Non-Beneficial Joint Holder Spared Black Money Act Penalty: Tribunal Upholds Bona Fide Belief Principle

Introduction

In Sanjay Bhupatrai Shah v. Dy. Director of Income-tax[i], the Hon’ble Income Tax Appellate Tribunal, Mumbai-Bench addressed a significant issue concerning the scope and applicability of penalty under s. 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘Act’). In this case, the Tribunal examined whether a joint holder of a foreign asset, named solely for administrative purposes and not being the beneficial owner, is required to disclose such assets in Schedule Foreign Asset (‘Schedule FA’) of the income tax returns, and whether failure to do so warrants a penalty under the Act. The ruling carries substantial implications for how penal provisions under the Act should be interpreted and applied in cases involving joint foreign assets and bona fide omissions or technical non-disclosures.

Brief Facts

• The Assessee was named as a joint holder, alongside his son, in an investment made in Mauritius-based ASK Global Strategies Fund, through Apex Fund Services. His inclusion was solely for administrative convenience, with no beneficial interest in the investment.

• The Assessing Officer (‘AO’), upon observing that the foreign investment was not disclosed in Schedule FA of the Assessee’s income tax returns for the assessment years (‘AYs’) 2019-20 to 2021-22, levied a penalty of Rs. 10 lakhs for each year under s. 43 of the Act, making a cumulative penalty of Rs. 30 lakhs.

• Challenging this, the Assessee appealed before the Commissioner of Income-tax (Appeals) (‘CIT(A)’), contending that his role as a non-beneficial joint holder did not attract any disclosure obligation. However, the CIT(A) upheld the penalties, emphasizing the Assessee’s joint holder status.

• Aggrieved by the CIT(A)’s order, the Assessee filed these appeals before the Tribunal, contending that he was only a secondary holder for administrative purposes and that his son, being the beneficial owner, had already disclosed the entire investment in his income-tax returns. The Assessee also contended that he was under a bona fide belief that he was not obligated to report the said joint holding asset in Schedule FA.

• The Respondent Department argued that since the assessee had advanced funds to his son, which were used for the investment, and was listed as a joint holder, the obligation to disclose the asset lay with him as well.

Held

• The Tribunal set aside the CIT(A)’s order and directed the AO to delete the penalties imposed for all the AYs.

• The Tribunal held that the Assessee’s bona fide belief, arising from his role as a non-beneficial joint holder, exempted him from the disclosure requirement under Schedule FA, thereby rendering the penalty under s.43 of the Act unwarranted.

• It further ruled that merely advancing a loan does not confer ownership of assets acquired using those funds, thereby rejecting the Respondent’s contention that the Assessee had ownership in the foreign investment. The Tribunal found that the Assessee’s financial contribution to his son did not alter the latter’s status as the sole beneficial owner.

• Lastly, the Tribunal observed that the loan transaction between the Assessee and his son was executed in India. It thus fell outside the scope of the Act, which only aims at undisclosed foreign income and assets.

Our Analysis

This case highlights the nuanced application of s. 43 of the Act grants the AO discretionary authority to impose penalties for non-disclosure of foreign assets. The statutory use of the term ‘may’, as interpreted in M/s Ocean Diving Centre Ltd. v. Commissioner of Income-tax (Appeals)[ii], mandates a judicial and reasoned exercise of such discretion, allowing relief in cases involving technical breaches or bona fide errors. This principle has also been reinforced by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa[iii], where it was held that penalties are not to be imposed mechanically but only where there is deliberate or contumacious conduct. The Tribunal in this case, while allowing the appeal filed by the Assessee, has aligned itself with these earlier rulings and reaffirmed that the imposition of penalty requires the indispensable element of mala fide intention.

Further, the Tribunal’s acceptance of the Assessee’s bona fide belief, stemming from his non-beneficial joint holder status, aligns with precedents like the case of Aditi Avinash Athavankar v. CIT[iv], where secondary holders were exonerated due to a reasonable belief of non-obligation. Moreover, the distinction between lending and ownership, a cornerstone of general law, proved pivotal to the Tribunal’s conclusion, which held that a mere financial contribution by way of loan does not confer ownership over the foreign asset acquired.

Furthermore, the Tribunal’s exclusion of the domestic loan transaction from the ambit of the Act makes it clear that the Act is aimed solely at undisclosed foreign income and assets, not at transparent domestic dealings. By deleting the penalties, the Tribunal has struck a balance between the punitive intent of the Act and the principles of fairness and proportionality, ensuring that penalties are imposed only in cases of conscious disregard or mala fide intent. Thus, the ruling promotes a more equitable and just approach to tax enforcement and penal action under the Act.

End Notes

[i] 2025 173 taxmann.com 316 (Mumbai – Trib.) [24.01.2025].

[ii] [2023] 156 taxmann.com 360 (Mumbai - Trib.)[30-08-2023].

[iii] [1972] 83 ITR 26 (SC).

[iv] BMA No.16-19/Mum/2023, dated 10.07.2023.

Authored by Onam Singhal, Chartered Accountant at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.