Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015)

S. 43 : Penalty for failure to furnish return of income an information or furnish inaugurate particulars of an asset (Including financial interest in any entity) outside India-Failure to report foreign assets in the return- Employees Stock option- Tax is deducted at source- Failure to disclose-Income was disclosed- Penalty provision should not be invoked for punishing a technical /venial /bonafide breach of any statutory obligation – Bonafide actions of the tax payers must be excluded from the application of provisions of this stringent legislation- Levy of penalty is not valid. [S. 2(11) IT Act, S. 17(2)]
The assessee was resident of India during the years under consideration. It is alleged that assessee had foreign assets being investments with Equatex UK Ltd. (United Kingdom of Great Britain and Northern Ireland) having account No. 1660701 but was not reported in schedule FA (Foreign Assets) of the income tax return filed for the years under consideration, as revealed in the enquiries conducted by the investigation Wing. According to the Ld. Assessing Officer, failure on the part of the assessee to make the said reporting attracted penalty of ₹ 10 lakhs under section 43 of the Act. Ld. Assessing Officer had issued a show cause notice seeking explanation from the assessee to this effect which was replied upon. Assessee submitted that he was an employee of Vodafone M-Pesa Ltd and was granted stock options that is ESOPs by the company as part of his employment. Assessee received equity shares of Vodafone Group PLC (foreign listed company of the Vodafone group) which were valued at ₹18,99,873/- by the employer for assessment year 2018-19. These shares were held in an online broking account bearing user ID: 1528635 which was opened by the employer itself to facilitate the allotment of ESOPs. These ESOPs were considered as perquisites in the hands of the assessee which were valued and disclosed as per the provisions of the Income-tax Act, 1961 (the IT Act) in Form No. 12BA issued by the employer. This perquisite was included in annexure to Form 16 – Part B as per section 17(2) of the IT Act. The employer had deducted appropriate and full amount of tax at source (TDS) on the value this of perquisite. According to the assessee, since the entire amount of ESOP is fully taxed by way of TDS and which has been disclosed and offered to take under the head income from salary in his return form it does not fall within the definition of ‘undisclosed asset located outside India’ as per section 2(11) of the Act. A reference was also made to definition of assessee under section 2(2) of the Act. The AO levied the penalty. CIT(A) deleted the penalty. On appeal the assessee contend that, He has fully disclosed the income earned in the form of ESOP. (shares of a foreign company) which itself is the foreign asset, No further tax is payable on such income , This asset is generated out of the income, which is fully disclosed and taxed in India in the same assessment year, he has disclosed, beyond doubt, the source of investment in such asset. He has furnished the relevant information and particulars to the extent required to be submitted in the tax return , It is not a case of malafide intention of not disclosing either the income or the asset as the preamble to the said Act to understand the discretionary power vested with the Assessing Officer for imposition of penalty vis-à-vis object sought to be achieved keeping in mind the legislative intent. The purpose of reporting requirement of foreign assets/income in Schedule FA of the Income tax return is for tracking and monitoring the investments held abroad by the residents of India. Preamble to the Act describes its objective to deal with problem of black money, i.e., undisclosed foreign income and assets. The said Act must not be invoked for punishing a technical /venial /bonafide breach of any statutory obligation and therefore bonafide actions of the tax payers must be excluded from the application of provisions of this stringent legislation. In this regard, we draw our force from the decision of Hon’ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26(SC). Deleted the penalty. Referred Shobha Harish Thawani v . JCIT in BMA Nos. 01 to 03/Mum/2023, dated 09.08.2023.(BMA .No.36 to 40 /Mum/2024 dt. 27-11-2024)(AY. 2017-18, 2018 -19, 2019 -20, 2020-21)
ACIT v. Rohit Krishna (Mum.)(Trib.) www.itatonline.org
(Coram : Hon’ble Shri Pavan Kumar Gadale, JM and Hon’ble Shri Girish Agrawal, AM)