The Income Tax Appellate Tribunal, Chennai bench, has set aside a Rs 10 lakh penalty imposed on an employee of Vedanta Limited for failing to disclose foreign-held ESOPs, ruling that the lapse did not amount to deliberate tax evasion.
The employee had received stock options from the company’s UK-based parent, Vedanta Resources Plc, during an overseas assignment. These shares were held through a fiduciary structure in Jersey but were not reported under the Schedule Foreign Assets section in the income tax return for the relevant assessment year.
The omission led to penalty proceedings under the Black Money (Undisclosed Foreign Income and Assets) Act, with tax authorities imposing a Rs 10 lakh fine, which was upheld at the first appellate level.
On further appeal, the tribunal noted that the ESOPs formed part of employment income that had already been taxed, with applicable tax deducted at source. It also observed that capital gains arising from the eventual sale of shares had been duly declared in subsequent filings.
Importantly, the bench held that the non-disclosure occurred in the first year of mandatory foreign asset reporting requirements and stemmed from a lack of clarity rather than any intent to conceal income.
Terming the lapse as technical and bona fide, the tribunal ruled that penalty provisions under the Black Money Act are discretionary and not automatic, and accordingly ordered deletion of the Rs 10 lakh penalty.