Get a Tax Penalty Notice of 10 Lakhs if you’re buying stocks of Google, Apple, Meta, etc. but not disclosing these assets and dividends in your ITR.

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This power to levy a penalty of 10 Lakhs comes from the black money act, of 2015. The penalty is levied if: If you have furnished

“inaccurate particulars” or “did not furnish any information” in your income tax return relating to:

1. Foreign Income

2. Foreign Assets Held

Who is required to disclose foreign income and assets?

All resident individuals in India are required to disclose their foreign income and assets in their income tax return (ITR). This includes foreign income earned from any source, such as employment, business, investments, etc., as well as foreign assets held at any time during the financial year.

What types of foreign assets are required to be disclosed?

The following types of foreign assets are required to be disclosed:

  • Financial assets, such as bank accounts, investment accounts, and securities
  • Immovable property
  • Precious metals and jewelry
  • Any other asset that is located outside of India

How to disclose foreign income and assets in the ITR

Foreign income and assets are disclosed in Schedule FA of the ITR. The taxpayer is required to provide information about the type of asset, its value, and the country where it is located.

Tax on undisclosed foreign income and assets

If a taxpayer fails to disclose their foreign income and assets in their ITR, they may be liable to pay a tax of 30% on the undisclosed amount. In addition, they may also be liable to pay a penalty of Rs. 10 lakh for each year in which the non-disclosure occurred.

Further, This penalty is levied to “Resident & Ordinary Resident” only and not to “Non-Residents” & “Not Ordinary Residents”.

Recently, in the case of Shobha Harish Thawani vs JCIT, the taxpayer was levied a penalty of 10 Lakhs for the same reasons.

Judiciary and Counsel Details

  • Vikas Awasthy, Judicial Member & Ms Padmavathy S, Accountant Member
  • B.N. Rao for the Appellant.
  • Smt. Prakash Kishinchandani, Sr. AR for the Respondent.

Facts of the Case

Assessee and her husband have made a joint investment in Global Dynamic Opportunity Fund Ltd. Assessee’s share in the said investment was 40%. The assessee invested out of funds transferred from India to HSBC Bank in Jersey.

Assessee declared interest income from the foreign investment in AY 2016-17. Said asset was sold, and capital gain was offered to tax in AY 2019-20. However, the assessee didn’t disclose foreign assets while filing the return of income (ITR) for AY 2016-17 to AY 2018-19 under schedule FA.

Assessing Officer (AO) levied penalty towards the non-disclosure under section 43 of the Black Money Act 2015 (BMA) for each of the assessment years. On appeal, the CIT(A) upheld the levy of penalty. The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Mumbai Tribunal held that section 43 of the BMA contains provisions for the levy of penalty for failure to furnish information or furnish inaccurate particulars about an asset (including financial interest in any entity) located outside India in ITR.

As per said section, a resident and ordinarily resident person is liable for a penalty if he fails to furnish or files inaccurate particulars of investment outside India while filing the return of income under section 139. The disclosure of foreign investments/assets is to be made in ITR Schedule FA.

It is apparent from the language of section 43 that the disclosure requirement is not only for the undisclosed asset but any asset held by the assessee as a beneficial owner or otherwise. Undisputedly, the assessee had not disclosed the foreign asset in the return of income – Schedule FA. Thus, the penalty was rightly levied upon the assessee.

The assessee contended that the levy of penalty is not mandatory but is at the discretion of the AO since the word used in the section is that the AO “may” levy penalty.

It was held that even if it is assumed that in the light of the expression “may” used in section 43 of BMA, the AO has the discretion to levy penalty. The assessee failed to substantiate that the AO has exercised his discretion extravagantly.

After examining the facts of the case, AO formed his opinion to levy penalty. He exercised his discretion judiciously. No material was brought to show that AO levied penalty arbitrarily and unjustifiedly.

Further, the provisions of section 43 do not provide any room not to levy penalty even if the foreign asset is disclosed in books since the penalty is levied only towards non-disclosure of foreign assets in schedule FA.

Voluntary disclosure of foreign income and assets

The government of India has introduced a number of schemes to encourage taxpayers to voluntarily disclose their undisclosed foreign income and assets. Under these schemes, taxpayers can pay a reduced tax and avoid penalties.

Key Takeaway

File your ITR Properly. You never know you may get any notice 2-3 years later for non-reporting of any foreign income or foreign asset. The department may decide to not waive any amount of penalty at all

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