VINIL VENUGOPAL ,MUMBAI V. DDIT(INV) FAIU 4(1), MUMBAI

BMA 33/MUM/2024

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The case involves appeals by Vinil Venugopal and Ranjeeta Vinil against penalties imposed for non-disclosure of foreign assets in their income tax returns for the assessment year 2020-21, under the Black Money Act. The penalties were initially imposed by the Deputy Commissioner of Income-tax (Inv) and upheld by the Commissioner of Income-tax (Appeals). The main legal question was whether the imposition of penalties under section 43 of the Black Money Act is mandatory or discretionary. The ITAT, referencing a Special Bench decision, held that the imposition of penalties is discretionary, not mandatory, and should be based on the specific facts of each case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792590 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 24 day(s)
• Appeal Type: Black Money Appeal
• Pronouncement Date: 02-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2020-2021
• Appeal Filed On: 08-08-2024
• Other Referred Cases: Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26
• Laws Referred To: Black Money (UFIA) & Imposition of Tax Act, 2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: NAMRATA CHANDE
• Keywords: Bonafide mistake
• Section: 131

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER B.M.A. No.33/Mum/2024 (Assessment Year: 2020-21) Vinil Venugopal, B-1001, Evoq, Sal Pan Road, Lodha New Cuff Parade, Wadala, Mumba-400 037 PAN : ACAPV6091L vs DDIT / ADIT (Inv)-4(1) FAIU, Mumbai, Room No.419, Scindia House, Mumbai-400 001 APPELLANT RESPONDENT B.M.A. No.34/Mum/2024 (Assessment Year: 2020-21) Ranjeeta Vinil, B-1001, Evoq, Sal Pan Road, Lodha New Cuff Parade, Wadala, Mumba-400 037 PAN : ADRPV6195R vs DDIT / ADIT (Inv)-4(1) FAIU, Mumbai, Room No.419, Scindia House, Mumbai-400 001 APPELLANT RESPONDENT Assessee by : Ms. Namrata Chande Respondent by : Shri Hemanshu Joshi, SR DR Date of hearing : 17/11/2025 Date of pronouncement : 02/12/2025 Printed from counselvise.com 2 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal O R D E R Per Bench: Both the appeals of different assessees were filed against the orders of the Ld. Commissioner of Income-tax (Appeals)-51, Mumbai [hereinafter called ‘Ld.CIT(A)] passed under section 17 of Black Money (UFIA) & Imposition of Tax Act, 2015 (in short, ‘the Act’) for Assessment year 2020-21, date of order 03/07/2024. The impugned order is emanated from the order of the Learned Deputy Commissioner of Invcome-tax (Inv) / DDIT / ADIT (Inv)-4(1) FAIU, Mumbai (for brevity, the “Ld. AO”) passed u/s 43 of the Act, date of order 01/06/2023. 2. The brief facts of the case are that the foreign assets schedule as introduced in the return of income for A.Y. 2012-13 by Finance Act, 2012 in order to track the foreign assets and income generated thereon in foreign jurisdiction of the Indian residents. The same became mandatory reporting in FA Schedule from A.Y. 2012-13. The assessees had filed the returns of income in ITR-3 for impugned assessment year. On perusal of the ITR, Ld.AO found that the assessee had not disclosed the investment made with “Avestar Global Opportunities SPC (Cayman Islands)”. As per the documents, it was found that the assessee, with her husband signed the account opening forms with “Avestar Global Opportunities SPC” and the investment was made in both the names. The Ld.AO initiated the penalty proceedings u/s 43 of the Act and imposed the penalty of Rs.10 lakhs each in both the husband’s and wife’s hand. The penalty was challenged before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has argued that the assessees had made the bonafide mistake and before issuance of the notice in the next assessment year, the assessee’s disclosed the assets in FA Schedule. The amount was paid from the disclosed bank account an entire amount was paid by the wife, Printed from counselvise.com 3 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal Smt. Ranjeeta Vinil, herself. The husband, Shri Vinil Venugopal is only the second co-holder of the account. The assessees had taken the plea that the imposition of penalty u/s 43 is not mandatory and only discretionary for the Ld. AO and accordingly, considering the issue, the penalty should be deleted. The contention of the assessee did not find favour with the Ld.CIT(A), who dismissed the appeals filed by the assessees. Thus, both the assessees challenged the order of the Ld.CIT(A) before the ITAT. The ITAT has constituted a Special Bench to decide the issue related to the power of the Ld.AO as to whether it is discretionary or mandatory to levy penalty u/s 43 of the Act and the Special Bench of ITAT held that there is a discretion in the AO to impose the penalty or otherwise depending upon the facts and circumstances of each case. The relevant paragraphs of the order of the Special Bench are extracted below:- “26. It can thus clearly be seen that even the case of Ms. Shobha Harish Thawani (supra) turned on its own facts as the Bench found that the AO had formed an opinion to levy penalty upon examination of the facts of the case and the discretion was exercised judiciously. It is necessary to note that although the Bench has not noticed the provisions of Section 46 of the BM Act and the effect thereof on the interpretation to be placed on Section 43 of the BM Act, the Bench was not oblivious of the fact that there is a discretion with the AO, which in that case was found to have been exercised in a judicious manner. 27. Thus, both these decisions cannot come to the aid of the Revenue. In any event, if two views with regard to interpretation of Section 43 of the BM Act are possible, it is a settled position that it would be justified to adopt that construction which favours the assessee. 28. In the result, we answer the issue as framed in the negative. The word “may” used in Section 43 of the BM Act has to be given its plain meaning as being directory in nature and cannot be construed as “shall”. Thus, the imposition of penalty is not mandatory. There is a discretion in the AO to impose the penalty or otherwise depending upon the facts and circumstances of each case. Printed from counselvise.com 4 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal 29. The appeals shall now be placed before the Division Bench for disposal according to law. We make it clear that we have not examined the merits of the order imposing penalty, which is left to be decided by the Division Bench on its own merits and in accordance with law.” 3. The Ld.AR argued and filed a paper book containing pages 1 to 237, which is kept on record. The Ld.AR took the case of wife, Smt. Ranjeta Vinil in BMA 34/Mum/2024 as lead case. The fact was duly narrated by the Ld.AR and submitted a short note, which is extracted below:- “1. The appellant is an individual. She is filing return of income regularly in the status of a resident. 2. The appellant had received a summon in the month of May, 2022 u/s 131 (IA) of the Income tax Act, 1961, from DDIT/ADIT (Inv)-4 (1) FAIU, Mumbai, asking for various details in respect of the investment made in the National Finance Corporation LLC ieAvestar. As was directed in the summon, a number of details were submitted along with the source of investment. The appellant had submitted vide letter dated 11. 10. 2022 that the investment was made through banking channel out of the declared source. The investment was made in the National Finance Corporation LLC. RanjeetaVinil had made the investment by making a payment on 29.03.2019 through her HSBC bank account under Liberalized Remittance Scheme (LRS) of RBI. Proper details were submitted to the AD bank ie. HSBC. This investment was made through National Finance Corporation (registered in USA) to Avestar Capital LLC (registered in USA) which made investment in Avestar Global Opportunities SPC (registered in Cayman Island). 3. There is no dispute as to the fact that the investment in the said foreign asset was made out of the disclosed source. This is further substantiated by the fact that no assessment proceeding was initiated under the Black Money Act, 2015. Printed from counselvise.com 5 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal 4. DDIT (Inv) FAIU4 (1), Mumbai issued a show cause notice on 21.03.2023 to the appellant as to why a penalty of & 10 lakh should not be levied in accordance with the provisions of section 43 of the Black Money Act, 2015. As such, the penalty proceeding was initiated for not disclosing the investment made in the FA column of the return of income filed for the assessment year 2020-21. 5. The penalty proceeding under section 43 of the Black Money Act, 2015 was initiated in spite of the fact that the DDIT (Inv)-FAIU-4 (1), Mumbai was well aware of the fact that the investment in the said foreign asset was made through banking channel. The source of investment was explained. There is no dispute as to the fact that the investment in foreign asset was made from the declared source of income in India. DDIT(Inv), Mumbai had already collected a huge amount of details by issue of summon under section 131 (1A) in the month of May, 2022. DDIT(Inv), Mumbai was very well aware of the fact that there was neither undisclosed foreign income nor undisclosed foreign asset. As such, it was quite clear that there was no charge under section 3 of the Black Money Act, 2015. There was no case for initiation of proceeding under the Black Money Act, 2015. Hence the initiation of the penalty proceeding under section 43 of the Black Money Act, 2015 was not proper. 6. The investment, for which the show cause notice was issued, was declared in the FA column of the income tax return for the subsequent assessment years ie 2021-22 and for 2022-23. The investment was first declared in the income tax return for the assessment year 2021 -22, which was filed on 08. 03. 2022. It was disclosed in the FA column of the return before the issue of summons in May, 2022. 7. The investment remained to be disclosed in the FA column of the return of income filed for the assessment year 2020-21. It was missed out because of inadvertence. However, the investment was disclosed in the FA column of the return of income filed for the assessment year 2021-22. It shows that the mistake was bona fide. Printed from counselvise.com 6 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal 8. It was submitted that the investment made by the appellant did not fall in the definition of \"undisclosed assets located outside India\" of section 2 (11) of the Black Money Act, 2015. It is because the appellant was able to explain the source of investment made. 9. The CIT(A) has not disputed the explanation of the source of investment in the foreign asset. It is also evident from the fact that assessment proceeding was not initiated under the Black Money Act, 2015. 10. The only allegation made by the DDIT & which has been confirmed by Ld CIT(A) is that the investment has not been disclosed in the FA column of the return of income filed for the Assessment Year 2020-21. It is for this reason, penalty proceeding under section 43 of the Black Money Act, 2015 was initiated by issue of a show-cause notice dated 21.03. 2023. 11. In the show cause, it was mentioned that information was received in this office that the appellant had made investment in Avasta Global Opportunities SPG (Cayman Islands). This investment had not been disclosed in the schedule FA of the income tax return for the assessment year 2020-21. However, the date of receipt of information was not mentioned. It is relevant because the proceeding for undisclosed asset could be initiated, as per proviso to section 3 of Black Money Act, 2015, in the previous year in which such asset comes to the notice of the assessing officer. 12. Even after considering the detailed submission of the appellant, the assessing officer went on to direct the appellant to pay by way of penalty a sum not less than 10 lakh under section 43 of the Black Money Act, 2015 for the assessment year 2020-21. DDIT (Inv) -FAIU-4 (1), Mumbai failed to appreciate the fact that section 43 of the Black Money Act, 2015 is not applicable as per the principle laid down by Hon'ble Supreme Court in the case of Hindustan steel vs. State of Orissa (1972) 83 ITR 26. It was held that penalty is not imposable where there is a technical or venial breach of the provisions of the Act. In the present case, the appellant had disclosed the Printed from counselvise.com 7 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal foreign asset in the FA column of the immediately succeeding assessment year and even before the summon under section 131 (1A) was issued. 13. It clearly shows that the default was unintentional. It was because of inadvertence that the details were not filled in the FA column of the return of income filed for the Assessment year 2020-21. In such a situation, there is not a case for levy of penalty. 14. Moreover, in the penalty order it has been mentioned, \"I direct the assessee to pay by way of penalty is sum not less than Rs. 10 lakhs under section 43 of the Black Money Act, 2015 for A. Y. 2020-21\". In the penalty order, the exact amount of penalty has not been mentioned. It is not less than 10 lakhs. Such an order is bad in law. It is because a specific amount of Rs. 10 lakhs have been mentioned in section 43 of the Act. 15. Considering the above details, it is submitted that the penalty directed to be paid by the appellant u/s 43 of the Black Money Act needs to be deleted.” 4. The Ld.DR argued and relied on the orders of the revenue authorities. 5. We have carefully considered the rival submissions and examined the material placed on record. It is an admitted factual position that the assessee inadvertently failed to disclose the foreign investment in the FA Schedule in the return of income for the impugned assessment year. However, the same foreign asset was duly disclosed in the FA Schedule in the immediately succeeding assessment year, and such disclosure was made even before the issuance of summons under section 131(1A) of the Act. The investment was made entirely through the assessee’s disclosed bank account under the LRS route, out of explained and tax-paid sources. There is no allegation—nor any material to Printed from counselvise.com 8 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal suggest—that the investment constituted an “undisclosed asset located outside India” within the meaning of section 2(11) of the Black Money Act, 2015. No proceedings under section 3 of the Black Money Act were ever initiated. The Special Bench of the ITAT has categorically held that the expression “may” used in section 43 of the Black Money Act is directory and not mandatory. Thus, imposition of penalty is discretionary and must be exercised judiciously in the facts of each case. In the present case, the omission was a bona fide and technical lapse arising from inadvertence, duly rectified in the subsequent year, and with the source of investment fully explained. In such circumstances, applying the settled principles laid down by the Hon’ble Supreme Court in Hindustan Steel Ltd. v. State of Orissa (83 ITR 26), no penalty is warranted for a mere technical or venial breach where there is no deliberate defiance of law or contumacious conduct. Considering the totality of the facts, the submissions of the assessee, the absence of any undisclosed foreign income or asset, and respectfully following the ratio laid down by the Special Bench, we hold that this is not a fit case for levy of penalty under section 43 of the Act. The Ld. AO ought to have exercised his discretion judiciously in favour of the assessee. Accordingly, the penalty of Rs.10,00,000/- imposed under section 43 of the Act is hereby deleted. In the result, the appeal filed by the assessee is allowed. BMA No.33/Mum/2024 – Vinil Venugopal 6. The facts and circumstances in this case are identical to the facts and circumstances in the case of Smt. Ranjeeta Vinil. Therefore, the decision arrived Printed from counselvise.com 9 BMA No.33 &34/Mum/2024 Ranjeeta Vinil / Vinil Venugopal at above shall apply mutatis mutandis to this appeal also. The penalty imposed of Rs.10 lakhs is deleted. 7. In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on 02/12/ 2025 Sd/-/- sd/- (PRABHASH SHANKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 02/12/2025 Pavanan Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकरआयु\u0014 CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, MUMBAI 5. गाड\u0019फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI Printed from counselvise.com "