ITAT Deletes Rs 10 Lakh Penalty for Non-Disclosure of Foreign Investment in Schedule FA:

The assessee is Chintan Sanjay Shah who had invested USD 150,000, equivalent to Rs 1,09,47,000, in an offshore fund, ASK Global Strategies Fund, Mauritius, on September 14, 2018. The investment was made through regular banking channels from his HDFC Bank account. During verification of the income tax returns for Assessment Years 2020-21 and 2021-22, the AO found that the foreign investment had not been separately disclosed in Schedule FA. Consequently, penalty proceedings were initiated under Section 43 of the Black Money Act, and a penalty of Rs 10 lakh was imposed for each assessment year.

The assessee explained that the omission was inadvertent. The investment had been disclosed under Schedule AL as part of shares and securities in the return for Assessment Year 2020-21. The remittance was also supported by bank records, Form A2 and Form 26AS. Further, the investment had been disclosed in Schedule FA for Assessment Year 2019-20, and the assessee subsequently corrected the reporting omission in the return for Assessment Year 2022-23. The assessee contended that there was no intention to conceal the foreign investment or evade tax. The CIT(A) deleted the penalties. 

The Tribunal observed that Section 43 uses the expression “may direct” while providing for the imposition of a penalty of Rs 10 lakh for failure to furnish information or for furnishing inaccurate particulars concerning foreign assets or income. The provision, therefore, vests the AO with discretionary power, which must be exercised judiciously after considering the facts and circumstances of each case.

The Tribunal noted that the purpose of the Black Money Act is to address undisclosed foreign income and assets and to bring concealed overseas wealth within the tax net. In the present case, the foreign investment had not remained entirely undisclosed. It was reflected in Schedule AL under shares and securities, and the assessee had furnished supporting documentary evidence during the penalty proceedings.

The Tribunal rejected the Revenue’s contention that non-disclosure in Schedule FA necessarily warranted a penalty irrespective of the surrounding circumstances. Considering the disclosure of the foreign investment in Schedule AL, the supporting documentary evidence, the absence of any mala fide intention and the judicial precedents on the issue, the Tribunal held that the case did not warrant the imposition of a penalty under Section 43 of the Black Money Act, 2015.

Accordingly, the Tribunal deleted the penalties imposed on the assessee for Assessment Years 2020-21 and 2021-22 and dismissed both appeals filed by the Revenue.