MR. SANJAY BHUPATRAI SHAH,MUMBAI V. DY. DIRECTOR OF INCOME TAX (INV) FAIU -3(), MUMBAI

BMA 21/MUM/2024

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The case involves Mr. Sanjay Bhupatrai Shah, who, along with his son, invested in the ASK Global Strategies Fund (Mauritius). The Assessing Officer (AO) initiated penalty proceedings under section 43 of the Black Money Act for non-disclosure of these foreign assets in the assessee's tax returns for the assessment years 2019-20, 2020-21, and 2021-22. The AO and the CIT(A) upheld the penalties, asserting that the assessee, being a joint holder and having provided funds for the investment, should have disclosed the assets. However, the Tribunal found that the assessee was not the beneficial owner and had disclosed the investments in his son's returns, leading to the decision to allow the appeals and remove the penalties.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37930 (ITAT-MUMBAI)
• Appeal Type: Black Money Appeal
• Pronouncement Date: 24-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2020-2021
• Other Referred Cases: Nirmal Bhanwarlal Jain, M/s Ocean Diving Centre Ltd, Ms Harshita Nirmal Jain, Aditi Avinash Athavankar, Shri Chintan Sanjay Shah
• Laws Referred To: Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: DHARAN GANDHI
• Keywords: Set aside; Reasonable cause; Bonafide belief
• Section: 43; 22; 139; 6

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “E” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER BMA No. A.Y. Appellant Respondent 20/Mum/2024 2019-20 Mr. Sanjay Bhupatrai Shah, 61, Dr. S.S. Rao Road, Parel Mumbai [PAN: AAGPS0756D] Dy. Director of Income Tax, (INV)FAIU-3(1), R.No. 102, 1st Floor, Earnest House, Nariman Point, Mumbai 21/Mum/2024 2020-21 22/Mum/2024 2021-22 Assessee by : Shri Dharan Gandhi, Revenue by : Shri Hemanshu Joshi, Sr.DR Date of Hearing : 08/01/2025 Date of Pronouncement : 24/01/2025 PER B.R. BASKARAN, A.M : All the three appeals filed by the assessee relate to AYs. 2019-20, 2020-21 &2021-22. In all these cases, the assessee is aggrieved by the decision of the Ld.CIT(A) in confirming the penalty of Rs. 10 lakhs levied u/s.43 of the Black Money (Undisclosed Foreign Income and Assets)and Imposition of Tax Act, 2015. 2. The facts relating to the case are stated in brief. The AO received information that the assessee along with his son, Shri Chintan Sanjay Shah has made investment in ASK Global Strategies Fund (MAURITIUS). On verification of the income tax returns filed by the assessee, it was noticed thatthe assessee has not disclosed the above said assets held in a foreign Country in „Schedule FA‟of income tax returns filed for these three 2 BMA Nos. 20, 21&22/Mum/2024 years under consideration. The AO noticed from the submissions made by Shri Sanjay BhupatraiShah thatthe assessee herein had transferred funds to Shri Chintan Sanjay Shah in India. Thereafter, Shri Chintan Sanjay Shah has invested in 129.502355 units of ASK Global Strategies Fund (MAURITIUS) through Apex Fund Services on 14th September, 2018 and the assessee herein was shown as a joint-holder. Since the assessee did not declare the above said investment in „Schedule-FA‟ of Income tax returns, the AO initiated penalty proceedings u/s. 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 in all the three years under consideration. 3. Before the AO, the assessee submitted that the above said foreign investment was made by his son Shri Chintan Sanjay Shah only and he is the economic and beneficial son of the entire value of investment. Accordingly, the assessee contended that he was not the owner of the foreign asset and hence, there was no requirement of disclosing the same in Schedule-FA of the income tax returns. The AO did not accept the above said explanation furnished by the assessee. Since the assessee has given funds to his for making above said investment and since the foreign investment was jointly held by the assessee and his son, the AO took the view that the assessee should have disclosed the foreign investment in Schedule-FA. Since there is a failure on the part of the assessee to disclose so in all the three years under consideration, the AO levied penalty of Rs. 10 lakhs in AYs. 2019-20, 2020-21 & 2021-22. Before Ld.CIT(A), the assessee did not succeed. Hence, the assessee has filed these appeals. 3 BMA Nos. 20, 21&22/Mum/2024 4. We heard the parties and perused the record. In the instant cases, penalty of Rs.10.00 lakhs per year has been levied u/s 43 of the Black Money (Undisclosed Foreign Income and Asset) & Imposition of Tax Act, 2015. The said section reads as under:- “43. Penalty for failure to furnish in return of income, an information or furnish inaccurate particulars about an asset (including financial interest in any entity) located outside India.— If any person, being a resident other than not ordinarily resident in India within the meaning of clause (6) of section 6 of the Income-tax Act, who has furnished the return of income for any previous year under sub-section (1) or sub-section (4) or sub-section (5) of section 139 of the said Act, fails to furnish any information or furnishes inaccurate particulars in such return relating to any asset (including financial interest in any entity) located outside India, held by him as a beneficial owner or otherwise, or in respect of which he was a beneficiary, or relating to any income from a source located outside India, at any time during such previous year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees: Provided that this section shall not apply in respect of an asset, being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to five hundred thousand rupees at any time during the previous year. Explanation.—The value equivalent in rupees shall be determined in the manner provided in the Explanation to section 42.” In the instant cases, it is the submission of the assessee that the Investment in ASK global Strategies Fund (Mauritius) is actually held by his son Shri Chintan Sanjay Shah and the assessee‟s name was added as a joint holder only for administrative convenience. It was submitted that 4 BMA Nos. 20, 21&22/Mum/2024 the entire value of investments has been declared by Shri Chintan Shah only in his Balance sheet and also in Schedule FA of Income tax return for AY 2019-20. Accordingly, it was submitted that Shri Chinthan Sha is the actual and beneficial owner of the above said foreign asset. The Ld A.R also submitted that Shri Chinthan Shah did not inadvertently declare the foreign investments in AY 2020-21 and 2021-22 in Schedule FA, even though the same was declared in that Schedule in AY 2019-20. Hence, the AO had levied penalty of Rs.10.00 lakhs each in AY 2020-21 and 2021-22. The Tribunal has adjudicated the said issue in his case in BMA Nos. 31 and 32/Mum/2024 dated 27.11.2024 and deleted the penalty on noticing that Shri Chintan Shah has declared the above said investment in the Balance sheet, which was also incorporated in some other schedule and further, non-declaration in Schedule FA in these two years was without any malafide intention or ulterior Motive. 5. We notice that above said contentions have not been appreciated by the tax authorities. They were of the view that, since the above said investment has been made by Shri Chintan Shah out of funds given by the assessee and further the assessee has been made joint owner, the assessee should have declared the said investment in Schedule FA and in view of the failure to disclose so, they have levied penalty of Rs.10.00 lakhs in each of the three years. 6. The question now arises is whether the joint holder is liable to disclose the foreign assets, even if he is not the beneficial owner and even if the beneficial owner has disclosed the same as 100% owner in his return of income as per his understanding of the provisions of BM Act. We may refer to certain decisions rendered in this type of issue by the co-ordinate benches. 5 BMA Nos. 20, 21&22/Mum/2024 (A) A co-ordinate bench has considered the object of introduction of Black Money Act (BMA) in the case of Nirmal Bhanwarlal Jain (BMA No.13/Mum/2023 dated 31.07.2023) and observed as under:- “The BMA was introduced with the intention of curbing stashing away of black money abroad, it was consequent to introduction of BMA that an amendment was made under the provisions of Income tax Act, 1961 to enable the assessee to report foreign investments directly held in the name of assessee or where they are beneficial owner or are in any way beneficiary to any assets or income from source located outside India. It is mandatory on the part of assessees to report investments/assets held outside India. Where the assessee makes default in reporting of such investments/assets in Schedule FA of the return of income, the assessee is liable for penalty under section 43 of BMA” (B) In the case of M/s Ocean Diving Centre Ltd (BMA No.22/Mum/2023 and others dated 30.08.2023, the co-ordinate bench has observed as under:- “10.1 By reading bare provisions of section 43 of the Act, it clearly reflects that a person shall pay by way of penalty of sum of Rs. 10,00,000/- who fails to furnish any such information or furnishes inaccurate particulars qua any asset/located outside India / sourced from outside India in the return of income filed under sub- section (1) or (5) of section 139 of the Act. Further, the AO may direct that such person shallpay by way of penalty of Rs. 10,00,000/-. No doubt the AO is empowered to impose the penalty as discretion is vested with him by using word 'May' in the 6 BMA Nos. 20, 21&22/Mum/2024 provisions. The discretion is always at wisdom of an authority, however, discretion is required to be exercised judicially and under the Judicial canons of law and in reasonable and justified manner to impart the Justice, by considering all the relevant circumstances and in case the Assessee is able to discharge its burden for reasonable cause, then the discretion against the Assessee has to be used cautiously and consciously. The Hon'ble Apex Court in M/s Hindustan Steel Ltd. vs State of Orissa (1972) 83 ITR 26(SC) also reminded that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.” (c) We notice that the above said principle was also followed in the case of Shri Chintan Sanjay Shah (supra) and the penalty levied u/s 43 of BMA Act was deleted by observing that there was no malafide intention in not declaring the foreign asset in Schedule FA, when the 7 BMA Nos. 20, 21&22/Mum/2024 assessee has already declared the same in the Balance sheet and the said Balance sheet was also incorporated in the return of income. In the above said cases, it has been held that failure to disclose foreign assets/income in the Schedule FA would not automatically lead to levy of penalty u/s 43 of the BMA Act, since the assessing officer is having discretion not to levy the said penalty. Accordingly, it has been held that the AO is expected to act judicially before levying penalty. 7. The Ld A.R also relied upon certain case laws, wherein the penalty u/s 43 of BMA levied in the hands of the assessee for non-disclosure of foreign asset in Schedule FA of Income tax return has been cancelled by the Tribunal on noticing that the said investments actually belong to some other person. (A) In the case of Ms Harshita Nirmal Jain (BMA No.28/M/2023 dated 18-01-2024), the Tribunal noticed that the investment in the name of above assessee was made by her father and hence the assessee did not disclose the same under bonafide belief that she was not required to disclose the same. Accordingly, the Tribunal accepted the plea of bonafide belief and accordingly deleted the penalty. (B) In the case of Aditi Avinash Athavankar (BMA No.16 – 19/Mum/2023 dated 10.07.2023), the assessee‟s husband had made investment from out of his sources and the name of the assessee was also added. The Tribunal noticed that the entire funds have flown from the bank account of the husband of the assessee and hence the assessee should be considered as secondary owner and not joint owner. Accordingly, the Tribunal held that the assessee did not disclose that investment in Schedule FA under bonafide belief that she is not required 8 BMA Nos. 20, 21&22/Mum/2024 to disclose. The Tribunal also referred to the discretionary power of the AO and the intention behind bringing this law as under:- 14. The Ld A.R during course of hearing drew our attention to fund performance of the shares held in Global Dynamic Opportunities Fund Ltd (page 22 of paper book of AY 2016-17), the ledger extract of the said investment in the books of R Venkat Raman (page 24 of paper book of AY 2016-17) and the bank statement of R Venkatraman with the outflow of funds towards the investment in Global Dynamic Opportunities Fund Ltd (page 26 of paper book of AY 2016-17). Similar details are available in the paper book submitted for other assessment years under consideration also. Therefore the Ld AR contended that the asset is actually owned by the husband of the assessee and the assessee‟s name is included only for administrative convenience. Accordingly the non-disclosure is an inadvertent error on the part of the assessee with no intention to evade any tax. From the perusal of the records, it is noticed that the impugned assets are disclosed in the return of income of assessee's husband and that the source for acquisition of the said assets has flown from the husband's sources. This substantiates the submission that the assessee is not a joint owner of the impugned asset but only a secondary owner. So there is merit in the contention that the owner of the asset (i.e.assessee's husband) has disclosed the assets and the assessee being the secondary owner did not disclose under the bonafide belief that she is not required disclose. 15. The alternate contention is that the levy of penalty under section 43 is not mandatory but is at the discretion of the Assessing Officer since the word used in the section is that the Assessing Officer \"may\" levy penalty. The use of the expression \"shall or may\" is not decisive for arriving at a finding as to whether statute is directory or mandatory and in this context it is necessary to find out from the scheme of the Act the intention of the Legislature. In other words in construing a penal statue, the object of the law must be clearly borne in mind as held in the case of Pratap Singh v. State of Jharkhand [(2005) 3 SCC 551. The Finance Minister in his speech while introducing the BMA stated that \"tracking down and bringing back the wealth which legitimately belongs to the country is our abiding commitment to the country. Recognising the limitations under the existing legislation, we have taken a considered decision to enact a comprehensive new law on black money to specifically 9 BMA Nos. 20, 21&22/Mum/2024 deal with such money stashed away abroad\". This would mean that the intention behind introduction of BMA is mainly to track and bring into the tax net the undisclosed black money stashed abroad. Therefore the plain interpretation of the words used in section 43 means that the legislature has given a discretionary power to the Assessing Officer to decide the levy of penalty after considering all relevant factors including the purpose and object the statute seeks to achieve. The discretion to impose a penalty puts the Assessing Officer under a corresponding obligation to exercise the said discretion with proper regard to the facts and circumstances of the case in a holistic manner and in totality.” We notice that the co-ordinate benches have deleted the penalty, when it is proved that the assessee‟s omission to disclose foreign assets was on account of bonafide belief that he is not the owner of the asset. 8. In the instant cases, there is no dispute with regard to the fact that the investments have been made in the foreign asset by Shri Chinthan Sanjay Shah and he himself has declared as 100% of owner of the same in the Income tax return filed by him. The assessee has been included as a secondary owner, for administrative purposes and hence the assessee was under bonafide belief that he is not required to disclose the foreign assets, as it belongs to his son. We notice that the tax authorities have placed reliance on the fact that the assessee has lent money to his son Shri Chintan S Shah, who has, in turn, used those funds to make investments. Under the General law, merely for the reason that a person has purchased certain assets out of borrowed funds, the lender would not automatically become owner of those assets. The buyer would continue to remain owner of those assets, until it is recovered from him by the lender in accordance with law. in the event of failure of the borrower to adhere to the terms and conditions of loan. Further, the said loan transaction has taken place in India and it has been duly recorded in the books of both the lender and 10 BMA Nos. 20, 21&22/Mum/2024 borrower. Hence the provisions of BMA will not extend to the loan transaction entered between the parties in India. 9. In view of the foregoing discussions, we are of the view that the tax authorities are not justified in levying penalty of Rs.10.00 lakhs in each of the three years under consideration. Accordingly, we set aside the orders passed by Ld CIT(A) and direct the AO to delete the impugned penalties. 10. In the result, all the three appeals of the assessee are allowed. Order pronounced in the open court on 24-01-2025 Sd/- Sd/- [RAJ KUMAR CHAUHAN] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 24-01-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, “E” Bench, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "