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The Special Bench ('SB') of the Mumbai ITAT in the case1 of Mr. Vinil Venugopal & Mrs. Ranjeeta Vinil has held that the word "may" u/s 43 of the Black Money Act is discretionary, and not mandatory. Accordingly, the Assessing Officer ('AO') has the authority to decide whether to impose a penalty for non-disclosure of foreign assets based on the facts of each case. The Tribunal noted that automatic imposition of penalty would undermine the requirement to provide the assessee an opportunity of hearing, confirming that such penalty provisions must be applied judiciously rather than mechanically.
The facts of the case and the SB's observations are summarised below for your reference.
FACTS OF THE CASE
- The assessee, Mr. Vinil Venugopal and Mrs. Ranjeeta Vinil, were each penalized ₹10 lakh u/s 43 of the Black Money Act for not disclosing their foreign investment in Cayman Islands investment in Schedule FA of the ITR of A.Y 2020–21
- The assessees acknowledged the investment made in Cayman Islands, and the same was made out of tax-paid funds under the Liberalized Remittance Scheme of RBI. The assessee also accepted that the non-reporting of foreign investment while filing income-tax return for AY 2020-21 was completely inadvertent
- The AO held that non-disclosure in Schedule FA triggered an automatic penalty of ₹10 lakh u/s 43, which was further upheld by the CIT(A
- Noting conflicting decisions of the co-ordinate benches on whether "may" u/s 43 of the Black Money Act makes penalty 'discretionary' or 'mandatory', the Division Bench referred the matter to a Special Bench for clarification
OBSERVATIONS OF THE ITAT SPECIAL BENCH
- Sec 43 of the Black Money Act provides that the AO 'may' direct a person to pay the prescribed penalty on non-disclosure of foreign assets in Schedule FA.
- The word "may" in Section 43 of the Black Money Act denotes discretion, not compulsion, indicating that penalty for non-disclosure is not automatic, as the legislature consciously distinguished between "may" for imposition and "shall" for quantum.
- Section 46(3) mandates a hearing before imposing penalty, and treating the penalty as automatic would therefore defeat this legislative intent.
- The Hon'ble Supreme Court in case of Hindustan Steel Ltd. observed that even where a minimum penalty is prescribed, it need not be imposed in cases of technical or minor breaches, reinforcing that penalty provisions allow for discretion
- Hon'ble Bombay High Court in case of Ankit International held that when a statute uses the word "may" for imposing penalty, the levy is discretionary and not mandatory.
- The precedents in Nirmal Bhanwarlal Jain and Shobha Harish Thawani are distinguishable on facts, as the assessees therein failed to substantiate their claim of bona fide non-disclosure. The Division Bench hence, had no occasion to consider the provisions of Section 46 of the BM Act requiring a hearing before imposition of penalty and its implications on whether the penalty is automatic.
- The Special Bench further held that where two interpretations of Section 43 of the BM Act are possible, the view that favours the assessee should be adopted, in line with settled principles of law.
- The SB concluded that the term "may" u/s 43 of the BM Act is 'directory and not mandatory', affirming that the imposition of penalty as discretionary and dependent on the facts and circumstances of each case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
