (Appeals) erred on facts and circumstances of the case and in law so far as the impugned Order passed by him under section 15 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the Act) is prejudicial to the interest of the Appellant.

2. The Honourable Commissioner (Appeals) erred on facts and circumstances of the case in upholding the view of the learned Assessing office (AO) who initiated the penalty proceedings after a delay of more than 7 years from the end of the assessment year to which the penalty pertains.

3. The Honourable Commissioner (Appeals) erred on facts and circumstances of the case upholding the view of the learned AO who levied the penalty mechanically without using his discretion and without providing any justification for the levy.

4. The Honourable Commissioner (Appeals) erred on facts and circumstances of the case upholding the view of the learned AO who levied the penalty on the basis of the approval which has been issued mechanically.

5. The Honourable Commissioner (Appeals) erred on facts and circumstances of the case upholding the view of the learned AO who levied the penalty without appreciating that the Appellant has not evaded any tax and the non-disclosure of the details of the assets is merely by inadvertence.

6. The Honourable Commissioner (Appeals) erred on facts and circumstances of the case upholding the view of the learned AO who levied penalty ignoring that the Appellant has fully co-operated during the proceedings by providing all the required information and clarification.

The appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above, or produce further documents before or at the time of hearing of this appeal.

3. The assessee has also raised an additional ground vide application dated 10.01.2016. The additional ground No.7 reads as follows:-

“The Honourable Commissioner (Appeals) erred on facts and circumstances of the case and in law in upholding the penalty levied by the learned AO who did not have the jurisdiction to levy the impugned penalty.”

4. We shall first adjudicate BMA No.16/CHNY/2025 and our findings/conclusions in BMA No.16/CHNY/2025 will apply mutatis mutandis to BMA Nos.17 & 18/CHNY/2025.

5. The solitary issue for our adjudication is whether the penalty levied under Section 43 of the BMA for non-disclosure of foreign assets in Schedule FA of the return of income is sustainable in the facts and circumstances of the case.

6. Brief facts of the case are as follows: The assessee is an individual and was working overseas with Vedanta Limited. Assessee was granted ESOPs of the foreign parent entity Vedanta Resources PLC (UK) during the course of his employment. The said shares were administered through a fiduciary arrangement involving Sanne Fiduciary Services Limited, Jersey. The assessee filed his return of income for AY 2016–17 on 22.02.2018, wherein he failed to disclose the said foreign assets in Schedule FA. Accordingly, penalty proceedings under Section 43 of the BMA were initiated and penalty of Rs.10,00,000 was levied. The CIT(A) confirmed the penalty levied by the DDIT / ADIT (Inv)

7. Before us, the Ld. AR submitted that the omission to disclose the ESOPs in Schedule FA was purely inadvertent and arose due to lack of clarity in the inaugural year of introduction of such reporting requirement. It was further submitted that the perquisite value of ESOPs was duly subjected to TDS and the capital gains arising on sale of shares were duly offered to tax in AY 2019–20. Hence, there was no concealment of income or tax evasion. The Ld. AR also placed reliance on the decision of the coordinate bench in the case of Shri Vasanthan Jayaraman vs. Addl. CIT in BMA Nos.4 & 5/CHNY/2025 (order dated 08.09.2025), wherein under identical facts penalty under Section 43 was deleted. The Ld.AR also relied on the Special Bench order of the Tribunal in the case of Vinil Venugopal vs. DDIT (Inv) in BMA No.33/MUM/2024 (order dated 14.10.2025) and contended that words ‘may’ used in section 43 of BMA connotes a discretionary power and it is not mandatory for AO to impose penalty.

8. The Ld. DR, on the other hand, supported the orders of the Income-tax authorities and submitted that non-disclosure of foreign assets attracts penalty under Section 43 irrespective of taxability.

9. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the ESOPs were allotted to the assessee as part of employment compensation and the perquisite value thereof was subjected to TDS. It is also not in dispute that the capital gains arising on sale of such shares were duly offered to tax by the assessee in AY 2019–20. Thus, the entire transaction relating to the said foreign asset was within the tax net.

10. The only lapse on the part of the assessee is non-disclosure of such asset in Schedule FA of the return of income for AY 2016–17. Considering the fact that the relevant year was the initial year of introduction of the reporting requirement and the shares were held through a fiduciary structure, we find merit in the contention of the assessee that the omission was bona fide and attributable to lack of clarity in reporting requirements.

11. The Mumbai ITAT Special Bench in the case of Vinil Venugopal v. DDIT (Inv.) (supra) has held that the term “may” in Section 43 is directory and confers discretion on the Assessing Officer, and the penalty is not automatic. It was further held that the requirement of granting an opportunity of being heard under Section 46(3) of BMA necessarily implies application of mind to the facts and conduct of the assessee.

12. The Hon’ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa reported in 83 ITR 26 has held that penalty should not be imposed for a mere technical or venial breach of law, and that penalty proceedings being quasi-criminal in nature, require a finding of deliberate defiance or contumacious conduct. In the present case, the lapse is purely technical. There is no material to suggest any deliberate default or guilty intent, especially when the assessee had duly reported the income arising from sale of shares much prior to issuance of any notice by the Revenue. Further, the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 has held that mere failure to substantiate a claim or an inadvertent/clerical error does not amount to furnishing inaccurate particulars so as to attract penalty. Accordingly, the impugned penalty is unsustainable.

13. We further find that under identical facts, the coordinate bench of the Tribunal in the case of Shri Vasanthan Jayaraman in BMA Nos.4 & 5/CHNY/2025 (order dated 08.09.2025) has deleted the penalty holding that such omission is a technical and venial breach, especially when the sale from such asset has already been subjected to tax. The relevant finding of the Tribunal reads as follows:-

18. We have duly considered the rival submissions and examined the material available on record. Before proceeding with the adjudication, it is necessary to recapitulate the factual matrix of the present case. The assessee, an Electrical Engineer employed with Hindustan Zinc Ltd., was allotted shares under the Employee Stock Ownership Plan (ESOP) by his employer during the financial years 2011-12 to 2015-16. The details of the perquisite value, as reflected in Form No. 16, are set out hereinbelow:

19. The said ESOP shares were treated as taxable perquisites under Section 17 of the Income-tax Act, 1961, in the assessment years (2012-13 to 2016-17). Tax was duly deducted at source by the employer and the same is evidenced by Form No. 16, copies of which are available at pages 67 to 81 of the paper book filed by the assessee. Subsequently, the shares were sold during the assessment year 2019-20, and the sale consideration was credited to the assessee’s ICICI Bank account. The sale proceeds were duly disclosed in the return of income for A.Y. 2019-20 and capital gains tax was paid thereon.

20. The relevant sections under which penalties has been imposed are namely section 41 and 43 of the Act. Section 41 of BMA reads as under:

Penalty in relation to undisclosed foreign income and asset

41. The Assessing Officer may direct that in a case where tax has been computed under section 10 in respect of undisclosed foreign income and asset, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum equal to three times the tax computed under that section.

21. Section 43 of the BMA reads as follows:

43. Penalty for failure to furnish in return of income, an information or furnish inaccurate particulars about an asset (including financial interest in any entity) located outside India.— 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, being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to five hundred thousand rupees at any time during the previous year.

Explanation.—The value equivalent in rupees shall be determined in the manner provided in the Explanation to section 42.

22. A plain reading of the aforesaid provisions establishes that the imposition of penalty thereunder is discretionary and not automatic. The use of the expression “may” coupled with the statutory right of appeal provided against such penalty orders demonstrates that the provisions are not mandatory in nature. The crucial question for adjudication is whether the non-reporting of the foreign asset and corresponding foreign income by the assessee constituted a willful default or was merely a bonafide/inadvertent omission. If the latter, the principle of reasonable cause would justify deletion of the penalty.

23. In the present case, the foreign asset, being ESOP shares, was already subject to the Indian tax net as perquisite income. The dividend income therefrom was received in the assessee’s Indian bank account and subjected to withholding tax in the source country. Upon subsequent sale of the shares in A.Y. 2019-20, the capital gains were duly reported and taxed in the assessee’s return of income dated 10.08.2019. During the proceedings under Section 10 of the BMA, the assessee voluntarily admitted the dividend income and sought permission to file a revised return. It is further relevant that for the year under consideration, the assessee filed return in Form ITR-2A (meant for salaried taxpayers without capital gains), which did not contain a column for reporting foreign assets in Schedule FA. Moreover, the BMA provisions were introduced for the first time w.e.f. A.Y. 2016-17. The assessee, being a salaried individual unacquainted with the complexities of cross-border taxation, had omitted to report the said foreign asset and dividend income due to bona fide and inadvertent reasons. On these facts, we hold that there exists sufficient reasonable cause for non-reporting, thereby warranting deletion of the penalty.

24. Before parting, we note that the CIT(A) has placed reliance on the decision of the Mumbai Bench of the Tribunal in Shobha Harish Thawani (supra). The reliance is misplaced, inasmuch as in that case, the assessee failed to establish bonafides for non-reporting. In contrast, the present assessee has demonstrated that the omission was neither deliberate nor contumacious, but a bona fide and inadvertent lapse. Accordingly, the penalties imposed under Sections 41 and 43 of the BMA, and sustained by the CIT(A), are hereby deleted.

14. In the present case, there is no material on record to suggest that the assessee had any intention to conceal foreign assets or evade taxes. The conduct of the assessee reflects full disclosure of income and due payment of taxes. Therefore, in our considered view, the impugned non-disclosure is a technical breach which does not warrant levy of penalty under Section 43 of the BMA. Accordingly, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the penalty of Rs.10,00,000 levied under Section 43 of the BMA.

15. Since the issue has been decided in favour of the assessee on merits, we do not consider it necessary to adjudicate the legal ground challenging the jurisdiction of the Assessing Officer, and the same is left open.

16. In the result, the appeals filed by the assessee are allowed.

Order pronounced in the open court on 1^st April, 2026 at Chennai.