While presenting Budget 2020, nothing was announced regarding any such penalty. However as we know about the fake invoices being issued under GST as well to take incorrect claim of ITC and its penalty there and now CBDT has come up with penalty for such offences in Income tax as well.
In the current Income tax act there is provision u/s 68 and 69C to cover unexplained credit and unexplained expenditure and it also calculates tax at 60%. However now a specific penalty has been introduced to cover false entry u/s 271AAD which is as under:
“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.”
Thus from the above section it’s clear that it clear that covers these important aspects:
- Fake invoices of any kind and omission of any entry.
- It punishes both the party i.e. the supplier as well as recipient.
- It is applicable on people who maintain books of accounts.
- The amount of penalty would be 100% of invoice value.
- This penalty shall be made applicable from 01.04.2020.
Therefore this section covers fake invoices entered into books of accounts or any entry omitted from books of accounts which was necessary for calculation of income of assessee.
There were speculations that it might cover entry for provision of any expense as it would not have any invoice to support such expense as the name of section mentions penalty for false entry. However after going through the above provisions it can be seen that it only includes fake invoice, invoice in respect of which no goods/ service received or invoice in respect of which no supplier exist whereas it doesn’t covers the situation of provision where no invoice exist for entry in books of accounts. Hence making a provision for expense or any journal entry made in books of accounts without invoice won’t be covered under this provision.
Thus now fake invoices supplier and receiver would be punished by:
- Penalty under GST act if applicable.
- Addition u/s 68, 69C.
- Penalty u/s 271AAC and 271AAD.
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