Here’s a detailed analysis of Section 271J of the Income Tax Act, 1961, which imposes penalties for furnishing incorrect information in reports or certificates:
1. Overview of Section 271J
Objective: To ensure accuracy and reliability in reports/certificates submitted by professionals (accountants, merchant bankers, registered valuers).
Applicability:
- Applies when professionals furnish incorrect informationin:
- Audit reports (e.g., tax audit under Section 44AB)
- Valuation reports
- Certificates (e.g., TDS certificates)
- Other prescribed documents
2. Penalty Provisions
- Amount: ₹10,000 per report/certificatecontaining incorrect information
- Authority: Assessing Officer (AO) imposes penalty after hearing the professional
- No upper limit: Multiple incorrect reports attract multiple penalties
3. Key Aspects
Definition of Incorrect Information:
- Material omissions
- False statements
- Misrepresentations that could impact tax liability
Defenses Available:
- Professional can prove:
- Information was based on available data
- Exercised due diligence
- Acted in good faith
4. Comparison with Other Penalties
| SECTION | APPLICABLE TO | PENALTY |
| 271J | Professionals (CAs, valuers etc.) | ₹10,000 per incorrect report |
| 271A | Failure to maintain books | ₹25,000 |
| 271H | Incorrect TDS statements | ₹10,000-₹1,00,000 |
5. Practical Implications
- Professionals must:
- Verify all supporting documents
- Maintain working papers
- Disclose limitations in reports
- Common problem areas:
- Underreporting of income in audit reports
- Overvaluation/undervaluation of assets
- Incorrect TDS deduction certificates
6. Recent Developments
- CBDT clarification (2023): Penalty applies only for materialinaccuracies
- Tribunal rulings: No penalty if professional followed applicable standards
7. How to Avoid Penalties
- Implement robust quality control procedures
- Document all verification steps
- Obtain management representations
- Include appropriate disclaimers
