Technical or venial breaches should not result in harsh penalties, especially when the assessee had disclosed the investments in Schedule FA in earlier and subsequent years.
The Income Tax Appellate Tribunal (ITAT), Hyderabad, has recently held that Technical or venial breaches should not result in harsh penalties, especially when the assessee had disclosed the investments in Schedule FA in earlier and subsequent years. It has ruled in favor of the assessee, Prasad Nimmagadda, in the appeal against the penalty of ₹10,00,000 imposed under Section 43 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 (BMA Act).
The penalty was levied for the alleged non-disclosure of foreign assets in the assessee’s income tax return for AY 2017-18. The tribunal condoned a 1-day delay in filing the appeal due to the late receipt of the Digital Signature Certificate (DSC) and proceeded to hear the case on its merits.
The assessee argued that the omission of foreign asset disclosure in AY 2017-18 was an inadvertent clerical error, as the same assets were disclosed in earlier and subsequent years. The assessee contended that the penalty under Section 43 should not apply in AY 2019-20 for an omission related to AY 2017-18. Relying on the ITAT Mumbai decision in *Ocean Diving Centre Ltd vs. CIT*, it was argued that technical breaches should not attract harsh penalties. The assessing officer had accepted the explanation regarding the source of investments, proving no malafide intent.
The Revenue, however, contended that non-disclosure attracts an automatic penalty under Section 43, regardless of disclosures made in other years. They cited the Mumbai Tribunal ruling in *Shobha Harish Thawani vs. JCIT*, emphasizing that compliance with Schedule FA is mandatory and independent of other financial statements.
After reviewing the case, the Tribunal observed that the assessee had consistently disclosed the assets, demonstrating no deliberate intent to conceal them. It held that the penalty under Section 43 is not automatic and applies only if the failure to disclose is intentional. Citing the *Ocean Diving Centre Ltd* ruling, the Tribunal concluded that the omission was bonafide, warranting no penalty.
In conclusion, the ITAT allowed the appeal, deleted the ₹10,00,000 penalty, and held that penal provisions should not be applied for clerical errors when there is no evidence of malafide intent. This ruling sets an important precedent for cases involving inadvertent non-disclosure of foreign assets, emphasizing the need for judicial discretion under the BMA Act.
The copy of the order is as under: