Section 43 Black Money Act Penalty Is Discretionary, Not Automatic: ITAT Mumbai Rules in Favour of Assessee
Overview
The Income Tax Appellate Tribunal (ITAT), Mumbai, recently pronounced a significant ruling in ACIT Vs Panambur Nagesh Rao concerning the nature and enforceability of penalties under Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ("BMA"). The Tribunal was seized of seven Revenue appeals along with corresponding cross-objections by the assessee, all arising from a common order passed by the Commissioner of Income Tax (Appeals)–15, Mumbai for Assessment Years 2016–17 through 2022–23. At the heart of the controversy was a single interpretive question: is penalty under Section 43 of the BMA mandatory upon non-disclosure of a foreign asset, or does the provision vest the Assessing Officer with judicial discretion?
The Tribunal's answer was unequivocal — the use of the word "may" in
Section 43makes the levy of penalty discretionary, not automatic, and such discretion must be exercised on the basis of the facts and circumstances of each case, including the assessee's bona fides.
Background and Facts of the Case
Source of Information and Nature of Default
The dispute originated from data received under the Common Reporting Standard (CRS), an international framework for automatic exchange of financial account information. The CRS data revealed that the assessee, a resident of India, held a foreign bank account with Deutsche Bank, Frankfurt, Germany (Account No. 100604446500). Critically, this account had never been reported in Schedule FA of the assessee's returns of income filed for Assessment Years 2016–17 to 2022–23.
During proceedings initiated under Section 10 of the BMA, the assessee acknowledged ownership of the account and submitted partial statements. Verification confirmed that the account carried a balance of €155,175.28 as on 06.04.2015, which at the applicable RBI reference rate of ₹68.2308 per Euro translated to ₹1,05,87,733.49 — an amount substantially exceeding the monetary threshold stipulated under the proviso to Section 43 of the BMA.
Assessing Officer's Position
The Assessing Officer (AO) concluded that a clear case for penalty had been established. The AO took the position that:
- The assessee, being a resident in India, carried a non-negotiable statutory obligation to disclose the foreign bank account in Schedule FA;
- The non-disclosure had persisted across seven consecutive assessment years;
- The asset's value far exceeded the prescribed threshold under the proviso to
Section 43; - The legal maxim ignorantia juris non excusat (ignorance of law is no excuse) rendered the plea of unawareness untenable;
- The BMA is a special deterrent legislation, and the precedents under the Income-tax Act, 1961 cited by the assessee were inapplicable to BMA proceedings;
- Accepting explanations based on illness, age, or professional lapse would frustrate the Act's very objective.
On these grounds, the AO levied a penalty of ₹10,00,000/- for each of the Assessment Years 2016–17 to 2022–23 — a cumulative penal consequence of ₹70,00,000/- across seven years.
Assessee's Explanation
The assessee placed the following mitigating factors on record:
- He is a senior citizen and a retired salaried engineer with no background or specialised knowledge in taxation or international financial compliance;
- He had entrusted the filing of his returns entirely to a tax consultant who failed to advise him regarding the Schedule FA disclosure requirement and the availability of the Black Money Disclosure Scheme, 2015;
- The said consultant filed a duly notarised affidavit accepting full responsibility for the omission, stating it arose from his own unfamiliarity with the BMA's disclosure requirements;
- The assessee was battling Hepatocellular Carcinoma, and his spouse was also receiving medical treatment, circumstances that materially impaired his capacity to personally supervise tax compliance;
- His returns from Assessment Year 2012–13 onwards had been processed — including under scrutiny — without any adverse inference regarding foreign asset disclosure, reinforcing his bona fide belief that his affairs were in order;
- Upon receiving notice based on the CRS data (which contained an incorrect account number), the assessee voluntarily furnished the correct account number and supporting statements, an act inconsistent with an intent to conceal;
- He subsequently disclosed the foreign bank account suo motu in the return of income for Assessment Year 2023–24.
Judicial support was drawn from K.C. Builders v. ACIT, 265 ITR 562 (Supreme Court), CIT v. Dalmia Dyechem Industries Ltd., 377 ITR 133 (Bombay High Court), and Hindustan Steel Ltd. v. State of Orissa, 83 ITR 26 (Supreme Court) — all of which affirm that penalty should not be imposed mechanically and that absence of mens rea combined with bona fide conduct constitutes a valid ground for non-imposition.
CIT(A)'s Decision: Deletion of Penalties
The CIT(A) allowed the assessee's appeal and deleted the penalties in their entirety. The key findings recorded by the first appellate authority were as follows: