VISWANATHAN JAYARAMAN,CHENNAI V. ADDL. CIT, CENTRAL CIRCLE-1, CHENNAI

BMA 5/CHNY/2025

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The case involves Shri Viswanthan Jayaraman, an Electrical Engineer who received shares under the Employee Stock Ownership Plan (ESOP) from Hindustan Zinc Ltd., which later merged with Sterlite Industries India Ltd. The shares were treated as perquisites and taxed accordingly. The assessee sold these shares and reported the capital gains in a subsequent assessment year. However, penalties were imposed under the BMA for non-disclosure of foreign assets and income in the return for the assessment year 2016-17. The Tribunal's decision to delete the penalties was based on the finding that the omissions were inadvertent and the assets and income had been disclosed and taxed appropriately under Indian law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775443 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Black Money Appeal
• Pronouncement Date: 08-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 11-06-2025
• Other Referred Cases: Shobha Harish Thawani vs. JCIT
• Laws Referred To: Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S. SRIDHAR
• Keywords: Revised return; Reasonable cause; Capital Gains; Right to appeal
• Section: 139; 15

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘बी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER B.M.A Nos.: 4 & 5/CHNY/2025 िनधाᭅरण वषᭅ/Assessment Year: 2016-17 Shri Viswanthan Jayaraman, 46, Muthiah Mudali Street, Royapettah, Chennai – 600 014. PAN: ADPPJ 8773M Vs. The Addl. CIT, Central Circle 1, Chennai (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri S. Sridhar, Advocate Shri N. Arjun Raj, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Shiva Srinivas, CIT सुनवाई कᳱ तारीख/Date of Hearing : 02.09.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 08.09.2025 आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: These appeals filed by the assessee are directed against two orders of Commissioner of Income Tax (Appeals), Chennai, both dated 30.05.2025, passed under section 15 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter called the ‘BMA’). The relevant Assessment Year is 2016-17. Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 2 -: 2. The orders of the CIT(A) arise out of the orders imposing penalties of Rs.10,00,000/- u/s.43 and Rs.2,43,810/- u/s.41 of the BMA. 3. Brief facts of the case are as follows: The assessee is an Electrical Engineer employed with Hindustan Zinc Ltd. The Hindustan Zinc Ltd., later merged with Sterlite Industries India Ltd (Vedanta Group). The assessee received shares of M/s. Vedanta Resources PLC, UK under the Employee Stock Ownership Plan (ESOPs) from the financial years 2011-12 to 2015-16. The said shares which were received from the employer under ESOPs scheme were treated as perquisites u/s.17 of the Income Tax Act for the assessment year 2012-13 to 2016- 17, as part of taxable salary and tax was duly deducted at source by the employer, which is duly reflected in Form 16. The shares obtained under ESOPs were subsequently sold in the assessment year 2019-20 and sale proceeds of Rs.79,53,312/- and Rs.31,61,444/- received on 03.10.2018 and 19.10.2018 respectively were credited in the savings bank account of the assessee with ICICI Bank. The assessee for the assessment year Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 3 -: 2019-20 had filed his return of income on 10.08.2019 by paying the capital gains tax thereon. 4. The proceedings under the BMA were initiated based on the information received on 03.04.2019 and notice u/s.10(1) of BMA was issued on 11.11.2019. Thereafter the said proceedings were completed on 28.03.2022 u/s.10(3) of the said Act for assessment year 2016-17 after considering the response’s filed by the assessee. In the said order, the AO brought to tax dividend income to the tune of Rs.1,43,185/- at the rate of 30% as undisclosed foreign income / dividend. 5. In the said proceedings completed u/s.10(3) of the Act, the AO initiated penalty proceedings u/s.41 and 43 of the BMA. In response to notice issued, the assessee filed objections and pleaded for dropping the said proceedings on the ground, it was an inadvertent mistake and there was no intention to slash unaccounted money in a foreign asset. The relevant portion of the response filed by the assessee is reproduced below:- “The omission to disclose the foreign holding in the Return of income is due to inadvertency only and not a willful default. The omission being a mistake of venial in nature only and having not impacted either the Total Income or the tax liability as declared by the Assessee, Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 4 -: may be viewed sympathetically. In view of the above it may not be considered as a serious offence and may kindly be condoned.” 6. The Authority however rejected the objections/submissions by the assessee and imposed penalty u/s. 41 of the BMA to the extent of Rs.2,43,000/- and a sum of Rs.10,00,000/- was imposed u/s.43 of the BMA, on account of non-disclosure of foreign asset being shares received as ESOP in Schedule FA in the return of income filed for assessment year under consideration i.e., 2016-17. 7. Aggrieved by the orders imposing penalty u/s.41 and 43 of the BMA, assessee filed appeals before the CIT(A). The CIT(A) confirmed levy of penalty u/s.41 & 43 of the BMA. However, the CIT(A) partly deleted the penalty imposed u/s.41 of the BMA to the extent relatable to the interest computed in the order of assessment passed u/s.10(3) of the Act. The FAA while sustaining the levy of penalty u/s.41 of the BMA concluded at para 5.9.1 as follows:- “5.9.1 In the facts of the case, the A0 has exercised his discretion correctly and levied the penalty u/s 41 as the appellant had not disclosed the dividend income in the return of income filed and consequently pursuant to the information available with the department, the dividend from foreign source was brought to tax under the BMA. As undisclosed income has been proved by the department, I see no infirmity in the action of AO in levying penalty u/s 41 of BMA. Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 5 -: The case law relied upon by the appellant is in connection with penalty u/s 43 and not in connection with penalty u/s 41 and hence not acceptable.” 8. The CIT(A) while sustaining the penalty u/s.43 of the BMA, held at para 5.9.2 as follows:- 5.9.2 The provisions of Section 43 of the BMA mandates penalties for the failure to furnish accurate particulars about assets, including financial interests in entities, located outside India. The section specifically targets residents who do not disclose foreign investments or assets in the ITR’s Schedule FA. It is clarified that Section 43 applies not only to undisclosed assets but to any asset held by the assessee as a beneficial owner or otherwise. The section does not provide any leeway to waive penalties, even if the foreign asset is disclosed in the books. The penalties are specifically linked to the non- disclosure of foreign assets in Schedule FA in the return of income 5.9.3 The issue of consequence of assets not declared in returns of income has been explained in Circular No. 12 of 2015 dated 2nd of July, 2015. The circular at Q. 18 clearly states that the appellant is liable for penalty if foreign assets are not declared in the return of income even though their acquisition is fully explained by proper sources. Question No. 18: A person holds certain foreign assets which are fully explained and acquired out of tax paid income. However, he has not reported these assets in Schedule FA of the Income-tax Return in the past. Should he declare such assets under Chapter VI of the Act? Answer: Since, these assets are fully explained they are not treated as undisclosed foreign assets and should not be declared under Chapter VI of the Act. However, if these assets are not reported in Schedule FA of the Income-tax Return for assessment year 2016-17 (relating to previous year 2015-16) or any subsequent assessment year by a person, being a resident (other than not a ordinarily resident), then he shall be liable for penalty of Rs. 10 lakhs under section 43 of the Act. The penalty is, however, not applicable in respect asset being one or more Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 6 -: foreign bank accounts having an aggregate balance not exceeding an amount equivalent to Rs. 5 lakhs at any time during the previous year.” 9. The CIT(A) while sustaining the penalty imposed u/s.43 of the BMA relied on the order of the Mumbai Bench of the Tribunal in the case of Shobha Harish Thawani vs. JCIT reported in [2023] 154 taxmann.com 564 (Mumbai-Trib). 10. Aggrieved by the orders of the CIT(A), partly upholding the imposition of penalty u/s.41 of the BMA and confirming the penalty u/s.43 of the BMA, the assessee has filed the present appeals before the Tribunal. The assessee has filed a paper-book comprising of 150 pages enclosing therein the notices issued during the course of assessment proceedings, show cause notices issued during penalty proceedings, reply filed by the assessee during penalty proceedings, written submissions filed before the FAA, Employee Share Ownership Plan 2012 and case laws relied. 11. The Ld.AR submitted that the asset in the form of shares acquired under the Employee Stock Option Plan (ESOP) has already been subjected to disclosure within the purview of the Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 7 -: Income-tax Act, 1961. The employer has duly reported the same as perquisites under Section 17 of the Act, as evidenced by Form No. 16 (enclosed at Pages 67–81 of the Paperbook). Accordingly, the existence of such asset cannot be regarded as undisclosed. It submitted that the dividend income of ₹1,21,381/- credited to the assessee’s ICICI Bank savings account in India on 28.08.2015 was inadvertently omitted from the return of income. This omission was on account of the bona fide belief that such income was not taxable in India, as the said dividend had already suffered withholding tax in the United Kingdom (refer Page 82 of the Paperbook). It was stated that the assessee bonafide understanding of the complex provisions governing cross-border taxation led to this inadvertent error, which should not attract penal consequences. 12. It was further contended that penalty under Section 41 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“BMA”) is not automatic or mandatory. It was stated that the use of the expression “may” under the provision and the statutory right of appeal underscore the discretionary nature of the penalty and the bonafide omission, coupled with the fact that BMA was introduced only with effect Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 8 -: from Assessment Year 2016–17, establishes sufficient cause for deletion of the penalty. Further, it was contented that the assessee has subsequently paid tax on the dividend income and sought permission to file a revised return, thereby evidencing good faith. 13. It was submitted that the penalty levied under Section 43 of the BMA for non-reporting of the foreign asset in Schedule FA of the return of income is also unsustainable. It was stated that assessee had opted for filing ITR-2A, a statutory form that does not contain Schedule FA, based on the bona fide understanding that the same was appropriate since the assessee had income chargeable under the heads “Salaries” and “Income from House Property” from two properties. It was contended that the absence of disclosure of the foreign asset in the return is, therefore, attributable solely to the limitations of the prescribed form and not to any deliberate non-disclosure. 14. It was further submitted by Ld.AR that reliance placed by the First Appellate Authority on the decision of the Mumbai Tribunal in Shobha Harish Thawani v. JCIT [(2023) 154 taxmann.com 564] is misplaced. It was contended in that case, Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 9 -: the assessee failed to establish bona fide conduct (refer Para 11 of the judgment). In contrast, in the present case, the foreign asset (ESOP shares) has already been disclosed to the Indian tax authorities through Form 16, and the corresponding dividend income has suffered withholding tax in the United Kingdom. This constitutes reasonable cause for deletion of penalty. 15. The Ld.AR further submitted that the legislative intent behind BMA, as clarified by the Hon’ble Finance Minister at the time of its introduction, was to curb the menace of black money. In the present case, both the foreign asset (ESOPs) and the foreign income (dividends) have already been subjected to disclosure/tax reporting, and accordingly, classifying them as “undisclosed foreign assets/income” is contrary to the spirit and purpose of the BMA. 16. The Ld.AR further contended that penalty proceedings under Sections 41 and 43 of the BMA are independent in nature. The conclusions reached in the order passed under Section 10(3) of the Act cannot be treated as conclusive evidence for the purposes of penalty. It was stated that the criteria for levy of penalty being distinct, an independent adjudication is warranted. Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 10 -: Accordingly, the imposition of penalty in the present case is unjustified and deserves to be deleted in the interest of justice. 17. The Ld.DR on the other hand strongly supported the orders of the authorities under the BMA. 18. We have duly considered the rival submissions and examined the material available on record. Before proceeding with the adjudication, it is necessary to recapitulate the factual matrix of the present case. The assessee, an Electrical Engineer employed with Hindustan Zinc Ltd., was allotted shares under the Employee Stock Ownership Plan (ESOP) by his employer during the financial years 2011-12 to 2015-16. The details of the perquisite value, as reflected in Form No. 16, are set out hereinbelow: S.No. Financial year Perquise amount as per Form No.16 Rs. 1 2011-12 9,07,157 2 2012-13 7,76,302 3 2014-15 32,86,815 4 2015-16 2,59,104 19. The said ESOP shares were treated as taxable perquisites under Section 17 of the Income-tax Act, 1961, in the assessment Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 11 -: years (2012-13 to 2016-17). Tax was duly deducted at source by the employer and the same is evidenced by Form No. 16, copies of which are available at pages 67 to 81 of the paper book filed by the assessee. Subsequently, the shares were sold during the assessment year 2019-20, and the sale consideration was credited to the assessee’s ICICI Bank account. The sale proceeds were duly disclosed in the return of income for A.Y. 2019-20 and capital gains tax was paid thereon. 20. The relevant sections under which penalties has been imposed are namely section 41 and 43 of the Act. Section 41 of BMA reads as under: Penalty in relation to undisclosed foreign income and asset 41. The Assessing Officer may direct that in a case where tax has been computed under section 10 in respect of undisclosed foreign income and asset, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum equal to three times the tax computed under that section. 21. Section 43 of the BMA reads as follows: 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 Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 12 -: 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. 22. A plain reading of the aforesaid provisions establishes that the imposition of penalty thereunder is discretionary and not automatic. The use of the expression “may” coupled with the statutory right of appeal provided against such penalty orders demonstrates that the provisions are not mandatory in nature. The crucial question for adjudication is whether the non-reporting of the foreign asset and corresponding foreign income by the assessee constituted a willful default or was merely a bonafide/inadvertent omission. If the latter, the principle of reasonable cause would justify deletion of the penalty. 23. In the present case, the foreign asset, being ESOP shares, was already subject to the Indian tax net as perquisite income. The dividend income therefrom was received in the assessee’s Indian bank account and subjected to withholding tax in the Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 13 -: source country. Upon subsequent sale of the shares in A.Y. 2019- 20, the capital gains were duly reported and taxed in the assessee’s return of income dated 10.08.2019. During the proceedings under Section 10 of the BMA, the assessee voluntarily admitted the dividend income and sought permission to file a revised return. It is further relevant that for the year under consideration, the assessee filed return in Form ITR-2A (meant for salaried taxpayers without capital gains), which did not contain a column for reporting foreign assets in Schedule FA. Moreover, the BMA provisions were introduced for the first time w.e.f. A.Y. 2016-17. The assessee, being a salaried individual unacquainted with the complexities of cross-border taxation, had omitted to report the said foreign asset and dividend income due to bona fide and inadvertent reasons. On these facts, we hold that there exists sufficient reasonable cause for non-reporting, thereby warranting deletion of the penalty. 24. Before parting, we note that the CIT(A) has placed reliance on the decision of the Mumbai Bench of the Tribunal in Shobha Harish Thawani (supra). The reliance is misplaced, inasmuch as in that case, the assessee failed to establish bonafides for non- reporting. In contrast, the present assessee has demonstrated Printed from counselvise.com BMA Nos.4 & 5/Chny/2025 :- 14 -: that the omission was neither deliberate nor contumacious, but a bona fide and inadvertent lapse. Accordingly, the penalties imposed under Sections 41 and 43 of the BMA, and sustained by the CIT(A), are hereby deleted. 25. In the result, the appeals filed by the assessee are allowed. Order pronounced in the open court on 8th September, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 8th September, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. Printed from counselvise.com "