Mazars Tax Update | Edition 19.20

Section 271AAD of the Income-Tax Act ,1961

A step towards curbing the menace of fraudulent transactions

With every passing year, the scope of the penalty provisions is widening and its impact is getting harsh & stringent.

One such penal provision- Sec 271AAD was inserted by Union Budget 2020 which is made applicable from 01/04/2020. The intent of the said provision is to curb malpractices of issuing the fake invoices.

The Memorandum to Finance Bill, 2020 categorially explained that ‘after the introduction of GST, several cases were unearthed wherein the suppliers were claiming fraudulently input tax credit based on the fake invoices, without carrying on any business or profession and that such fraudulent arrangements deserve to be dealt with harsher provisions under the Act.”

In order to discourage such malpractices, to curb the practice of fake invoicing and to prevent wilful omission of entries of books accounts, the penalty under section 271AAD is introduced and the penalty is equivalent to the amount of false entry made or the entry omitted by an assessee in his books of account maintained by him.

However, the section is written in such a manner that its interpretation bestows unprecedented power upon tax officers and confers hardship to the genuine taxpayers having established the existence of “reasonable cause” for default if any. The present article is an attempt to analyze the critical legal and practical aspects related to the said insertion.