ITAT Deletes Black Money Act Penalty on Disclosed Foreign Funds

Case Details: Kumar Ramanathan vs. DDIT/ADIT (Inv.) [2026] 186 taxmann.com 784 (Chennai-Trib.)

Judiciary and Counsel Details

• Aby T. Varkey, Judicial Member & Ms Padmavathy S., Accountant Member
• N. Rajagopalan, FCA & Dr M.D. Vijay Kumar, JCIT for the Appellant.

Facts of the Case

The assessee, an Indian resident employed with Vodafone, held overseas investments including ESOP-related foreign assets and investments in Silverdale Fund Plc. The Assessing Officer (AO) received CRS information indicating that the assessee held foreign accounts with Saxo Bank and ICICI Bank, and held investments with Silverdale Fund Plc. Upon conducting an investigation, he found that, though the assessee had disclosed other foreign assets, he had omitted to disclose the investment held with Silverdale Fund Plc in his return.

AO accordingly issued a notice under section 46, read with section 43, and levied a penalty of Rs. 10 lakhs for each assessment year on the ground that the asset was not disclosed in Schedule FA and that its value exceeded Rs. 20 lakhs. Aggrieved-assessee filed an appeal to the CIT(A), wherein the CIT(A) confirmed the penalty order. The matter then reached the Chennai Tribunal.

ITAT Held

The Tribunal held that the word ‘may’ used in section 43 of Black Money Act clearly indicates a discretion vested with the AO to impose a penalty or otherwise, depending upon the facts and circumstances of each case. The imposition of a penalty upon failure to disclose foreign assets in Schedule FA is not automatic. The statutory discretion implied by the word ‘may’ demands a judicial rather than whimsical application. The AO must exercise this power reasonably and in good faith. The term ‘may’ vests the AO with discretionary power to impose penalties, which discretion must be exercised fairly, and not arbitrarily, justly and not fancifully. When a discretion is conferred on an authority, it must be exercised fairly, judicially, and within the tenets of law. Such authority is not arbitrary, and it requires a reasoned approach that accounts for all relevant circumstances.

In the instant case, the assessee invested his surplus savings in foreign overseas investments with Silverdale Fund Plc. These investments were made through a regular banking channel using the redemption proceeds from his mutual funds. The gains from the sale of mutual funds that formed the source of such overseas investments were taxed in previous years. The assessee made the remittances through his regular ICICI Bank Account in compliance with the LRS Scheme of the FEMA laws.

Thus, it was noted that the impugned non-disclosure was not on account of any undisclosed or out-of-books foreign assets. Rather, the overseas investments were made from tax-paid funds through proper banking channels and in compliance with applicable laws. The only inadvertence committed by the assessee was the omission to fill one particular column in Schedule FA of the ITR.

Therefore, the AO’s action in seeking to penalise an otherwise compliant taxpayer for a minor and unintended omission reflects a mechanical and hyper-technical approach. To sustain such a penalty on the given facts would not only be unjust in the present case but also set an undesirable precedent, whereby bona fide individual taxpayers are exposed to punitive consequences for inconsequential lapses. Thus, the levy of a penalty under section 43 of the Black Money Act was unjustified.

List of Cases Reviewed

• Vinil Venugopal v. DDIT (Inv.) [2025] 179 taxmann.com 618 (Mumbai – Trib.) (para 10)
• Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 25 taxmann.com 400/348 ITR 306/211 Taxman 40 (SC) (para 15)
• Palanirajan Rajarajan v. Addl. CIT [2025] 172 taxmann.com 817 (Chennai – Trib.) (para 17)
• Prasad Nimmagadda v. DIT [2025] 173 taxmann.com 444 (ITAT Hyd) (para 18) followed
• Ms Shobha Harish Thawani vs. Joint Commissioner of Income-tax [2023] 154 taxmann.com 564 (Mumbai – Trib.)
• Nirmal Bhanwarlal Jain v. CIT(A) [BMA Nos. 13 to 15 (Mum.) of 2023, dated 31-7-2023] (para 11) distinguished

List of Cases Referred to

• Addl. CIT v. Leena Gandhi Tiwari [2022] 136 taxmann.com 409 (Mumbai – Trib.) (para 5)
• Ocean Diving Centre Ltd. v. CIT (Appeals) [2023] 156 taxmann.com 360 (Mumbai – Trib.) (para 5)
• Prasad Nimmagadda v. DIT [2025] 173 taxmann.com 444 (ITAT Hyd) (para 5)
• Palanirajan Rajarajan v. Addl. CIT [2025] 172 taxmann.com 817 (Chennai – Trib.) (para 5)
• Vinil Venugopal v. DDIT (Inv.) [2025] 179 taxmann.com 618 (Mumbai – Trib.) (para 5)
• S.G. Jaisinghani v. Union of India [1967] 65 ITR 34 (SC) (para 9)
• Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 14)
• CIT v. Anwar Ali [1970] 76 ITR 696 (SC) (para 14)
• Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 25 taxmann.com 400/348 ITR 306/211 Taxman 40 (SC) (para 15).