In a recent ruling on non-disclosure of foreign Employee Stock Option Plan (ESOP) shares, the Chennai bench of Income Tax Appellate Tribunal (ITAT) held that the employee’s failure to report income was merely a technical breach, with no intention to conceal foreign assets or evade taxes.
A bench of George George K (Vice President) observed that even though the foreign ESOP income wasn’t disclosed earlier, the person did report and pay tax on the capital gains when the shares were sold in AY 2019–20, and the income from that asset had already been captured by the tax system.
The only lapse on the part of the assessee was the non-disclosure of such asset in Schedule FA of the return of income for AY 2016-17, when the ITR was filed on January 22, 2018. Accordingly, penalty proceedings under Section 43 of the BMA (Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015) were initiated, and a penalty of Rs 10 lakh was levied.
“There is no material on record to suggest that the assessee had any intention to conceal foreign assets or evade taxes. The conduct of the assessee reflects full disclosure of income and due payment of taxes. Therefore, in our considered view, the impugned non-disclosure is a technical breach,” the tribunal ruled on April 1, 2026.
The tribunal also ordered the tax commission to revoke the penalty of Rs 10 lakh slapped on the employee.
Case importance
The ITAT ruling underscores the importance of properly reporting ESOPs in income tax returns, particularly for foreign holdings.
In this case, the foreign asset (ESOP shares) was already covered under Indian taxation as perquisite income. The dividends were credited to the assessee’s Indian bank account and taxed at source abroad.
When the shares were sold in AY 2019–20, the capital gains were properly disclosed and taxed in the return filed on August 10, 2019. During proceedings under the Black Money Act, the assessee voluntarily disclosed the dividend income and sought to revise the return.
Notably, the return was filed using ITR-2A (for salaried individuals without capital gains), which did not include a provision to report foreign assets.
“In this case, despite non-disclosure, the tribunal set aside the Rs 10 lakh penalty, recognising the omission as a bona fide error in the absence of any intent to conceal, particularly given the complexities of ESOP structures and the early years of foreign asset reporting,” an tax expert said.
He argued that the ITAT ruling strikes a pragmatic balance. While it reinforces strict disclosure obligations, it also underscores that penal consequences must be guided by intent and surrounding facts.
“For taxpayers, however, the message remains clear: foreign ESOPs must be carefully evaluated and reported, as reliance on ‘bona fide omission’ may not always offer protection,” he said.
