[Opinion] Penalty under the Black Money Act – Insights from Recent Tribunal Decisions

Sachin Vasudeva – [2025] 176 taxmann.com 198 (Article)

1. Introduction to the Black Money Act

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, commonly known as the Black Money Act (BMA), was enacted to address the issue of undisclosed foreign income and assets. The Act aims to curb black money by imposing stringent penalties and taxes on individuals who fail to disclose their foreign assets and income. The BMA imposes severe penalties for non-disclosure of foreign income and assets. Under Section 43, a penalty of Rs. 10,00,000 can be levied for failure to disclose foreign assets in the income tax return. This penalty is applicable even if the non-disclosure is unintentional or due to ignorance of the law. However, as amended vide Finance (No. 2) Act 2024, such penalty shall not apply in respect of undisclosed foreign assets (other than immovable property), where the aggregate value of such assets does not exceed Rs. 20 lakhs at any time during a Financial Year. Additionally, Section 42 imposes penalties for failing to file returns within the prescribed time.

2. Requirement to Disclose Foreign Assets

The income tax return forms (ITR’s) require a resident Indian to disclose the details of foreign assets held by an assessee in the Foreign Assets (FA) schedule forming part of the ITR. Additionally the fourth proviso to section 139 of the Income-tax Act, 1961 (the Act) requires that even if a person (resident Indian) who is not required to file his/her return of income but holds foreign assets at any time during the year has to file his/her return of income disclosing such assets. The proviso reads as under:

Provided also that a person, being a resident other than a not ordinarily resident in India within the meaning of clause (6) of section 6, who is not required to furnish a return under this sub-section and who at any time during the previous year;

(a) Holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside in India or has signing authority in any account located outside India; or

(b) Is a beneficiary of any asset (including any financial interest in any entity) located outside India,

Shall furnish, on or before the due date, a return in respect of his income or loss for the previous year in such form and verified in such manner and setting forth such other particulars as may be prescribed.

It is important to note that though the requirement for disclosure is in the Act but the penal consequences are provided for in the BMA.

3. Analysis of Penalty Under Section 43 of the Black Money Act

If any person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the 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.

A perusal of section 43 of the BMA would show that the words used by the legislature are “………….the Assessing Officer may direct that such person shall pay by way of a penalty a sum of Rs 10 lakhs.” Thus a bare reading of the section suggests that imposition of penalty is not mandatory under the said section and due care needs to be exercised by the authorities. It is pertinent to note that unlike in the Act where the section imposing the penalty i.e. Section 270A itself carves out cases where no penalty can be imposed in bonafide cases and where the assessee has offered an explanation, however there is no such exception provided for in the BMA. It is also important to note that the penal consequences are attracted even if the source of the acquisition of the foreign assets is duly explainable. Given the fact that section 43 of the BMA does not provide for any exception, it is therefore imperative to understand how can the imposition of penalty be successfully defended.

4. General Principles Governing Imposition of Penalty

The general principles governing imposition of penalty in terms of a statutory provision are well explained in multiple decisions of the Supreme Court and High Court. Relevant extracts from a couple of judgements are given below:

Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC)

An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

Kamal Envirotech (P.) Ltd. v. Commissioner of GST [2025] 170 taxmann.com 598/108 GST 395/94 GSTL 345 (Delhi)

We also find ourselves unable to read Section 129 as embodying an intendment of the Legislature to either override or completely supersede and obliterate Section 126. Accepting such an interpretation would clearly amount to depriving a person of the benefit of the principles of moderation and modulation which Section 126 introduces and enjoins to be borne in consideration while considering the levy of a penalty. The provisions contained in sub-section (6) of Section 126 also cannot possibly be read as whittling down the application of subsections (1) and (2) of Section 126 when it ordains that it would not apply to cases where penalties stand specified either as a fixed sum or percentage. The prescription of a fixed sum or percentage for purposes of quantification of penalty, as was noticed above, is one which the Act adopts principally in sub-sections (1),(1A), (1B) and (2) of Section 122. We have already found that the transgressions which are spoken of in Section 122(1) can neither be said to be trivial nor rectifiable. Section 126(6) would thus operate only insofar as transgressions would fall within the ambit of the sub-sections referred to above. All the other provisions comprised in Chapter XIX either use the expression “which may extend to” or “shall not exceed”. Those are thus instances where the penalty in any case cannot be described to be a fixed sum or one expressed as a fixed percentage.

Section 126(6) of the Act provides that its provisions will not apply in cases where the penalty under the Act is specified as a fixed sum or as a fixed percentage. This is further reflective of the Legislature seeking to distinguish between discretionary penalties and those that are predetermined. By excluding fixed penalties from the scope of this section, the law ensures clarity and consistency in its application, underscoring the principle that certain penalties are non-negotiable and uniformly applicable irrespective of the circumstances of the breach.

It would also be pertinent to note that in Synergy Fertichem, the Gujarat High Court emphasised that authorities must distinguish between trivial breaches and serious contraventions under the Act. The High Court clarified that confiscation is penal in nature and should only apply in cases of a clear intent to evade taxes opposed to mere procedural lapses such as an incomplete EWB when other valid documents are present. Further, issuing confiscation notices under Section 130 at the initial stage, without proper grounds or evidence of an intent to evade tax, the High Court held would be unjustified and would render Section 129 ineffective. The Court ultimately came to conclude that a reasoned and fair approach is essential to avoid an unnecessary detention of goods and conveyances.

What emerges from the aforesaid judgements is that generally penalty should not be imposed in case of technical breach of the law. It is only when there is an intent to evade tax and is not merely a procedural lapse a penalty is leviable.

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