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ICAI Notification datd 08.07.2021 about Multi-Disciplinary Partnership Firms for Chartered Accountants was issued in the official gazette.
CA firms can now partner with CMAs, CSs, Advocates, Engineers, Architects, MBAs, and others approved under Section 53 B, thanks to a change in Form 18.
Background:
Notification:
This section will be effective from 1st April 2020. Sec 271AAD says:
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—
1. A false entry; or
2. 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.”
The scope of this section is very large which gives very wide power to the Ld. Assessing Officer. It starts with “without prejudice to any other provisions of this Act”, it means the penalty u/s 270A and 271AAD can be invoked simultaneously for the false entry or penalty u/s 271AAC and 271AAD can be invoked for bogus purchases.
Further, it is said that “if false entry found in the books of accounts maintained by any person”. The question arises, what if the assessee does not maintain any books of accounts. Further also, the term “false entry” explained as below:
a. Forged or falsified documents such as false invoices; or,
b. Invoice in respect of supply or receipt of goods or services or both without actual supply or receipt of such goods or services or both, but the person from whom the transaction has been done, does exist.
c. Invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.
This is an inclusive explanation and there may be other situation also which can be considered as false entry. It seems that this provision is only to capture those transactions which are recorded in the books of accounts based on invoices which are false.
1. What if the assessee fails to produce the invoice. Sec 270A(9)(c) covers the situation where the assessee claims any expenditure and fails to substantiate such expenditure by presenting any evidence during the proceeding. This situation is called misreporting and the penalty under this section would be two hundred percent of the amount of tax payable. If the transaction value is 100 rupees and the company is taxable at the rate of 22%, so the penalty can not exceed 44 rupees, however, on the other hand if the assessee produces such bill and fails to prove that such invoices are not false, the penalty would be 100 rupees.
2. What if the assessee did the bonafide transaction and produces invoice and other related documents during assessment proceeding but failed to provide the other documents like confirmation from the supplier, can it be said that the purchase is false.
3. The trigger point to invoke this section is false entry or say false invoice. It may so happen that the Ld. AO will presume every invoice false invoice unless proved otherwise.
4. What if the purchase is found to be bogus, whether the addition would be u/s 69C? If the addition is u/s 69C, the tax would be computed u/s 115BBE and penalty would be levied u/s 271AAC.
5. The term includes “used or intention to use”, what is the meaning of intention to use, when the Ld. AO can say that there was intention to use.
6. The application of this section is mechanical and if during the assessment proceeding it is found that the assessee has used or there was intention to use false invoice, the penalty would be imposed. Whether the assessee will get an opportunity of being heard to defend his position.
7. The meaning of “omitted entry” is not explained in this section. The dictionary meaning of the term “omit” is to not include something either deliberately or because you have forgotten it. If the assessee omitted any entry which is relevant for computation of total income, whether the penalty u/s 270A (9) will invoke considering it is misreporting u/s 270(9)(e) or penalty u/s 271AAD will invoke.
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