TaxTMI 
TaxTMI 
Penalizing False Accounting Entries : Clause 444 of the Income Tax Bill, 2025 Vs. Section 271AAD of the Income-tax Act, 1961
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....ncial records. The legislative intent behind these provisions is to create a deterrent against manipulation of accounts, which is a common modus operandi for evasion of taxes and generation of unaccounted income. This commentary critically examines Clause 444 of the Income Tax Bill, 2025, analyzing its structure, scope, and implications. It then undertakes a detailed comparative analysis with the existing Section 271AAD of the Income-tax Act, 1961, highlighting similarities, differences, interpretational nuances, and practical consequences for stakeholders. Objective and Purpose The primary objective of both Clause 444 and Section 271AAD is to penalize the deliberate falsification or omission of accounting entries designed to evade tax. ....
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....s made with the intent to evade tax. * Sub-section (2): Extends the penalty to any other person who causes the assessee to make a false entry or omit an entry, again equal to the aggregate amount of such entry. * Sub-section (3): Defines "false entry" to include: * (a) Use or intention to use forged or falsified documents, including false invoices or other documentary evidence; * (b) Invoice for supply or receipt of goods or services issued without actual supply or receipt; * (c) Invoice regarding supply or receipt to or from a non-existent person. 2. Interpretation of Key Terms * False Entry: The explanation in sub-section (3) is inclusive, not exhaustive. It covers not only actual use but also the intention to use forged or f....
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....rsons who "cause" the making or omission of an entry. The scope of "causing" is broad and could encompass accountants, auditors, consultants, or even vendors. The extent of liability for third parties may require further judicial clarification. * Quantum of Penalty: The penalty is equal to the aggregate amount of the false or omitted entry, which can be substantial. There is no provision for mitigation based on the degree of culpability or cooperation, which could raise proportionality concerns in borderline cases. * Overlap with Other Provisions: The phrase "without prejudice to" suggests that this penalty is in addition to any other penalty or prosecution under the Act. This could lead to multiple penalties for the same act, raising i....
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....with Section 271AAD of the Income-tax Act, 1961 The provisions of Clause 444 of the Income Tax Bill, 2025, and Section 271AAD of the Income-tax Act, 1961, are substantively similar, but with certain nuanced differences. A clause-by-clause comparison is set out below: 1. Textual Similarities * Both provisions empower the Assessing Officer, Joint Commissioner (Appeals), or Commissioner (Appeals) to impose a penalty equal to the aggregate amount of the false or omitted entry. * Both apply to: * False entries in books of account; and * Omission of any entry relevant for computation of total income to evade tax liability. * Both extend liability to any person who causes the making or omission of such entry. * Both define "false ent....
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....ical Implications of Continuity * Legislative Continuity: Clause 444 represents a consolidation of the policy underpinning Section 271AAD, ensuring that the tool remains available to the tax authorities under the new legislative framework. * Administrative Familiarity: Since Section 271AAD has been in operation since 2020, both taxpayers and authorities are familiar with its application. Clause 444 does not introduce radical changes, thereby ensuring administrative continuity. * Potential for Judicial Interpretation: Since the language is substantially similar, judicial precedents interpreting Section 271AAD will continue to be relevant for Clause 444, aiding in smooth transition and consistent application. 4. Areas for Further Clari....