ITAT Kolkata: Black Money Act Cannot Be Applied Retrospectively and on Foreign Assets from Known Sources

The Income Tax Appellate Tribunal (ITAT) of Kolkata, in its recent ruling in the mater of Vikash Marda vs. JCIT, Range-2(C), Kolkata (BMA 4-12/Kol/2024), quashed the assessments and penalties imposed by the Assessing Officer (AO) under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA Act) for Assessment Years (AY) 2014-15, 2015-16, and 2016-17.

Background

The assessee, Vikash Marda, travelled to the USA in 1993 for higher studies. After completing his education, he worked at Siebel Systems and Oracle Corporation from 1999 to 2007, during which he was a tax resident in the USA, filing tax returns as required. He invested/accumulated a Non-Retirement Fund (NRF) with a corpus of $29,000 between January 22, 2003, and September 8, 2005, derived from savings from his employment in the USA. The assessee returned to India in the financial year 2007-08, leaving his job in the USA. Subsequently, he received dividends on the NRF fund, which as per the plan were reinvested in the same fund in USA and not remitted to India.

The Assessing Officer (AO) received information regarding dividends in Financial Year (FY) 2018-19 and issued notices u/s. 10(1) of the BMA Act dated 29.11.2018, for the assessment years (AY) 2014-15, 2015-16 and 2016-17. The AO upon verification, found that the assessee had been reporting his foreign accounts in the Income Tax Return (ITR) under Schedule FA starting from assessment year 2017-18 and onwards. The AO issued quantum orders u/s 10(3) of the BMA Act for AYs 2014-15 to 2016-17, treating the notional increase in the NRF's value and reinvested dividends as undisclosed foreign assets, thereby levying tax and penalties under Sections 10(3), 41, and 43 of the BMA Act.

Key Findings of the ITAT

1. Retroactive Application of the BMA Act: The ITAT observed that the BMA Act came into force from April 1, 2016, and could not be applied retrospectively to earlier assessment years. As a result, the assessments for AYs 2014-15 and 2015-16 were held invalid.
2. Year of Taxability: According to the ITAT, foreign income/assets can only be taxed in the year in which the information comes to the AO’s notice. Since the information regarding the NRF was received by the AO in November 2018, the relevant assessment year for initiating proceedings would have been AY 2019-20, not the earlier years.
3. Foreign Assets from Known Sources: The ITAT accepted the assessee’s stand that the NRF did not qualify as an undisclosed foreign asset, as it was accumulated using income earned and duly taxed in the USA.
4. Procedural Lapse and Bona Fide Belief: The ITAT noted that the assessee had started disclosing his foreign assets from AY 2017-18 onwards. The failure to disclose earlier was deemed a procedural lapse rather than any deliberate attempt to evade taxes. And thus, reinvested dividends being disclosed from AY 2017-18, also did not constitute undisclosed income under the BMA Act.
5. Discretionary Nature of Penalty Provisions: The ITAT clarified that penalties under Sections 41 and 43 of the BMA Act are discretionary and should not be imposed mechanically. Since the assessee had genuine foreign income/assets that were not undisclosed, the penalties were rightly deleted by the CIT(A).