Penalty for Non-Disclosure of Foreign Assets Not Mandatory | ITAT

Case Details: Vinil Venugopal v. DDIT (Inv.) - [2025] 179 taxmann.com 618 (Mumbai-Trib.)

Judiciary and Counsel Details

• Justice C.V. Bhadang, President, Saktijit Dey, Vice President & Smt. Renu Jauhri, Accountant Member
• Ms Namrata Chande for the Appellant.
• Ritesh Misra, CIT-DR for the Respondent.

Facts of the Case

The assessee, a resident individual, was subjected to a penalty under Section 43 of the Black Money Act for not disclosing their foreign investment in Schedule FA in the return of income. The assessee contended that the investment was made from tax-paid income through banking channels under the RBI LRS from their bank accounts and hence was not an ‘undisclosed asset’.

The Assessing Officer (AO) held the assessee liable and imposed a penalty of Rs. 10 lakhs, stating that once non-disclosure in Schedule FA is established before issuance of summons, a penalty follows.

The Special Bench of Tribunal was constituted to decide the following issue:

“Whether the use of the word ‘may’ in Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 should be construed as ‘shall’. In other words, whether the imposition of a penalty is mandatory once the requirements of Section 43 of the said Act are satisfied, or there is a discretion in the Assessing Officer to impose the penalty or otherwise?”

ITAT Held

The Tribunal held that the charging/penal provisions of a taxing statute have to be construed strictly. It is a 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 that 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 lakhs is concerned. 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.

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 the 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 to such redundancy or superfluousness.

Accordingly, 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 a penalty is not mandatory. There is discretion in the AO to impose the penalty or not, depending on the facts and circumstances of each case.

List of Cases Reviewed

• Nirmal Bhanwarlal Jain v. CIT(A) [BMA Nos. 13 to 15 (Mum.) of 2023, dated 31-7-2023] (para 24)
• Ms Shobha Harish Thawani v. JCIT [BMA Nos. 1 to 3 (Mum.) of 2023, dated 9-8-2023] (para 25) distinguished

List of Cases Referred to

• Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 13)
• CIT v. Ask Enterprises [1998] 230 ITR 48 (Bombay) (para 13)
• ACST v. Ankit International [2011] 46 VST 1 (Bom) (para 13)
• Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [2022] 140 taxmann.com 252/233 COMP CASE 544/173 SCL 355 (SC) (para 13)
• CIT(OSD) Central v. Shrem Alloys (P.) Ltd. [BMA Nos. 8 to 11 (Mum.) of 2023, dated 29-8-2023] (para 14)
• Addl. CIT v. Mr Manoj Mahendrakumar Pandya [BMA No. 6 (Mum.) of 2024, dated 26-6-2024] (para 14)
• Asstt. CIT v. Rohit Krishna [BMA Nos. 36 to 40 (Mum.) of 2024, dated 27-11-2024] (para 14)
• Prasad Nimmag ADIT [BMA No. 2 (Hyd.) of 2024, dated 16-1-2025] (para 14)
• Union of India v. Dharamendra Textile Processors [2008] 174 Taxman 571 (SC)/[2008] 306 ITR 277 (SC) (para 15)
• Nirmal Bhanwarlal Jain v. CIT(A) [BMA Nos. 13 to 15 (Mum.) of 2023, dated 31-7-2023] (para 16)
• Ms Shobha Harish Thawani v. JCIT [BMA Nos. 1 to 3 (Mum.) of 2023, dated 9-8-2023] (para 16)
• Nitco Paints Ltd. v. State of Maharashtra [2011] 42 VST 71 (Bombay) (para 22).