Amendment in Penalties and Prosecutions in Budget 2020

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1. Amendment in Section 274 towards New e-Penalty Scheme is proposed to be Notified [Applicable from Assessment Year 2020-21]

E-Assessment Scheme has already been notified to achieve the objective of faceless assessment. However, in response to a show cause notice issued by the Assessing Officer for the purpose of levying penalty, the assessee or his authorised representative are still required to visit the office of the Assessing Officer. With an objective to eliminate the human interface in such cases also, an e-penalty scheme is proposed be launched on the lines of eassessment scheme.

Section 274 has been proposed to be amended to authorize the Central Government to notify an e-scheme for the purposes of imposing penalty so as to impart greater efficiency, transparency and accountability by:

  1. eliminating the interface between the Assessing Officer and the assessee in the course of proceedings to the extent it is feasible technologically;
  2. optimising utilisation of the resources through economies of scale and functional specialisation;
  3. introducing a mechanism for imposing of penalty with dynamic jurisdiction in which penalty shall be imposed by one or more tax authorities.

Necessary directions in this regard may be made by the Central Government by 3 1-03-2022. The directions may specify that any of the provisions of this Act relating to jurisdiction and procedure of imposing penalty shall not apply or shall apply with such exceptions, modifications and adaptations.

Amendment in Penalties and Prosecutions in Budget 2020
Amendment in Penalties and Prosecutions in Budget 2020

2. Amendment of new Section 271AAD towards Penalty for ‘False Entry’ or ‘Omitted Entry’ in the Books of Account [Applicable from Assessment Year 2020-21]

Since the introduction of the GST, several instances of fraudulent input tax credit (ITC) claim have been caught by the GST authorities. Taxpayers were found indulging in obtaining fake GST invoices from suppliers registered under GST Act to fraudulently claim ITC and reduce their GST liability.

These invoices are found to be issued by racketeers who do not actually carry on any business or profession. They only issue GST invoices without actually supplying any goods or services. The GST charged on such invoices is neither paid nor is intended to be paid. To deal with the fraudulent arrangements, the Finance Bill 2020 proposes to introduce a new section 271AAD under the Act to provide for a levy of penalty on a person, if it is found that in the books of account maintained by him there is a:

  1. False entry; or
  2. Any entry relevant for computation of total income of such person has been omitted to evade tax liability.

The penalty payable by such person shall be equal to the aggregate amount of false entries or omitted entry. It is also proposed that any other person, who causes in any manner a person to make or cause to make a false entry or omits or causes to omit any entry, shall also pay by way of penalty a sum which is equal to the aggregate amount of such false entries or omitted entry.

For the purpose of section 271AAD, the false entries is proposed to include use or intention to use:

  1. Forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence;
  2. Invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both; or
  3. Invoice in respect of supply or receipt of goods or services or both to or from a person who do not exist.

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