Penalty for False Entry, etc. in Books of Account [Section 271AAD]

Here’s a detailed breakdown of Section 271AAD of the Income Tax Act, 1961, which imposes penalties for false entries or omissions in books of account to evade tax liability:

1. Overview of Section 271AAD

Introduced by the Finance Act, 2020, this section targets fraudulent practices like fake invoices and bogus entries in books of account, especially post-GST implementation. It aims to curb tax evasion through:

• False entries: Fabricated documents (e.g., fake invoices) or entries without actual transactions.
• Omissions: Deliberate exclusion of entries to reduce taxable income.

Key Objective: Combat GST fraud (e.g., fake Input Tax Credit claims) and income tax evasion via inflated expenses or suppressed income.

2. Penalty Provisions

A.  Penalty on the Assessee

• Quantum: Equal to the aggregate amount of false/omitted entries.
  • Example: A false invoice of ₹50 lakhs attracts a penalty of ₹50 lakhs.
• Conditions:
  • Penalty applies if false entries/omissions are found during any proceeding(e.g., assessment, search).
  • Applies only to those mandated to maintain books of account.

B.  Penalty on Accomplices

• • Scope: Extends to anyone causingfalse entries/omissions (e.g., accountants, advisors, suppliers).
  • Quantum: Same as the false/omitted entry amount.

3. What Constitutes a “False Entry”?

• Fake invoices: Issued without actual supply of goods/services.
• Transactions with non-existent parties.
• Forged documents(e.g., fabricated bills).
• Intent matters: Even intentionto use fake documents attracts penalty.

4. Key Exceptions and Limitations

• No penaltyif the person is not required to maintain books.
• No immunity under Section 273B: Unlike other penalties, “reasonable cause” is not a defense.
• Double jeopardy: Penalty can coexist with GST penalties (e.g., under CGST Act).

5. Practical Implications

• Strict Liability: Penalty is mandatoryonce false entries are identified.
• Appeal Process: Orders can be challenged before CIT(A) under Section 246A.
• Documentation: Maintain reconciled recordsto avoid discrepancies.

6. Examples of Penalty Scenarios 9

7. Comparison with Other Penalties