When Mr Kumar was working abroad with Vedanta Limited, he received employee stock options (ESOPs) from the foreign parent company, Vedanta Resources PLC (UK). These shares were managed through a fiduciary setup with Sanne Fiduciary Services Limited, Jersey. Subsequently, Kumar filed his income tax return for AY 2016-17 on February 22, 2018. However, he made the crucial mistake of not disclosing the ESOP shares in the Schedule Foreign Assets (FA) in his ITR.
As a result, the Income Tax Department started penalty proceedings under Section 43 of the Black Money Act, imposing a fine of Rs 10 lakh. The Commissioner of Appeals (A) upheld the penalty imposed by the tax department. Consequently, Kumar took the case to the Income Tax Appellate Tribunal (ITAT) Chennai.
Kumar’s authorised representative, Chartered Accountant Prakash Shridhar Hegde, told ITAT that the failure to disclose the ESOPs in Schedule FA was purely accidental and stemmed from Kumar’s confusion during the first year of this reporting requirement.
Hegde also told ITAT Chennai that the perquisite value of these ESOPs was duly subjected to TDS, and the capital gains arising from the sale of the ESOPs had already been declared for tax in AY 2019-20. Therefore, there was no concealment of income or tax evasion per se.
Hegde also cited a related case where under similar circumstances, Section 43 penalty was deleted (Vasathan Jayaraman vs Addl.CIT in BMA Nos.4& 5/CHNY/2025, September 8, 2025). Hegde also cited another case (Vinil Venugopal vs DDIT (Inv) in BMA No. 33/MUM/2024) and argued that the word ‘may’ is used in Section 43 which suggests that this power is discretionary and not mandatory.
ITAT Chennai heard the case on March 24, 2026 and gave its judgement in Kumar’s favour on April 1, 2026.
ITAT Chennai said that the it is undisputed that the ESOPs were allotted to Kumar as part of employment compensation and the perquisite value was subjected to TDS and capital gains arising from sale of such shares were also offered to tax in AY 2019-20. Thus the entire transaction relating to the said foreign asset was within the tax net.
ITAT Chennai found force in Hegde’s arguments and said that the only lapse on Kumar’s part was non-disclosure of such assets in Schedule FA of the ITR for AY 2016-17.
Thus the tribunal said that 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, they find merit in Kumar’s argument that the omission was bona fide and attributable to lack of clarity in reporting requirements.
On this ground, ITAT Chennai deleted the Rs 10 lakh penalty under BMA.
Summary of the judgement
Chartered Accountant Suresh Surana told ET Wealth Online that this case involves appeals filed by the assessee, Shri Kishore Kumar Rajagopal, before the Income Tax Appellate Tribunal (ITAT), Chennai, against the orders of the Commissioner of Income Tax (Appeals) for Assessment Years 2016–17 to 2018–19. The dispute falls under the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA).
The Tribunal pointed out that it was a well-accepted fact that the ESOPs were given as part of employment compensation and had already been subjected to tax in India as perquisites. Apart from that, the capital gains from selling these shares were duly disclosed and taxed in subsequent years. Thus, the entire transaction was within the tax net, and there was no loss of revenue.
Crucially, the Tribunal noted that the only lapse on the part of the assessee was the non-disclosure of such foreign assets in Schedule FA in the return of income for the relevant year. Given that this was the initial year of introduction of such reporting requirements under the BMA, and considering that the shares were held through a fiduciary structure, the omission was held to be bona fide and attributable to lack of clarity rather than any deliberate attempt to conceal.
The Tribunal further relied on judicial precedents, including:
- The Special Bench decision in the Vinil Venugopal case, wherein it was held that the use of the term “may” in Section 43 indicates that levy of penalty is discretionary and not automatic; and
- Supreme Court rulings in Hindustan Steel Ltd. and Reliance Petroproducts Pvt. Ltd. case, which establish that penalty cannot be imposed for mere technical or venial breaches in the absence of deliberate default or mens rea.
- It was also emphasized that penalty provisions under the BMA are quasi-criminal in nature and require a finding of wilful default or contumacious conduct, which was absent in the given case.
In light of the above, the Tribunal held that:
- The non-disclosure of foreign assets was a technical and inadvertent lapse;
- There was no intention to conceal income or evade tax, as the income had already been duly taxed; and
- Section 43 of the BMA being discretionary in nature, penalty cannot be imposed mechanically.
- Accordingly, the Tribunal deleted the penalty of Rs 10,00,000 and allowed the appeals in favour of the assessee.
aniltikotekar4sme.com 