Non-Disclosure Of A Foreign Asset In ITR Is Not A Valid Reason For Imposition Of Penalty If source Of Investment Is Well Explained: Mumbai ITAT

The Assessing Officer challenged the correctness of the order passed by the Commissioner (Appeals) in the matter of penalty under section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015for the assessment year 2017–18.

The Assessing Officer submitted that the Commissioner (Appeals) erred in deleting the penalty which was imposed on the taxpayer for not disclosing, in the income tax returns filed by the assessee, a foreign bank account in which she was a signatory for her late mother and held it in a fiduciary capacity, even though the money held did not belong to, and was not beneficially owned by, the taxpayer.

The Assessing Officer contended that dehors the non-taxability of the amount in the hands of the assessee and dehors the bonafide conduct of the assessee, as long as the assessee was a signatory of the undisclosed foreign bank account and the legal owner, the penalty under section 43 of the BMA must be imposed.

The money held in the account was eventually donated to a charity of global repute, namely Médecins Sans Frontières UK, in deference to the wishes of the assessee's late mother, that it was brought to tax in the hands of the late mother's legal representative, and that, at no stage, assessee used the money in any manner whatsoever.

The assessee/respondent, Leena Gandhi Tiwari, is one of the prominent businesspersons in India. She is the chairperson of a well known pharmaceutical company, and she was one of the signatories to a foreign bank account, which she had not disclosed to the Indian tax authorities until she filed her income tax returns. The bank contained a balance of £2,34,710 which was eventually donated, much before the Indian tax authorities even came to know about it, to a Noble Peace Prize awarded to charity by the name of Médecins Sans Frontières (MSF) in deference to the wishes of her late mother, Dr Pramila Gandhi.

An intelligence input was received by the income tax investigation wing in Mumbai, which indicated that the assessee was a signatory to a foreign bank account which may not have been disclosed to the Indian tax authorities. As a result, from September 15th to September 21st, 2017, a search and seizure operation was conducted, which included the assessee as well as other connected persons.During the course of the proceedings, the matter regarding the bank account was also probed further. The assessee's husband, who was handling the account, accepted that there was a bank account with Kleinwort Benson, Guernsey. It was also accepted that he, along with the assessee, were signatories to this account, but this account actually belonged to Dr Pramila Gandhi, the assessee's mother, who passed away on August 13th, 2016.

The assessee contended that BMA does not have any retrospective application, as it would be violative of the provisions of Article 20(1) of the Constitution of India. A reference was then made as to what could constitute "furnishing inaccurate particulars in the return" and how the present non-disclosure would not fit into the same. It was once again reiterated that the non-disclosure in question, which is in respect of being a signatory to a bank account held in the capacity as a trustee and of which the assessee was not the beneficial owner, cannot be said to be a lapse to be visited by the penal consequences under section 43 of the BMA.

As regards the beneficial ownership of the bank account being with Dr Pramila Gandhi, the Assessing Officer held that whether or not the assessee has beneficial ownership of the account, the assessee is under an obligation to disclose the same in the income tax return, and thus, the assessee has failed to disclose the details of the foreign bank account held with Kleinwort Benson Bank in Schedule FA of the Indian Income Tax Returns for the respective years. The Assessing Officer concluded that it was a fit case for the imposition of a penalty.

The assessee, being aggrieved by the AO's order, approached the CIT (A). The CIT (A) deleted the penalty after noting that the appellant was not found to be engaged in managing the account under dispute as it was owned by her husband, on the short ground that since the assessee's husband had been imposed the penalty for non-disclosure of the account, which has been confirmed by the CIT (A). It was held that no penalty was leviable in the hands of the assessee. The Assessing Officer was aggrieved by the relief so granted by the CIT (A) and is on appeal before the tribunal.

The tribunal noted that the overall conduct of the assessee, and the materiality of the lapse, as well as its being in the nature of a technical or venial breach of law, was 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 a penalty was surely at the discretion of the Assessing Officer, but the manner in which this discretion was to be exercised has to meet the well-settled tests of judicious conduct by even quasi-judicial authorities.

"Unless there are sufficient prima facie reasons to at least doubt the bonafides well demonstrated by the assessee, an assessee cannot be visited with penal consequences. The bona fide actions of the taxpayers must, therefore, be excluded from the application of provisions of such stringent legislation as the BMA. In this light, and keeping in mind the object of the BMA, we do not subscribe to the Departmental Representative's perception that, in the name of strict implementation of the BMA, a penalty for non-disclosure of the bank account in question will be justified under the stringent provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This is, of course, without any prejudice to whatever consequence may follow under the provisions of the Income Tax Act, 1961, the legislation under which the lapse of non-disclosure, even if that be so, occurred," the ITAT observed while upholding the order of the CIT (A).

Case Title: Additional Commissioner of Income Tax Central Range 1, Mumbai Versus Leena Gandhi Tiwari

Citation: BMA No. 1/Mum/2022

Dated: 29/03/2022

Counsel For Appellant: Commissioner (DR) Yogesh Kamat

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