PALANIRAJAN RAJARAJAN,CHENNAI V. ADDL. CIT, CENTRAL CIRCLE-2, CHENNAI

BMA 1/CHNY/2024

AI Insights

The case involves Shri Palanirajan Rajarajan, who faced penalties for non-disclosure of foreign assets in his income tax returns for the Assessment Years 2016-17 and 2017-18 under the Black Money Act. The penalties were initially imposed by the Assessing Officer and later confirmed by the Commissioner of Income Tax (Appeals). The Tribunal's decision to delete the penalties was based on the interpretation of Section 43 of the BMA, which allows for discretion in imposing penalties, and the assessee's explanation that the non-disclosure was inadvertent and rectified in subsequent filings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472410 (ITAT-CHENNAI)
• Appeal Type: Black Money Appeal
• Pronouncement Date: 03-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Other Referred Cases: Addl. CIT vs. Leena Gandhi Tiwari, Ocean Driving Centre Ltd., Addl. CIT vs. Tejal Ashish Mehta, Pr. CIT v. JSW Steel Ltd.
• 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: V. JUSTIN LD.
• Assessee Lawyers: S. SRIDHAR LD
• Keywords: Reasonable cause; Principle of natural justice; Residential status
• Section: 143(3); 132; 139(1); 43; 139; 153C

Judgement Text

" आयकर अपीलीय अिधकरण ‘सी’ \u0010ा यपीठ चे\u0015ई म\u0018। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI मा ननीय +ी मनोज क ुमा र अ/वा ल ,लेखा सद3 एवं मा ननीय +ी मनु क ुमा र िग7र, \u0010ा ियक सद3 क े सम8। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM 1. अपील सं ./ BMA No.1/Chny/2024 (िनधा 9रणवष9 / Assessment Year: 2016-17) & 2. अपील सं ./ BMA No.2/Chny/2024 (िनधा 9रणवष9 / Assessment Year: 2017-18) Shri Palanirajan Rajarajan #17/ 21, Padmanaban Street, T. Nagar, Chennai-600 017. बना म/ Vs. Addl. CIT Central Circle-2 Chennai. \u0001थायीलेखासं./जीआइआरसं./PAN/GIR No. AKCPR-8880-K (अपीलाथ\u001c/Appellant) : (\u001f थ\u001c / Respondent) अपीलाथ\u001c कीओरसे/ Appellant by : Shri S. Sridhar (Advocate) - Ld. AR \u001f थ\u001cकीओरसे/Respondent by : Shri V. Justin (Addl.CIT) - Ld. Sr. DR सुनवाई की तारीख/Date of Hearing : 27-11-2024 घोषणा की तारीख /Date of Pronouncement : 03-02-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1.1 The sole grievance of the assessee in the captioned appeals for Assessment Year (AY) 2016-17 & 2017-18 is confirmation of penalty of Rs.10 Lacs in each of these years. The penalty for AY 2016-17 has been levied u/s 43 of Black Money (undisclosed foreign income & assets) and imposition of Tax Act, 2015 (‘BMA’ in short) whereas penalty for AY 2017-18 has been levied u/s 42 of BMA. First, we take up appeal for AY 2 2016-17 which arises out of an order passed by learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] on 18-01-2024 u/s 16(7) of BMA in the matter of impugned penalty of Rs.10.00 Lacs as levied by Ld. Assessing Officer [AO] u/s. 43 of BMA Act vide order dated 19-03- 2022. The grounds of appeal read as under: 1. The order of the CIT(Appeals) 18, Chennai dated 18.01.2024 in DIN & Order No. ITBA/COM/M/17/2023-24/1059899195(1) for the above assessment year is contrary to law, facts, and in the circumstances of the case. 2. The CIT(Appeals) - 18, Chennai erred in confirming the levy of penalty u/s. Section 43 of The Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015), herein after referred to as the Act to the tune of Rs.10,00,000/- on the presumption of failure in furnishing information of the investments made by the appellant in the return of income filed for the· assessment year under consideration without assigning proper reasons and justification. 3. The CIT(Appeals)- 18, Chennai failed to appreciate that provisions in Section 2(11) of the Act had no application to the facts of the present case, thereby negating the levy of penalty under provisions of Black Money (Undisclosed Foreign Income and Assets) and imposition of tax Act, 2015. 4. The ClT(Appeals) - 18, Chennai failed to appreciate that there was no precise charge in the notice initiating the penalty proceedings under consideration, thereby vitiating the impugned order levying penalty in terms of Section 43 of the Act. 5. The CIT(Appeals) · 18, Chennai failed to appreciate that in any event the provisions of Section 43 of the said Act had no application to the present facts of the case, thereby negating the impugned penalty order in its entirety. 6. The CIT(Appeals) - 18, Chennai failed to appreciate that that the penal provisions under consideration should not be construed as automatic and further ought to have appreciated that the discretion vested in the office of Original Authority in view of the language of the said provisions should not be lost sight of which established and demonstrated the erroneous theory of automatic application of penal provisions under consideration, thereby vitiating the related findings thereto. 7. The CIT(Appeals) - 18, Chennai failed to appreciate that having not disputed the bonafides of the appellant, the mechanical approach in imposition of penalty under consideration, overlooking the discretion vested / inbuilt in view of the language of the provisions, would vitiate the penalty order on various facets, especially in view of gross defiance of purposive legislation. 8. The CIT(Appeals) - 18, Chennai failed to appreciate that in any event, the penalty under consideration could only be levied in the instance where the source of asset remained undisclosed in contra distinction of the source and mode of acquisition of the said investment being accepted during the assessment proceedings under the Act, the action in levying penalty under consideration should be reckoned as nullity in law. 9. The CIT(Appeals) - 18, Chennai failed to appreciate that the legislative intent ought to have been examined on the facts of the present case and ought to have appreciated in this regard that said legislation meant for keeping in check the economic offenders ought not to be invoked for punishing a venial breach of the law by a bonafide individual, thereby vitiating the impugned order passed by them in its entirety. 3 10. The CIT(Appeals) - 18, Chennai failed to appreciate that, in any event, having disclosed the disputed investments in the return of income filed in response to notice under Section 153C of the Act, thereby complying with the related provisions under the Act, the action in levying penalty in such circumstances should accordingly be reckoned as bad in law. 11. The CIT(Appeals) - 18, Chennai ought to have appreciated that the order imposing penalty under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 12. The CIT(Appeals) - 18, Chennai failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 1.2 The Ld. AR advanced arguments with the support of various case laws, the copies of which have been placed on record. The Ld. Sr. DR also advanced arguments and justified the invocation of provisions of Sec.43 of BMA against the assessee. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 1.3 At the outset, it is noted that the provisions of Sec. 43 of BMA provide that if any person, being a resident other than not ordinarily resident who has furnished the return of income for any previous year under sub-sections (1) or (4) or (5) of Sec.139 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 then Assessing Officer may direct that such person shall pay, by way of penalty, a sum of Rs.10 Lacs. The exception is with respect to an asset being one or more bank accounts having an aggregate balance which does not exceed a value equivalent to Rs.5 Lacs at any time during the previous year. It would be pertinent to note that Section 4 r.w.s. 2 (11) of the BMA, dealing with chargeability of undisclosed foreign asset, defines an 4 undisclosed foreign asset as \"an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is beneficial owner, and he has no explanation about the source of such investment in such asset or the explanation given by him is, in the opinion of the Assessing Office, “not satisfactory\". The definition of an undisclosed foreign asset, under the BMA, is thus not dependent on the disclosure made, or not made, in the income tax return. So far as disclosure of an undisclosed foreign asset in the income tax return is concerned, it is relevant only for the purpose of penalty u/s 43 and for no other purpose in the BMA. The provisions of Sec. 43 trigger a penalty for non-disclosure of a foreign asset, held as a beneficial owner or otherwise, or non-disclosure of a foreign income in the income tax return filed and this penalty is an additional consequence. Proceedings before lower authorities 2.1 The assessee being resident individual deposed in sworn statement recorded during the course of search at his residence on 13- 11-2017 that he did not declare the foreign asset owned by him and foreign bank accounts / financial interest maintained by him in return of income filed till AY 2016-17. 2.2 The important dates and events as tabulated by Ld. AR are as under: - No. Event Date 1. Due Date of filing return of income u/s 139(1) 05-08-2016 2. Actual Date of filing return of income 30-11-2016 3. Date of Search u/s 132 09-11-2017 4. Notice u/s 153C 13-09-2019 5. Return of income filed in response to notice u/s 153C 21-11-2019 6. Order passed u/s 153C 31-12-2019 7. Notice us 10(1) of BMA 27-11-2017 8. Order Passed u/s 10(3) 30-03-2021 5 9. Show Cause notice u/s 43 of BMA 30-03-2021 10. Penalty order passed u/s 43 of BMA 19-03-2022 2.3 It transpired that the assessee had made investment in foreign entities. The assessee was also holding two immoveable properties. The assessee held one bank account also. The details thereof have been extracted on Page No.1 & 2 of penalty order dated 19-03-2022. Though all these investments were not reflected in the Schedule “Foreign Assets” (FA in short) in the return of income, nevertheless, sources for the investment abroad were clearly explained by the assessee with supporting documents. The same is also evident from the fact that the assessment was completed with ‘Nil’ addition. However, Ld. AO initiated penalty u/s 43 since the assessee failed to furnish information of such investments in the returns of income. Accordingly, the assessee was show-caused. 2.4 The assessee opposed levy of penalty on the ground that it maintained non-residential status up-to AY 2011-12 and for AYs 2012-13 and 2013-14, the status was not ordinarily resident. For subsequent years, the assessee was a resident. The issue is only for AY 2016-17 when the act was first introduced. The assessee reflected income from foreign sources but could not reflect foreign asset which was mere inadvertent mistake. The mistake happened due to the fact that return of income for all AYs 2009-10 to 2016-17 were filed at a stretch. From AY 2017-18 onwards, this information was duly been supplied in the return of income. It did not fill Form “FA Schedule” column in the return of income for AY 2016-17 when the act was first introduced. The non- disclosure of such information was not willful. The assessee also 6 submitted that in return of income filed u/s 153C on 21-11-2019, it had disclosed all such information. 2.5 However, Ld. AO held that Sec. 43 of BMA clearly mandates the levy of penalty for failure to furnish the requisite information of foreign assets / income in the return of income. The prescribed Income-tax return specifically contains Schedule FA for disclosing such information. The assessee's argument that it has shown the income from companies located outside India in the return of income for AY 2016-17 is not in line with the intent of legislation. The legislation clearly mandates the disclosure of information in the prescribed format. In the automated environment, the department relies on voluntary compliance of the assessee and the computer system for analyzing the risk parameters for the assessee. If the assessee has not disclosed the relevant information in the prescribed format, analysis of such Information using artificial intelligence is not possible. Hence disclosure, other than in the prescribed format, is not acceptable and does not serve the intended purpose. Further, the assessee was having revenue receipt of more than Rs.50 Lacs and also subjected to Tax Audit u/s 44AB. Therefore, the argument that it was mere mistake could not be accepted. Finally, Ld. AO levied impugned penalty of Rs.10 Lacs on the assessee. 2.6 The Ld. CIT(A), considering the provisions of Sec.43, held that penalty was prima facie leviable. The provisions of Sec.43 cover Sec. 139(4) but do not cover Sec.153C. The return filed u/s 153C could not be equated with return of income filed u/s 139. Even otherwise, the assessee did not disclose all foreign assets in the FA schedule which was evident from assessment order passed u/s 10(3) of BMA. The Ld. CIT(A) held that there was no equivalent provisions in BMA Act as 7 Sec.273B of Income Tax Act to look into reasonable cause. The penalty u/s 43 was for procedural default. For exercise of this discretion, the assessee could not make out any case. Finally, the impugned penalty was confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 3. From the facts, it emerges that the assessee was a non-resident up-to AY 2011-12 and for AYs 2012-13 and 2013-14, the status was not ordinarily resident. Thereafter, the assessee has become resident. From AY 2016-17, BMA was introduced wherein there was a new requirement on a resident to disclose the details of prescribed foreign assets. This requirement was a newly introduced requirement and introduced for the first time w.e.f. AY 2016-17. Undisputedly, this information was not furnished by the assessee is regular return of income filed on 30-11- 2016. 4. Subsequently, the assessee was searched on 09-11-2017 and notices were issued u/s 153C for various assessment years on 13-09- 2019. In response, the assessee filed return of income on 21-11-2019 which was scrutinized under Income Tax Act and an assessment was framed u/s 143(3) r.w.s. 153C on 31-12-2019 wherein Ld. AO made certain addition of rental income as well as certain other addition u/s 69A. However, whatever income was earned from foreign sources, the same was offered to tax which was accepted by Ld. AO. No addition has been made for foreign income. At the same time, an assessment was also framed u/s 10(3) of BMA Act on 30-03-2021. In this order, Ld. AO noted that the details of foreign asset viz. financial interest in various entities, details of foreign bank account and details of immoveable properties was not furnished by the assessee in original return of income 8 filed on 30-11-2016. The financial interest was held by the assessee in various entities since November, 2001 latest being July, 2005. Similarly, the foreign bank account was opened during February, 2001. One immoveable property was acquired during June, 2005 whereas another property was acquired on August, 2010. Upon perusal of all these details, it could be seen that the specified foreign assets were acquired long ago. The assessee has maintained not ordinarily resident status up- to AY 2013-14 and accordingly, there was no requirement to disclose such assets in the return of income. This requirement has arisen for the first time since AY 2016-17 wherein the assessee failed to disclose the same in original return of income filed on 30-11-2016. Nevertheless, the assessee duly explained sources of all specified foreign assets and there was no foreign undisclosed asset which would require substantive addition under BMA. Under these circumstances, the claim that there was inadvertent mistake on the part of the assessee for not disclosing such asset was to be accepted. In our opinion, the imposition of penalty is not mandatory since the provisions of Sec.43 uses the expression “the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of ten lakh rupees” as against expression “shall” which would show that the element of discretion was embedded in the statutory provisions itself and the issue of levy of penalty was to be examined with reference to specific facts of the case. 5. Our view is duly supported by the order of Mumbai Tribunal in the case of Addl. CIT vs. Leena Gandhi Tiwari (136 Taxmann.com 409) holding that mere non-disclosure of a foreign asset in the income tax return, by itself, is not a valid reason for a penalty under the BMA. While disclosure of all foreign assets is mandatorily required to be made in an 9 income tax return, the penalty under Section 43 of BMA comes into play only when the aggregate value of these assets exceeds Rs. 5 Lacs. Therefore, even statutorily, it is not a simple cause and effect relationship between non-disclosure of an undisclosed foreign asset in the income tax return and penalty under BMA. The unambiguous intent of the legislature thus was to exclude trivial cases of lapses which could be attributed to a reasonable cause. It could also be noted that Sec.43 provide that the Assessing Officer \"may\" impose the penalty, and the use of the expression \"may\" signifies that the penalty is not to be imposed in all cases of lapses and that there is no cause and effect relationship simplicitor between the lapse and the penalty. As to what should be the considerations for the exercise of this inherent discretion by the Assessing Officer, some guidance could be taken from Hon'ble Supreme Court's judgment in the case of Hindustan Steel (supra), which, inter alia, observes that \"……..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. The penalty will not also be imposed merely because it is lawful to do so. Whether a 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 a 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\". Essentially, therefore, the overall conduct of the assessee, and 10 materiality of the lapse as also its being in the nature of a technical or venial breach of law, is the most critical factor so far as taking a call on the question of whether or not a penalty should be imposed for the assessee's failure to discharge a statutory obligation. The imposition of penalty under Section 43 is surely at the discretion of the Assessing Officer, but the manner in which this discretion is to be exercised has to meet the well-settled tests of judicious conduct by even quasi judicial authorities. The bench also considered the objective of BMA legislation and finally confirmed the order of first appellate authority in deleting the impugned addition as imposed by Ld. AO. 6. Similar favorable view has been taken in subsequent decision of Mumbai Tribunal in Ocean Driving Centre Ltd. (156 Taxmann.com 360). The bench deleted similar penalty on the ground that it was not a case of total defiance or mala fide or dishonest breach on the part of the assessee. In the case law of Addl. CIT vs. Tejal Ashish Mehta (BMA No.5/Mum/2022 dated 03-04-2023), the bench has upheld the order of first appellate authority deleting similar penalty on bona-fide mistake. 7. Therefore, considering the facts and circumstances of the case as well as favorable views taken by various benches of Tribunal, we delete the impugned penalty. The appeal stand allowed accordingly. Assessment Year 2017-18 8. The dates and events, for this year, are as under: - No. Event Date 1. Due Date of filing return of income u/s 139(1) 05-08-2017 2. Actual Date of filing return of income 20-11-2018 3. Date of Search u/s 132 09-11-2017 4. Notice u/s 153C 13-09-2019 5. Return of income filed in response to notice u/s 153C 21-11-2019 6. Order passed u/s 153C 31-12-2019 11 7. Notice us 10(1) of BMA 27-11-2017 8. Order Passed u/s 10(3) 30-03-2021 9. Show Cause notice u/s 42 of BMA 30-03-2021 10. Penalty order passed u/s 42 of BMA 19-03-2022 9. It could be seen that in his year, the regular return of income was filed by the assessee on 20-11-2018 admitting income of Rs.81.30 Lacs which was held to be invalid return. In this return, the assessee had disclosed foreign assets / investments in Schedule FA. Subsequent to search on the assessee, notices u/s 153C was issued and the assessee filed return of income on 21-11-2019 admitting income of Rs.79.53 Lacs. The Ld. AO made addition of Rs.4 Lacs but Ld. AO adopted original returned income of Rs.81.30 Lacs while framing the assessment. However, penalty u/s 42 was initiated on the ground that the assessee failed to file the return of income within prescribed time limit. Accordingly, the assessee was show-caused. The provisions of Sec. 42 provide that if a person, being a resident other than not ordinarily resident in India, who is required to furnish a return of his income for any previous year, as required under sub-section (1) of section 139 of the Income-tax Act or by the provisos to that sub-section and who at any time during such previous year held specified foreign assets or earned income from a source located outside India and he fails to furnish such return before the end of the relevant assessment year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of Rs.10 Lacs. However, similar exception has been provided with respect to Bank accounts as provided in Sec.43. Though the assessee assailed imposition of penalty, Ld. AO imposed penalty of Rs.10 Lacs against the assessee. The Ld. CIT(A) confirmed the same on similar lines against 12 which the assessee is in further appeal before us. The Ld. AR made similar various arguments assailing the levy of penalty. 10. In this year, it is quite evident that the assessee has filed return of income belatedly which is treated as non-est return since it was filed beyond statutory time limit. However, in this return of income, the assessee has duly disclosed the details of foreign assets. The late filing of return of income is mere technical breach. Similar details have been filed in return of income filed in response to notice issued u/s 153C. Pertinently, the Ld. AO has adopted the income admitted by the assessee in the regular return of income and made further addition of Rs.4 Lacs in the same. In other words, the regular return of income, though treated as non-est return, the same has been considered while framing the assessment. We are also of the opinion that the return field u/s 153C would substitute the regular return of income as filed by the assessee. The Hon’ble Bombay High Court in the case of Pr. CIT v. JSW Steel Ltd. (115 Taxmann.com 165) held that returns filed u/s 153A was to be treated to be returns of income furnished u/s 139. For the aforesaid reasons, we would hold the impugned penalty would not be leviable and the same is liable to the deleted. We order so. The appeal stand allowed accordingly. Conclusion 11. Both the appeals stand allowed in terms of our above order. Order pronounced on 3rd February, 2025 Sd/- (MANU KUMAR GIRI) \u0010ा ियक सद3 / JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद3 / ACCOUNTANT MEMBER 13 चे5ई Chennai; िदनांक Dated : 03-02-2025 DS आदेशकीRितिलिपअ/ेिषत/Copy of the Order forwarded to : 1. अपीलाथ\u001c/Appellant 2. \u001f थ\u001c/Respondent 3. आयकरआयु>/CIT, Chennai 4. िवभागीय\u001fितिनिध/DR 5. गाडCफाईल/GF "