You & Your Advisor can be penalized if you intentionally show wrong entries in your accounts books

What is this all about?

SECTION 271 AAD of the Income Tax Act, 1961 (Brought in by the Finance Act, 2020)

For Accounting years beginning from 01.04.2020, If an Income Tax Officer finds a FALSE ENTRY or OMISSION OF AN ENTRY, INTENTIONALLY MADE BY THE TAX-PAYER in his Books of Accounts which hinders in the correct calculation of income tax, then the officer is having all the powers to charge the tax-payer with PENALTY EQUIVALENT TO THE TRANSACTION AMOUNT.

An equivalent amount of penalty shall also be collected from the person who is found to advise/help the tax-payer on intentional accounting of false entries or intentional deletion of correct entries.

Examples of False Entries include:

1. Accounting of false/forged documents such as - false invoices.

2. Accounting of invoices without actual delivery of goods/services.

3. Accounting of invoice issued by a non-existing person.

Government, clearly trying to put a strong foot forward on Benami transactions and Tax Evasion arrangements.

Normally Penalty amount is always calculated as a certain percentage of tax amount evaded due to a false/omitted transactions.

But in this section, Penalty amount is equal to the False Transaction / Omitted Transaction Value itself thereby completely ignoring the tax amount evaded. (VERY HARSH AND SEVERE RULE)

Tax-Payers, Accountants, and Advisors have to now be very much cautious and doubly sure before finalizing the financial statements and filing of the Income-tax return.


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