No Penalty Under Black Money Act if Assessee Was Only Joint Holder of Foreign Asset for Administrative Purposes | ITAT

Case Details: Sanjay Bhupatrai Shah vs. Dy. Director of Income-tax - [2025] 173 taxmann.com 316 (Mumbai-Trib.)

Judiciary and Counsel Details

• Raj Kumar Chauhan, Judicial Member & B.R. Baskaran, Accountant member
• Dharan Gandhi, for the Appellant.
• Hemanshu Joshi, Sr.DR for the Respondent.

Facts of the Case

The assessee, a resident individual, and his son invested in a fund in Mauritius. The assessee did not disclose these investments in his Schedule FA while filing the return of income. The Assessing Officer (AO) initiated penalty proceedings under the Black Money Act.

The assessee contended that he was not the owner of the foreign asset, and hence, there was no requirement to disclose it in Schedule FA of the income tax returns. Unsatisfied with this explanation, AO levied a penalty for non-disclosure of foreign assets in Schedule-FA.

On appeal, CIT(A) confirmed the penalty order, and the assessee filed an appeal to the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee was included as a secondary owner for administrative purposes. Thus, the assessee was under the bonafide belief that he was not required to disclose the foreign assets as they belonged to his son. There was no dispute that the son declared 100% ownership of the foreign asset in his income tax return.

Thus, the assessee’s omission to disclose foreign assets was due to a bonafide belief that he is not the owner of the asset. AO relied on the fact that the assessee lent money to his son, who, in turn, used those funds to make investments. However, under the general law, merely because a person purchases certain assets out of borrowed funds, the lender would not automatically become the owner of those assets. The buyer would continue to remain the owner of those assets until it is recovered from him by the lender in accordance with the law in the event of failure of the borrower to adhere to the terms and conditions of the loan.

Further, the said loan transaction took place in India and was duly recorded in the books of both the lender and borrower. Hence, the provisions of the Black Money Act will not extend to the loan transaction entered between the parties in India. Therefore, the tax authorities were not justified in levying the penalty, and accordingly, the penalty was deleted.