ITAT cancels employee's ₹10 lakh penalty for non-disclosure of ESOPs in ITR. Here's how you can avoid the same mistake

Kishore Kumar Rajagopal was fined ₹10 lakh for failure to disclose employee stock options (ESOPs) received while working for the UK arm of his group company, as per a report by the Economic Times. 

The oversight turned into a major mistake when Rajagopal filed his income tax returns (ITR) for AY16-17 and forgot to disclose the ESOPs in question as Schedule Foreign Assets (FA) in the document, it added. This miss led to the Income-Tax (I-T) department slapping Kumar with a ₹10 lakh penalty under Section 43 of the Black Money Act (BMA).

Why was the penalty imposed? What did ITAT Chennai state?

Rajagopal first challenged the fine with the Commissioner of Appeals (A), who upheld it and then moved the Income Tax Appellate Tribunal (ITAT) Chennai against the imposition, the report said. His representative, Chartered Accountant Prakash Shridhar Hegde, told ITAT that the failure to disclose the asset was “purely accidental” and a result of Kumar's confusion during his first time required to report the details, it added. 

Hegde added that TDS for the ESOPs in question were paid and capital gains from sale of the assets were also declared in AY19-20, which showed that there was no deliberate attempt to conceal asset or evade taxes, as per the report.

Hearing the case on 24 March, ITAT ruled in Kumar's favour on 1 April noting that the TDS and capital gains being paid was meant the transaction was “within the tax net” and the one lapse was the non-disclosure in ITR for FY17, the report said. It added that ITAT Chennai further held that it was convinced that Rajagopal's omission was due to lack of clarity and deliberate concealment of assets.

Have ESOPs? Here's how you avoid similar mistakes…

• As per the I-T rules, Schedule FA in the ITR mandates disclosure of all assets located outside India by a beneficiary, Trust, bank signatory or other parties with financial interest in abroad-based entities.
• This has to be done for ITR-2 and ITR-3 forms for salaried taxpayers.

• Declarations include shares held outside India — including annuity, debentures, capital assets, ESOPs, insurance, immovable property, etc., beneficial or financial interest in overseas entity, signing authority outside India, and income from capital gains, dividend or interest from sources outside India.
• It mostly applies to Indians who work abroad, invest abroad or live abroad (NRIs).

Budget 2026 offer way out for compliance

Notably, Finance Minister Nirmala Sitharaman in her Budget 2026 speech proposed a one-time six-month window for taxpayers to voluntarily declare any undisclosed foreign assets or foreign-sourced income and get amnesty from prosecution under BMA.

Termed as the Foreign Assets of Small Taxpayers—Disclosure Scheme, 2026 (FAST-DS) it allows taxpayers to disclose foreign assets from any past years; subject to additional taxes and penalties (lower than the ₹10 lakh under BMA). The Centre is yet to announce when the six-month timeline starts.

Under the proposed rules:

• Category A includes amnesty those who have not disclosed foreign income or even assets that may not have generated any income from assets not exceeding ₹1 crore in value. These individuals need to pay 30% of the asset’s fair market value (FMV) or 30% of undisclosed income as tax, plus an additional 30% tax, and get immunity.

• Category B includes taxpayers who have paid tax on foreign income but failed to disclose the same assets in schedule FA. The value of such assets should be below ₹5 crore and the taxpayer has to pay a ₹1 lakh penalty to get amnesty.

The window will be available to all taxpayers with undisclosed income, assets, or both, where proceedings are not initiated or pending under Prevention of Money Laundering Act (PMLA), or where an assessment is not completed under BMA.

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