Would bonafide mistake of non disclosure of foreign assets in ITR, result into penalty under Black Money Law?

1. What is undisclosed foreign asset?

Section 2(11) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act [‘The Black Money Act’] defines an undisclosed foreign asset as an asset located outside India, for which the assessee has no explanation for or the explanation so provided is unsatisfactory in the Assessing Officer’s Opinion.
The disclosure of foreign assets in Schedule FA (Foreign Assets) is an integral part of the Income Tax Return Forms (ITR) starting from the assessment year 2012-13.

2. Penalty for non disclosure:
Section 43 of the Black Money Act provides a penalty of Rs. 10 Lakhs on an assessee for the Non-Disclosure of Foreign Income or Assets in their Income Tax Return.

3. Grey area:
However, the provision states that the Assessing Officer ‘may’ levy a penalty, thus implying that there could be an element of discretion with the assessing officer. The use of the term-‘may’ signifies that the penalty is to be levied only in when the situation warrants.

4. Conflicting case laws:
ITAT Mumbai in the case of Addl. CIT Vs Leena Gandhi Tiwari (BMA No. 1/Mum/2022), held the following:
The bonafides actions of the taxpayers must be excluded from the application of provisions of such stringent legislation as the Black Money Act.

In this light, and keeping in mind the object of the BMA, we do not subscribe to the learned 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 Act.

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.

However in the very next year, a coordinate bench of Mumbai ITAT held in the case of Ms. Shobha Harish Thawani v. Jt. CIT [2023] 154 taxmann 564 the following:
Section 43 does not provide any leeway to waive penalties, even if the foreign asset is disclosed in the books.

The penalties are specifically linked to the non-disclosure of foreign assets in Schedule FA.

This reaffirms the stringent approach taken by the legislature to ensure complete transparency in reporting foreign assets, leaving no room for leniency in the case of non-disclosure.

5. Conclusion:
These conflicting decisions of the Mumbai ITAT leads one to ponder whether a bonafide mistake of the resident assessee in not disclosing foreign assets would result into levying of stiff penalty.

Note:
Eg of a bonafide case: A situation where a non resident salaried employee who had accumulated foreign assets and then after coming back to India and becoming a resident, inadvertently due to ignorance did not disclose them in his ITR.