Review penalty for non-disclosure of foreign assets
Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, a penalty is provided for failure by a resident taxpayer to furnish or furnishing inaccurate particulars of foreign assets or foreign incomes in the return of income. The penalty is ₹10 lakh, and the only exception is for a foreign bank account whose balance was less than equivalent of ₹5 lakh during the year. The CBDT, in a circular issued in 2015, had clarified that non-disclosure in Schedule FA (Foreign Assets Schedule) of the tax return, of a foreign asset acquired out of disclosed income, would attract the penalty.
A recent tribunal decision upholding levy of penalty on a taxpayer for three years brings out how draconian such a provision is, if interpreted literally. In this case, the taxpayer and her husband had remitted funds from India to a bank account abroad under the Liberalised Remittance Scheme, and invested jointly in an overseas fund from such bank account. Interest income from the fund was disclosed as income in the first year, and the capital gains was offered to tax in the fourth year. The taxpayer, however, did not disclose her investment in the fund in the Foreign Assets Schedule for the first 3 years, nor did her husband.
A penalty of ₹10 lakh was levied for each of the first three years on the taxpayer, but not her husband. The taxpayer claimed that it was a genuine mistake, and that the asset was not an undisclosed foreign asset, as it was acquired out of taxed funds remitted from India. The tribunal confirmed the levy of the penalty for all three years, on the ground that for such penalty, it was not necessary that the asset was acquired out of undisclosed funds, and there was nothing to show that it was
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