It is a settled position of law that an imposition of penalty is a matter of discretion, in terms of the importance given to the requirement of an opportunity of hearing across statutes.^[1] However, the intent of the Legislature may get masked under ambiguous terminology used by some of the statutes. One such instance is that of Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘BMA’), on the use of the terms “may” and “shall”.

In a case involving non-disclosure of foreign assets investment in a Cayman Islands entity by the Assessee,^[2] in Schedule FA of their Income Tax Return, the Income Tax Department had imposed the maximum penalty of INR 10 lakh under Section 43 of the BMA for failure to furnish accurate particulars of foreign assets.

A Special Bench of the Tribunal (‘Special Bench’) was thus constituted to examine whether the word “may” in Section 43 of the BMA means the penalty is mandatory or discretionary. While emphasizing that the procedure under Section 46(3) of the BMA requires a show cause notice and opportunity of hearing before imposition of penalty, the Tribunal has held that a penalty cannot be mechanically applied.

The Special Bench has emphatically emphasized on the point that the latter part of Section 43 of the BMA employs both “may” with regard to imposition of penalty and “shall” with regard to quantum. By confirming that an omission to disclose would not automatically lead to penalty in every case and holding that there must be application of mind by an Assessing Officer in examining the context of penalty on a case-to-case basis, the Tribunal has provided respite to the Assessee(s) under the BMA.

[1] Hindustan Steel Ltd. v. State of Orissa , [1972] 83 ITR 26 (SC); and ACST v. Ankit International, (2011) 46 VST 1 (Bombay HC).

[2] Vinil Venugopal v. DDIT (Inv.), TS-1395-ITAT-2025 (Mumbai Tribunal).