ITAT Chennai Cancels Section 43 BMA Penalty for Bona Fide Non-Disclosure of Foreign ESOPs

1. Background and Case Overview

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) in Krishore Kumar Rajagopal Vs DDIT/ADIT examined whether a penalty imposed under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) could survive when the assessee had already brought the entire income linked to a foreign ESOP into the Indian tax net, but had failed to report the underlying foreign asset in Schedule FA of the income tax return.

Three appeals were filed by the assessee against separate but identical orders passed by the Commissioner of Income Tax (Appeals), Chennai-18 under Section 15 of the BMA, all dated 18.08.2025, for Assessment Years 2016-17, 2017-18 and 2018-19. The Tribunal disposed of all three matters through a consolidated order, treating BMA No.16/CHNY/2025 as the lead case and applying its reasoning mutatis mutandis to BMA Nos.17 & 18/CHNY/2025.

An additional legal ground questioning the jurisdiction of the Assessing Officer (AO) to impose the penalty was also raised, but since the assessee succeeded on merits, the Tribunal expressly left that jurisdictional issue open and did not adjudicate it.

The core controversy:

Whether penalty under Section 43 of the BMA for not reporting a foreign ESOP holding in Schedule FA is justified when the ESOP perquisite and subsequent capital gains have already been fully taxed in India and there is no allegation of tax evasion.

2. Facts of the Case

2.1 Assessee’s Profile and ESOP Structure

  • The assessee is an individual who was employed overseas with Vedanta Limited.
  • As part of his employment compensation, he was granted ESOPs of the overseas parent company Vedanta Resources PLC (UK).
  • The shares were administered via a fiduciary structure – they were held and managed through Sanne Fiduciary Services Limited, Jersey, which added complexity to the reporting obligations.

2.2 Return Filing and the Omission in Schedule FA

  • For Assessment Year 2016-17, the assessee filed his return of income on 22.02.2018.
  • In this return, while income aspects relating to the ESOPs were already within the tax framework, details of the foreign shares were not reflected in Schedule FA.
  • This non-reporting was the sole foundation for initiating penalty proceedings under Section 43 of the BMA.

2.3 Tax Treatment of ESOP and Subsequent Sale

  • The ESOPs were taxed as part of employment perquisites, and TDS was duly deducted by the employer.
  • Later, when the ESOP shares were sold, the resultant capital gains were disclosed and offered to tax by the assessee in Assessment Year 2019-20.
  • Therefore, every stage of the transaction – perquisite and capital gains – was already subjected to Indian income tax.

Despite this, the AO levied a penalty of ₹10,00,000 under Section 43 of the BMA, treating the non-disclosure in Schedule FA as a trigger event. The CIT(A) upheld this penalty.

3. Grounds Raised Before the CIT(A) and ITAT

3.1 Core Grounds Against the Penalty

Among various grounds, the assessee primarily contended that: