In a significant ruling related to disclosure of foreign income, the Income Tax Appellate Tribunal (ITAT), Chennai, cancelled a penalty of Rs 10 lakh imposed on a salaried taxpayer who had failed to declare ESOPs, his foreign company shares, in his income tax return.
What’s the Case
The employee had been posted abroad by his Indian employer and was granted ESOPs — or shares — of the foreign parent company as part of his job.
The assessee filed his return of income for AY 2016–17 on 22.02.2018, wherein he failed to disclose the said foreign assets in Schedule FA. Schedule FA is the section of the income tax return where details of foreign assets and income must be filled in.
This omission triggered a penalty. Accordingly, penalty proceedings under Section 43 of the BMA for non-disclosure of foreign assets in Schedule FA were initiated, and a penalty of Rs 10 lakh was levied.
What the Tax Laws Say
According to Income Tax rules in India, residents must disclose foreign assets or income, regardless of whether their income is below the taxable limit in the previous year.
Here comes the importance of the Black Money Act (BMA). According to India’s Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 — or the Black Money Act (BMA) — the disclosure of foreign income and assets is mandatory for taxpayers. Crucially, BMA provisions were introduced w.e.f. AY 2016-17, the very year the employee filed his return.
Many, including salaried employees, were unaware of this requirement. The assessee, being a salaried individual unacquainted with the complexities of cross-border taxation, had omitted to report the said foreign asset and dividend income due to bona fide and inadvertent reasons. In simple terms, he missed a checkbox — there were no hidden foreign accounts or overseas assets involved.
Taxpayer’s Appeal
Before the tribunal, the taxpayer made a strong case for himself. The taxpayer submitted that the omission to disclose the ESOPs in Schedule FA was purely inadvertent and arose due to a lack of clarity in the inaugural year of the introduction of such reporting requirements.
It was further submitted that the perquisite value of ESOPs was duly subjected to TDS, and the capital gains arising on the sale of shares were duly offered to tax in AY 2019–20. Hence, there was no concealment of income or tax evasion.
The taxpayer also cited previous cases wherein, under identical facts, a penalty under Section 43 was deleted. Another key point highlighted by the taxpayer was that the word ‘may’ used in Section 43 of BMA connotes a discretionary power — meaning it is not mandatory for the Assessing Officer to impose a penalty.
ITAT verdict
The ITAT agreed. The tribunal found that the only lapse on the part of the assessee was non-disclosure of such asset in Schedule FA of the return of income for AY 2016–17. Considering the fact that the relevant year was the initial year of introduction of the reporting requirement and the shares were held through a fiduciary structure, the ITAT found merit in the contention of the assessee that the omission was bona fide and attributable to a lack of clarity in reporting requirements.
The ITAT found that there is no material on record to suggest that the assessee had any intention to conceal foreign assets or evade taxes. The conduct of the assessee also reflected full disclosure of income and due payment of taxes.
Ruling in the taxpayer’s favour, the tribunal held that the impugned non-disclosure is a technical breach which does not warrant the levy of a penalty under Section 43 of the BMA. Accordingly, it set aside the order of the income tax department and directed the Assessing Officer to delete the penalty of Rs 10,00,000 levied under Section 43 of the BMA.
Takeaways
The ruling sends a clear message. Courts have consistently ruled that honest taxpayers should not be prosecuted like criminals for making unintentional mistakes, particularly under new legislation. Forgetting a disclosure box is a technical error rather than a wilful offence if the funds are taxed and accounted for.
New Rules after Budget 2026
Budget 2026 introduced a new scheme for Indian taxpayers holding foreign shares or overseas income, which had not been disclosed in previous years. “A new Foreign Asset of Small Taxpayers Disclosure Scheme has been introduced in the Finance Bill of 2026. Under the scheme, upon valid declaration and payment of the specified tax or fee, the declarant shall be granted immunity from penalty and prosecution under the Income-tax Act and the Black Money Act. This scheme is applicable for disclosure of foreign assets that have been missed out in the income tax returns filed before this scheme comes into effect,” says Neeraj Agarwala, Senior Partner, Nangia & Co LLP.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. The ruling discussed pertains to a specific set of facts and circumstances and may not apply universally to all cases involving non-disclosure of foreign assets under the Black Money Act, 2015. Taxpayers are advised to consult a qualified tax professional or legal advisor before making any decisions based on the information contained herein. The Financial Express does not take responsibility for any action taken based on this article.