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Sec 271AAD of the Income Tax w.e.f. 1st April 2020

WHAT IS SEC 271AAD

Finance Act 2020 has inserted a new section 271AAD in the Income-tax Act relating to penalty for false or omission of entry in books of account. Under the new section 271AAD, penalty shall be levied on a person, if it is found that the books contain a false entry or that any entry has been omitted which is relevant for the computation of his total income. Such person shall be liable to pay by way of penalty a sum equal to the aggregate amount of such false and omitted entries. Penalty shall also be levied on any other person who causes the person required to maintain books of account to make or causes to make any false entry or omit or cause to omit any entry in books of account.

The false entries shall include use or intention to use forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods; or invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.

THE LAW

271AAD. (1) Without prejudice to any other provisions of this Act, if during any proceeding under this Act, it is found that in the books of account maintained by any person there is— (i) a false entry; or (ii) an omission of any entry which is relevant for computation of total income of such person, to evade tax liability, the Assessing Officer may direct that such person shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.

(2) Without prejudice to the provisions of sub-section (1), the Assessing Officer may direct that any other person, who causes the person referred to in sub-section (1) in any manner to make a false entry or omits or causes to omit any entry referred to in that sub-section, shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.

Explanation. – For the purposes of this section, “false entry” includes use or intention to use—

(a) forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or (b) invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both; or (c) invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.’


INFERENCE

A plain reading of the above section would show that section 271AAD provides for the levy of penalty upon a person equal to the aggregate amount of false or omitted entry if it is found by the assessing officer in the course of any proceeding under the Income Tax Act, 1961 that there is a false entry, or omission of any entry which is relevant for computation of total income of such person, to evade tax liability, in the books of account maintained by such person.

Further, sub-section (2) of section 271AAD provides that any other person who causes the person referred earlier, to make such false entry or omits or causes to omit any entry which is relevant for computation of total income of such person, to evade tax liability shall also be liable to penalty similarly. Thereafter, ‘Explanation’ appended below to section 271AAD seeks to define the meaning of “False entry” in an inclusive manner. ‘Omission of entry’ has not been defined under this section but the word ‘entry’ appearing in both clauses (i) & (ii) of sub section (1) would be pointer to its meaning.

This new section would be widely used by the AO during assessment and hence it is requested from all the assessee's to be highly vigilant while procuring goods or services. It is suggested that procurement from only fully GST compliant parties be done to ensure compliance to this new section since the triggering point for penal consequences under this section from stem from GST unearthing.

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