[Opinion] An Analytical Review of Penalty under Sections 42 & 43 of the Black Money Act

Shobhit Mishra – [2026] 184 taxmann.com 130 (Article)

1. Introduction

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the “Black Money Act”) was enacted with the specific objective of addressing the persistent problem of undisclosed foreign income and assets held by persons resident in India. The Preamble of the Black Money Act reflects the legislative intent to establish a comprehensive statutory framework for the identification, taxation, and penal consequences associated with such undisclosed foreign holdings.

The Act came into force with effect from 1 July 2015, marking a decisive legislative step by the legislature to combat the menace of black money stashed abroad. This move was bolstered by India’s commitment to international transparency norms like the Common Reporting Standard (CRS). Recognising the limitations of the existing regime under the Income-tax Act, 1961 (“Income Tax Act”) in dealing with offshore non-disclosures, Parliament introduced a separate and stringent code providing for the imposition of tax on undisclosed foreign income and assets, along with robust enforcement mechanisms.

Although the objective of the Act is to curb the pervasivemenace of undisclosed foreign income and assets, its penalty framework has often been viewed as excessively stringent. The scheme under Sections 42 and 43 of the Black Money Act operates as a ‘one-size fits all’ model in a manner that even minor or technical lapses, such as failure to disclose a dormant foreign account or inadvertent omission of particulars in the return may attract substantial fixed penalties. The provisions of the Black Money Act lacks a clear distinction between wilful concealment and bona fide, unintentional error, thereby creating a de facto strict liability regime in practice.

Unlike the comparatively graded and discretionary penalty structure found under the Income-tax Act, the Black Money Act adopts a deterrence-driven approach with limited scope for considering assessee’s intent or the principle of proportionality. As a result, even small or incidental compliance failures may trigger severe civil penalties and, in certain cases, prosecution. While this stringent framework may be justified in targeting deliberate offshore evasion, its uniform application to all non-disclosures raises significant concerns regarding fairness, proportionality, the fundamental principles of natural justice and reasonableness and the due process under Article 21 of the Indian constitution.

2. Invocation of Penalty under Sections 42 & 43 – Scope and Threshold

Section 42 of the Black Money Act imposes a fixed penalty of INR 10 lakh where a resident (other than “not ordinarily resident” within the meaning of Section 6(6) of the Income-tax Act) is required to file a return under Section 139(1) of the Income-tax Act and, during the relevant previous year, held a foreign asset (including financial interest therein), was a beneficiary of such asset, or earned income from a foreign source, but fails to furnish the return before the end of the relevant assessment year. The provision is triggered by non-filing of the return itself, not merely by non-disclosure within a filed return. The penalty is uniform and does not depend on the value of the foreign asset or income, subject to a limited carve-out where the aggregate value of foreign asset or assets (other than immovable property) does not exceed INR 20 lakh at any time during the year. In essence, Section 42 of the Black Money Act is invoked where there is a complete failure to file the return despite the existence of a foreign asset or foreign income during the relevant year.

Section 43 of the Black Money Act operates in a distinct but related field. It applies where a resident (other than not ordinarily resident) has filed a return of income under Section 139(1), 139(4), or 139(5) of the Income-tax Act but fails to disclose, or furnishes inaccurate particulars regarding, any foreign asset, financial interest, beneficiary interest, or foreign-source income held at any time during the previous year. Unlike Section 42 of the Black Money Act, the default here is not non-filing of the return, but misreporting or defective or inaccurate/ incomplete disclosure within a filed return. Upon such failure or inaccuracy, the Assessing Officer (the “AO”) may direct payment of a fixed penalty of INR 10 lakh, again subject to the limited exemption wherein the aggregate value of such foreign asset or assets (excluding immovable property) does not exceed INR 20 lakh during the year. Therefore, Section 43 of the Black Money Act is invoked in cases of omission or misreporting of foreign assets or income in the return, even where the taxpayer has otherwise fulfilled their general filing obligations i.e., return itself has been duly filed.

3. Section 72(c) – Deeming Fiction and the Question of Retrospective Operation

Section 72(c) of the Black Money Act specifically employs a “removal of doubts”, provision that creates a legal fiction in respect of foreign assets acquired unreported prior to the commencement of the Black Money Act (i.e., prior to 1 July 2015). It declares that where such an asset was acquired before the Black Money Act came into force and no declaration was made under the one-time compliance window, the asset shall be deemed to have been acquired in the year in which a notice under Section 10 of the Black Money Act is issued by the AO. This fiction bridges the temporal gap, enabling taxation and penalties post 2015 without historical tracing. By shifting the “date of acquisition” to the date of discovery, the Black Money Act effectively bypasses the traditional bar on retrospective taxation, as the tax is technically levied in the year of the notice.

A significant interpretative nuance lies in the language of Section 72(c) that the deeming fiction applies only to “asset” and not to “undisclosed income.” The provision does not declare that undisclosed income relating to such assets shall be deemed to arise in the year of notice. This distinction is critical. This statutory asymmetry creates a significant jurisdictional hurdle, while the asset can be taxed under the Black Money Act by virtue of the deeming clause, the absence of corresponding deeming provision in respect of income raises questions about the extent to which past income streams connected to that asset can be subjected to the Black Money Act’s penal regime. Taxpayers frequently challenge additions to “income” by citing this omission, arguing that “income” must be taxed in the year it was actually earned, subject to the limitation periods of the Income-tax Act.