No Penalty for Omission to Disclose Foreign Assets in Schedule FA if the Same is Disclosed in Other Part of ITR: ITAT

The Income Tax Appellate Tribunal (ITAT), Mumbai, has held that the penalty for non-disclosure of a foreign asset in Schedule FA cannot be said to be a complete failure to furnish information in the return if such a foreign asset is disclosed in another part of the return.

The assessee company, AdijinPerfumesPvt. Ltd., made an investment in a foreign company. As per the income tax law, the assessee was required to disclose the details of such foreign assets in Schedule FA of the Income Tax Return (ITR). Although the assessee failed to furnish the details of such investment in Schedule FA, he disclosed the same audited balance sheet in Part A-BS of the return under the head Other Investments.

The assessee explained that the omission to disclose the investment in Schedule FA was just a bona fide and inadvertent mistake. However, the AO concluded that the assessee had failed to disclose the foreign asset in the ITR and levied a penalty of Rs 10,00,000 under Section 43 of the Black Money Act.

The CIT(A), however, deleted the penalty after observing that the foreign asset was disclosed in another part of the return. The CIT(A) held that in such a case, the omission to disclose the same in Schedule FA can be treated as a technical or inadvertent lapse. Revenue challenged this order before the ITAT.

The main issue before the ITAT was whether an omission to disclose the foreign asset in a Schedule FA of the ITR can be treated as a failure to submit information in the ITR, attracting a penalty under section 43 of the Act, even if the same was disclosed in the financial statements and other parts of the ITR.

The tribunal agreed with the CIT(A)’s findings, observing that the assessee company had disclosed the investment in the audited balance sheet and other parts of the return. The tribunal said that the mere omission of reporting the investment in Schedule FA represents a lapse in the reporting format of the ITR, instead of a complete failure to disclose the foreign asset or investment.

“The omission to populate Schedule FA though certainly a procedural lapse cannot be elevated to the level of a complete failure to furnish information in the return of income so as to justify the levy of penalty under section 43,” the tribunal said.

The Tribunal explained that the main purpose of the Black Money Act is to curb undisclosed foreign assets and income, but in the present case, even though the foreign asset was not disclosed in a particular schedule, it was still disclosed in the financial statements forming part of the ITR. Therefore, the current situation did not attract a penalty under the Black Money Act.

As a result, the tribunal deleted the penalty of Rs 10,00,000 under section 43 of the Black Money Act.