Introduction

This section was inserted by Finance Act, 2020 relating to penalty for false entry or omission of entry in the books of accounts. This section belongs to the family of penalty and is part of chapter XXI of Income Tax Act,1961. The penalty u/s 271AAD can be imposed parallel with other penal provisions of Income Tax Act, 1961. The rationale behind the amendment was to stop fake invoices and other mal-practices and the same has been explained in the memorandum clause 98 of Finance Bill, 2020. The Hon’ble Finance Minister in her speech at para 6.8 has also stated that “To discourage taxpayers to manipulate their books of accounts by recording false entries including fake invoices to claim wrong input credit in GST, it is proposed to provide for penalty for these malpractices”. There was parallel amendment in CGST Act by inserting a sub-section (1A) to section 122.

  1. Applicability

There are one set of provisions in the Act which govern the computation of total income and any change in law will be in respect of assessment year beginning with that date or thereafter. It is also trite law that penalty is to be levied as per the law as on the date of default. For applicability of penalty provisions, it is pertinent to see what is the default for which penalty is being levied and when such default may be said to have been committed. This section 271AAD having been made effective from 01/04/2020 and as such, is applicable from A.Y. 2021-22. The said section cannot be applied for the defaults committed before 31/03/2020 and as such can only be applied for the defaults committed on or after 01/04/2020. The clause 98 related to section 271AAD is in contrast with other clauses to memorandum as made by Finance Bill 2020, say Clause no.4, which is related to section 6 of Income Tax Act 1961, with effect from 1st April, 2021 and will apply in relation to A.Y. 2021-22 and subsequent years. Thus, it is important to note that whenever a legislature wanted a particular date, in that case, the section provides the date and it means beginning of the assessment year. However, it is important to note that in section 271AAD, there is no such prescription. However, at the bottom, it has been mentioned that this amendment is applicable from 01st April, 2020, which clearly indicates that the said section will be applicable for the defaults committed on or after 01/04/2020 under the specified circumstances. Furthermore, the penal provisions cannot be applied retrospectively and can only be applied prospectively.

  1. Applicability of Section 271AAD vis-a-vis other penalties in Income Tax Act, 1961

The provision sub-section 1 starts with the phrase “without prejudice to any other provisions of this act” which means that penalty u/s 271AAD can be imposed along with the any of the penalty as mentioned in the Chapter XXI, such as, Section 271AAB, Section 270A, Section 271AAC, etc. Therefore, the intent of law is that the penalty u/s 271AAD shall be levied irrespective of the fact that such transactions has been taxed at normal rate or at higher rate (Sec 115BBE) or penalty was levied under some other section or not. The penalty under section 271AAD is not limited to buyer or seller but its scope is also extended to all those person [271AAD(2)] who cause the person referred in section 271AAD(1), (i.e. mediator), in any manner, to make false entry or to omit any entry. However, in the case of the buyer and seller to the transaction who were already liable to penalty under section 270A (9) and prosecution under section 276C. Therefore, reason to bring section 271AAD in addition to section 270A (9) in case of buyer and seller to transaction is unfathomable and is a subject matter of guess. The penal provisions are to be read by following rule of “strict construction”, therefore the concept of double jeopardy will not work as the section itself begins with expression “Without prejudice to any other provisions of this Act”. Even if there is prosecution-initiated u/s 276C against such person due to defaults such as fake invoice etc. or on account of fabrication of books of accounts or for any other reason, it cannot be put as defence against the imposition of penalty under this section. Therefore, there is no restriction as per the section in applying the penalty under section 271AAD in addition to other penalties and prosecution under the Act. The penalty u/s 271AAD is in respect of false entry or omission of entry which may or may not lead to tax evasion. But the intent of law to punish the act of use or intention to use fake or fabricated invoices.

The only remedy is to challenge the legality of introduction of section 271AAD, keeping in view the argument pertaining to already existing penal provisions on buyer and seller of section 270A(9), as referred above. The issue will be decided in future by the constitutional bench, keeping in view the vires of new section 271AAD. Similarly, on the issue of prosecution, the same should be challenged by considering section 26 of the General Clauses Act, 1897. That the person shall not be liable to be punished twice, once under section 276C of the income Act and again under section 132 of GST laws. The relevant provisions of section 26 of the General Clauses Act, 1897, which reads as follows:

“Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be liable to be punished twice for the same offence”.

  1. “During any proceedings under this Act” Section 271AAD(1)

The section clearly states that if the AO finds any such default, he may levy the penalty only if such default is identified during proceedings under the act that means it can be assessment, re-assessment, search, survey or other proceeding under the act. The other proceedings under this act will cover proceedings u/s 131, 131(1A), 133A, 133(6) and appellant proceedings, whether related to Income Tax matter or TDS matter. For instance, if the authority (CIT-Appeal) find such default during appellate proceeding before him then in such situation, the authority would refer the case to the concerned AO for invoking provision of section 271AAD, as the power of CIT is coterminous with that of AO and the section 271AAD gives power to the AO therefore, the authority will refer the matter to the concerned AO. The word used in the section is proceedings under this act, which clearly states that the AO may levy penalty without waiting for any information from other departments. The only thing is that there must be proceedings under this act for person covered in section 271AAD. There can be situation that proceeding is in progress before GST authority and the question arises that can AO levy the penalty u/s 271AAD in the absence of pending proceeding. The AO after assertion and satisfaction that of any malfeasances that books of accounts contain false entry or omitted entry then the penalty proceedings u/s 271AAD can be initiated subject to proceedings under the Act. There are many penalties which are dehors assessment i.e. the penalty can be levied without framing assessment. The word proceeding as used in various sections cannot be restricted to assessment proceedings and is to be interpreted with other clauses of section. For Instance, the section 271(1) refers to the phrase “any proceedings” but it is to be read with clause (c) and consequently inferred as “assessment proceedings”. Whereas, the section 272A(1), sub-clause (b) is applicable where a person refuses to sign any statement made by him in the course of any proceedings under this Act, which an income-tax authority may legally require him to sign. The phrase “proceedings” can be assessment, re-assessment, search, survey or any other proceedings under the act.

Question- Whether phrase “any proceedings” u/s. 271AAD is limited to assessment proceedings

  • The penalty u/s 271D “Failure to comply the Provisions of section 269SS” can only be levied if a person takes or accepts any loan or deposit in cash exceeding the limit as prescribed in section 269SS. The penalty u/s 271D shall be imposable by JCIT. The section nowhere make use of phrase “assessment proceedings” and as such the penalty u/s 271D can be levied without making an assessment. However, the Apex Court in case of CIT v. Jai Laxmi Rice Mills (2015 (11) TMI 1453- SC), has held that “No penalty can be levied or initiated until there is an assessment proceedings and satisfaction shall be recorded in an assessment order to levy the penalty”. The said interpretation cannot be applied universally. The Finance Act, 2020 has introduced a new section 285BB and has replaced the existing section 203AA of the Income Tax Act, 1961 (Act) which will now allow the income tax authority to produce additional information which is necessary and to the extent is in the interests of Revenue in Form 26AS. The said form will include Annual Information Report (AIR)/ Specified Financial Transactions (SFT) and many other information. For instance, if property is sold in cash the same information will now reflect in 26AS. The Authority can straight forward issue the notice u/s 274 by giving the reasonable opportunity to the assessee. The authority will verify the contents by calling the sale deeds from Tehsil and confronting the same to the assessee. The penalty under section 271D will move straight forward once the authority is satisfied regarding the transaction.

Conclusion – The section 271AAD is a penal provision and is to be read in strict sense.. There, is no doubt that while arguing the case before appellate authority the ground that penalty cannot be initiated until there is an assessment proceedings can be relied upon. However, the phrase “proceedings” cannot be limited to assessment proceedings only. Therefore, penalty u/s 271AAD can be levied even if no assessment proceeding is pending.

  1. The section 271AAD provides levy of penalty in respect of defaults committed by different persons

A new section 274(2A) has been inserted with effect from 1-4-2020 to provide that the Central Government may notify an e-scheme for the purposes of imposing penalty so as to impart greater efficiency, transparency and accountability. Further, for the purpose of giving effect to the scheme, section 274(2B) has been inserted with effect from 1-4-2020 to provide that the Central Government may, by notification, direct 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 as may be specified in the notification. Such directions are to be issued on or before 31-3-2022. The above referred notifications shall be required to be laid before each House of Parliament [section 274(2C)]. Till the said notification is issued and approved by both the houses, the standard provision shall apply. In this procedure, penalty is imposed by the jurisdictional assessing officer. However, section 271AAD (2) enables other assessing officer (non-jurisdictional) also to impose the penalty on taxpayers. The word used in section 271AAD empowers “the assessing officer” which means the same assessing officer who has initiated the proceeding on the first person. In the present system of e-assessment taxpayers need to be ready for getting notices & orders from AO across the country.

  • For an Instance, DDI has issued a summon u/s 131(1A) to Mr. X and in the statement Mr. X has admitted that he has taken false entry in respect of fake invoices from the entry operator Mr. Y. In the given case, the AO of Mr. X can proceed to initiate penalty proceedings u/s 271AAD (1) on Mr. X and can also impose penalty under 271AAD (2) on Mr. Y. On the other there is contrary view that competent authority to levy final penalty on other person in section 271AAD (2) is jurisdictional AO of such other person in section 2(7A) of the Act and not AO of main person in section 271AAD (1) although this issue is debatable from both sides. But as per humble opinion of author, AO of Mr. X can levy penalty on Mr. Y, subject to the procedure of law as prescribed u/s 127 of the Act. The AO of Mr. X will send the copy of order of penalty imposed under section 271AAD to the AO of Mr. Y. The same is as per provisions of section 274(3).

  • Continuing the above example in practical scenario the AO of Mr. X will hand over all the information collected against Mr. Y to the AO to MR Y. In that case, the AO of Mr. Y can impose penalty in respect of all the fake invoices issued to Mr. X or other persons provided no penalty was levied by the AO of Mr. X in respect of fake invoices issued by Mr. Y to Mr. X. Alternatively, the AO of Mr. X can levy penalty on Mr. Y u/s 271AAD(2) for the invoices issued to Mr. X and handover other information regarding the invoices issued by Mr. Y to other parties. In this situation, the AO of Mr. Y will invoke penalty of all the fake invoices issued by Mr. Y to other parties except Mr. X. The AO of Mr. X will issue notice u/s 274(1) (opportunity of hearing and after confronting the material in support of the allegation) to Mr. Y in respect of transaction related to X and after passing an order shall send a copy of such order to the assessing officer of Mr. Y u/s 274(3). Section 274(3) deals with a situation where penalty is levied by the income tax authority who is not the AO of the assessee. The power to levy penalty will be subject to the procedure of law u/s 127 of the Act.

  • There can be a situation that the department is able to locate an entry operator say Mr. Z, the AO of Mr. Z will invoke penalty on Mr. Z only for all the fake invoices issued by Mr. Z. Furthermore, the AO of Mr. Z will pass on the information to AO’s of all the concerned parties whosoever has taken billing from Mr. Z. Their respective AO’s will invoke the penalty in that case.

  • There can be situation where the assessment in the case of person (say X) is completed without any adverse findings. Later on, during the course of assessment of Mr. Y it was noticed that Mr. X has taken fake invoices from Mr. Y. In this situation the AO of Mr. X will invoke penalty u/s 271AAD (1).

  • There can be situation that the penalty levied on person was succeeded in appeal and penalty u/s 271AAD (1) is quashed. Now the question arises whether the relief based on the outcome of appeal of a person will be available to “other person” as referred in section 271AAD (2). The premise of section 271AAD (2) is only dependent on person referred in section 271AAD (1). Therefore, what will be the position of penalty of other person in such case? The provisions of section 275(1A) are applicable only on same person proceeding and as such no benefit to other person. In the author’s opinion suitable amendment is required to be made in order to avoid multiplicity of appeal.

4.1 Ingredients to be specified in notice issued u/s 274

The penalty under section 271AAD is discretionary and directory in nature as evident from phrase “may direct” as used in the section. The same phrase has been used in various penal provision likewise in section 271AAA/ 271AAB and it has been held by various courts that penalty in such cases is discretionary in nature and is to levied only in deserving cases. The notice U/s274 is required to be issued which requires the Assessing Officer to follow a procedure and give a reasonable opportunity of being heard before levy of penalty. The notice issued under section 274 should contain the relevant ingredients. Therefore, if any of ingredient is missing in that case is jurisdictional fact is lacking, same may be countered as without authority of law and it may be appropriately challenged in appeal proceedings. It has been held by various court that where penalty provision contains multiple clauses, it is mandatory for authority to specify clearly exact charge and limb in which penalty is imposable. For this reference, may be made to court decision of Basanti Properties (P) Ltd 114 taxmann.com 541 and Amrit Foods v. Commissioner of Central Excise U.P. {2005} 13 SCC 419. In both the cases it has been held that mentioning of specific charge is obligatory. Therefore, keeping in view the statute and judicial precedents it is obligatory to specify the precise charge of penalty in section 271AAD whether for false entry or omitted entry and it must be clearly be spelt in show cause notice. Therefore, the AO issuing the notice must clearly specify the exact charge and limb (i.e. for a “false entry” or “omission of entry” or for “charge mentioned in section 271AAD(2)“) for which penalty is proposed. Consequently, mentioning multiple clauses in notice under section 274 will vitiate the proceedings.

  1. Defaults can be identified for any year during the proceedings under the Act

It is possible that the AO while making assessment for particular year finds that the assessee has taken fake invoice for earlier year. In that case the question arises whether the AO can levy the penalty for earlier year by giving direction for payment of penalty? To illustrate, during the course of assessment proceedings for AY 2024-25, the Assessing Officer finds that a false entry is made in AY 2021-22. Whether the Assessing Officer can initiate penalty proceedings under Section 27AAD for Assessment 2021-22. The text of the provisions does appear to bestow such wide powers on the Assessing Officer. The Board must pass suitable circulars/instructions clarifying the scope of this new provision and the manner and circumstances in which the tax officer should be exercising such extraordinary powers. This would help in smooth administration of the provisions and in avoiding un-necessary litigation. It is pertinent to mention that the penal provisions are to applied by following rule of “Strict Construction” and as such is to be applied strictly for all offences committed on and after 01-04-2020 and can’t be applied to any offence committed before 01-04-2020 for which proceedings are still in progress.

  1. False entry or omission of entry is found in the books of account maintained by any person

The plain reading of section states that the penalty u/s 271AAD (1) will not be invoked if books of accounts are not maintained. Now there can be various possibilities: –

Situation

Particular

1

Books of account are not maintained

2

Assessee is filing return under presumptive taxation.

3

Books of account are rejected u/s 145(3)

4

A person being a racketeer only issuing invoices and not maintaining books of account

5

Deletion of invoices from the books of accounts

6

Whether the transaction amount will include GST element

Situation 1: Books of accounts are not maintained

  • The section 44AA provides the maintenance of books of account by certain person carrying on profession or business. It is importance to note that the section 271AAD (1) uses the word books of account maintained and not the word requires to be maintained. Therefore, penal provision u/s 271AAD (1) cannot be triggered if no books of accounts are maintained.

  • There are separate penalties for non-maintenance of books of account which will be imposed i.e. u/s 271A. Further, a penalty u/s 271B for not auditing books of account is also prescribed under the income tax Act. In various judgments (322 ITR 86) it has been held that the penalty u/s 271B shall not be levied if books of accounts are not maintained. The courts have taken a stand that it is a clearly a case of impossibilities of performance where it is expected that the assessee should get his books of account audited when it is known that there are no regular books of accounts. Keeping in view the said interpretation the same can be applied here that no penalty u/s 271AAD could be levied where no books of account are maintained. The books of accounts can’t be assumed by AO to levy penalty in section 271AAD. Therefore, if there are no books of account and penalty u/s section 271A for non-maintenance of books is levied then penalty of section 271AAD might not survive or exist.

Situation 2: Assessee is filing return under presumptive taxation

Ø The assessee was not required to maintain the books of accounts as he/she is opting for presumptive scheme. Now the big question arises whether such persons filing return under presumptive scheme and is indulged in supply or receipt of fake invoices can be penalized u/s 271AAD. The answer to this question will depend upon the circumstances and fact of each case. It is important to note that the schedule OL in ITR 4-Sugam requires the assessee to fill some optional field and if such fields are filled then in that case it will be presumed that the assessee is maintaining books. The Schedule OL is reproduced for ready reference.

SCHEDULE OL

PARTICULARS

CODE

AMOUNT

Partners/ Members own Capital

E11

Secured Loans

E12

Unsecured Loans

E13

Advances

E14

Sundry Creditors

E15

Other Liabilities

E16

Total Capital & Liabilities (E11-E16)

E17

Fixed Assets

E18

Inventories

E19

Sundry Debtors

E20

Balance with Banks

E21

Cash-In-Hand

E22

Loans & Advances

E23

Other Assets

E24

Total Assets (E18-E24)

E25

Particulars

Remarks

Minimal records to identify turnover, Gross profit, Net profit, Debtors and Creditors.

Penalty u/s 271AAD will be imposed.

The turnover required u/s 44AAD is calculated by considering fake invoices.

Penalty u/s 271AAD will be imposed.

However, on the opponent view is that the word maintained after books of account is of crucial importance and has to be read in strict sense. But, at this stage it is very difficult to say till the same passes the test of judiciary.

Situation 3: Books of account rejected u/s 145(3) or Books of account not rejected during assessment even in the case of fake invoice.

The penalty u/s 271AAD (1) will be imposed whether books of account rejected or not if during the course of assessment proceedings. Therefore, the assessee cannot take the shelter that once the books of account are rejected u/s 145(3) are not books and as such, provision of section 271AAD cannot be imposed. The word as used in section 271AAD(1) is the books of accounts maintained as such the provision of section 271AAD will be applicable even if the books of account were rejected by the AO during assessment proceedings. The second situation that there were fake invoices and the AO make the addition without rejecting the books of accounts in that case also penalty provision u/s 271AAD will be applicable.

Situation 4: A person being a racketeer only issuing invoices and not maintaining books of accounts

The racketeers will be liable to penalize u/s 271AAD (2) as in that case such person have Caused the other person as referred in section 271AAD (1) to make a false entry or caused to omit. There can be a situation that racketeer is maintaining books of accounts, then in that case the penalty can be levied u/s 271AAD(1) or under 271AAD(2) depending on the facts of case.

Situation 5: Deletion of invoices from Books of accounts

The same has been discussed in detail in the subsequent para no.10

Situation 6: Whether the transaction amount will include GST element

The text used in section 271AAD is a sum is equal to aggregate amount of such false or omitted entry therefore, one food for thought is that the penalty as per section 271AAD shall include GST element also. But logically, there should be no penalty on tax element but the section uses the word aggregate amount, therefore clarification is needed on this part.

  1. Whether it is compulsory that penalty on account of false entry or omission of entry u/s 271AAD shall be invoked only if there is evasion of tax liability.

  • The legislature in section 271AAD (1) has used the word any person. To levy the penalty there must be two occasion as per section 271AAD(1)

(i) a false entry; or

(ii) an omission of any entry which is relevant for computation of total income of such person, to evade tax liability,

The word false entry is explained in the explanation given in the section and the word omission of any entry is not defined in the section. It is pertinent to note that the word false entry is followed by semicolon and whereas the word omission of entry is continued with further set of words “relevant for computation of total income of such person, to evade tax liability”.

Therefore, it is immaterial false entry in books of accounts have impact on computation of total income or not. For example, say Mr. X has taken fake invoices for both sale and purchase of same amount in order to show rosy picture to bank. In this case, though there is no effect on the computation of income but section 271AAD (1) will be invoked in the hands of Mr. X for both the transaction. Therefore, it is concluded that the phrase ‘to evade tax liability’ is only to be read with the clause (ii) of sub section 1. This interpretation is in line with the memorandum which also speaks of claiming fraudulent input tax credit.

  1. Explanation to section 271AAD which seeks to explain ‘false entry’ is limited to fake invoice or not.

The explanation u/s 271AAD refer false entry and has been given is in the inclusive manner. The explanation also covers scenario of intention to use such falsified documents or invoices. The said explanation has been divided in three clauses as referred as (a), (b) and (c). It is importance to note that the clause (a) refers to forged or falsified documents and whereas other clauses (b) and (c) only talks about invoices. Now a question arises whether the penalty u/s 271AAD can be triggered on unsustainable claim of expenditure. From the plain reading of explanation, it appears that the clause (a) will cover other transaction even not related to invoices, but the intent of legislature is not the same and which can be visualized by reading the entire clause together. Therefore, the accommodation entry in respect of loan share capital gift does not appear to be covered within the meaning of false entry. The said intention is also in consonance with the memorandum explaining the finance Bill under the head “(H) Preventing Tax Abusea caption “Penalty for fake invoice” was introduced. Even the ejusdem generis rule of interpretation too dictates the same. The rule ejusdem generis used to interpret loosely written statutes. Where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed. Therefore, the word falsified of documentary evidence used in clause (a) of explanation would thus be read to have colour from false invoice and subsequent clause (b) and (c) of explanation which also talks about invoice without actually supply of goods or services or invoice from nonexistence person.

8.1 The clause (b) of explanation to section 271AAD deals with supply/receipts of goods or services or both without actually supply or receipts of such goods or services. It can be a situation where the assessee has booked expenditure say commission but such services were never taken by the assessee and once it is established by the AO that such services were never taken then in that case the provisions of section 271AAD can be invoked. The next question which comes to the mind whether this provision can be used by the AO for all the expenses. For example, booking bogus claim of salary it appears that the clause (b) will not cover such situation as the word mentioned is invoice and therefore the legislature has tried to plug only goods and services which invoices had been issued without actually supply or receipts thereof. In author’s opinion, on mere absence of third-party voucher in genuine cases where it is inherently difficult to obtain voucher/invoice etc., charge of no actual supply of goods/services to infer false entry in section 271AAD might not survive. The given legislative intent is to plug fraudulent/manipulative intent on part of assessee.

8.2 The Clause (c) of explanation to section 271AAD has cover those supply of goods or services from a person who does not exist. The larger question to be addressed is how to infer a person does not exist, is an important aspect where existence of a person may mean its legal existence and also its actual existence. Mere non-response to enquiry notice u/s 133(6) might not establish fact of non-existence of a person. The AO has to prove that person from whom purchases were made doesn’t exist in actual sense.

8.3 Non-existence on which date, whether on date of concerned entry in books or on date when assessment order is made or at stage of final penalty levy in section 271AAD is again a legal dilemma, to which in authors view, if on date when entry was made in books, the person is proved was existing by assessee, but later not found for certain reasons beyond control of assessee, may help to plead favourable view.

  1. The word used by the legislature in section 271AAD is any person and not the assessee therefore the scope of section 271AAD is wider. The word assessee has been defined u/s 2(7) and as per the definition “assessee means a person by whom [any tax] or any other sum of money is payable and includes……” This have widened the scope of section 271AAD that it will cover that person also who are not supposed to pay tax.

  2. Omission of entry which is relevant for computation of total income of such person to evade tax liability. Section 271AAD (1) (ii)

The question which needs to be clarified is that omission of entry is related to fake invoices or the other situation like entries as noted in diary found during search as not recorded in books of accounts. On cursory reading it appears that the omission of entry will cover every situation but it is not the same. The clause (ii) of 271AAD (1) also deals with the omission of entry in context of fake/false invoice only. The same is clear from the memorandum explaining the finance bill “clause 98” and the same is reproduced as under: –

“In the recent past after the launch of Goods & Services Tax (GST), several cases of fraudulent input tax credit (ITC) claim have been caught by the GST authorities. In these cases, fake invoices are obtained by suppliers registered under GST 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 invoices without actually supplying any goods or services. The GST shown to have been charged on such invoices is neither paid nor is intended to be paid. Such fraudulent arrangements deserve to be dealt with harsher provisions under the Act”

Therefore, it is proposed to introduce a new provision in the Act to provide for a levy of penalty on a person, if it is found during any proceeding under the Act that in the books of accounts maintained by him there is a (I) false entry or (ii) 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 propose to provide 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 amounts of such false entries or omitted entry. The false entries are proposed to include use or intention to use –

(a) Forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or

(b) 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

(c) Invoice in respect of supply or receipt of goods or services or both to or from a person who do not exist.

This amendment will take effect from 1st April, 2020″.

From the above it is very much clear that the word omission is introduced in order to plug situation of the racketeers as mentioned above and there can be other situations also where the entries are omitted. The same is explained by an example that there was survey by the GST department on the entry operator (Mr. Y). The total purchases made by Mr. X from Mr Y was
₹ 10 Lakh against which payment of ₹ 6 Lakh was made. The amount outstanding in the books of accounts of Mr. X was ₹ 4 lakhs. After getting aware of this, Mr. X deletes purchases to the extent of ₹ 4 Lakh. The fake sale invoices issued by entry operator were appearing in GSTR-2A of Mr. X ₹ 10 Lakh. Now the questions arise whether penalty u/s 271AAD will be levied for a sum of ₹ 10 Lakh or ₹ 6 Lakh. In such situation the penalty u/s 271AAD will be levied on the entire amount of ₹ 10 Lakh.

  1. The persons covered in section 271AAD (2)

The legislature has tried to cover middlemen, racketeers, accountants and any other person who causes the person referred in sub section (1) to make false entry or omits or causes to omits any entry as referred in 271AAD(1). Normally the middlemen liability in income tax was only limited to commission income earned and, as such, these persons were engaged in providing bogus billing as there was no provisions in the Income tax as well in the GST which curb the malpractices of fake invoices. This section was inserted to curb such practices. In practice it has been noticed that the GST number was taken in the name of employee by passing a benefit of some monthly payment. In turn kingpin used to get % of commission by selling GST invoice and only filing GST-R1 return. The bank account of such person is under control of such racketeer. There was no harsh punishment on such kingpin. The comparison of tax regime under income tax in old vs. new regime is given below

Person being employee

Old Regime

New Regime

Section 122(1) of CGST Act #

Income Tax Act 1961

Section 122(1) of CGST Act #

Income tax 1961 Penalty u/s 271AAD

Penalty ₹ 10000/- or tax evaded whichever is higher

1) The real income of such person is salary or per month benefit transferred to such person by racketeer and will taxed accordingly subject to slab benefit.

2) The Penalty under section 270A will be imposed on such person.

2) Benami proceedings will be initiated separately.

Penalty ₹ 10000/- or tax evaded whichever is higher

1) The real income of such person is salary or per month benefit transferred to such person by racketeer.

2) The Penalty under section 270A will be imposed on such person.

3) Benami proceedings will be initiated separately.

4) 100% of aggregate transaction U/s 271AAD

Person being Racketeer Kingpin

Old Regime

New Regime

Section 122(3) of CGST Act #

Income Tax Act 1961

Section 122(1A) of CGST Act #

Income tax 1961

Penalty ₹ 25000/-

1) Tax on the income as earned for issuing fake invoices and is also required to own all bank transaction of accounts being used by racketeer.

2) Penalty U/s 270A

3) Benami proceedings will be initiated separately.

Penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on

1) Tax on the income as earned for issuing fake invoices and is also required to own all bank transaction of accounts being used by racketeer.

2) Penalty U/s 270A

3)Benami proceedings will be initiated separately.

4) 100% of aggregate transaction U/s 271AAD

Person being buyer

Old Regime

New Regime

Section 122(1) of CGST Act #

Income Tax Act

Section 122(1) of CGST Act #

Income tax

Penalty ₹ 10000/- or Input tax credit availed evaded whichever is higher

1) Addition u/s 115BBE

2) Penalty u/s 271AAC

Penalty ₹ 10000/- or Amount of Input tax credit taken whichever is higher

1) Addition u/s 115BBE

2) Penalty u/s 271AAC

3) 100% of aggregate transaction U/s 271AAD

# Same penalty under SGST Act

  1. Burden to Prove

The Section 271AAD is part of chapter XXI of Income Tax Act, 1961 which deals with the penal provisions and the burden to prove the default as envisaged under sub section 1 and 2 has been committed would rest upon the shoulder of revenue. The AO is required to gather the evidence and confront the same to the person. The Section 271AAD(2) deals with the situation where “any other person, who causes the person referred in sub section (1) in any manner to make false entry or causes to omits any entry. In this situation the burden to prove is still on the revenue and the same is discharge by the revenue through evidences gathered which form of direct evidence or by relying upon the statement recorded. It is important to note that the statement recorded during the course of survey is not on oath and relying upon such statement has no evidentiary value.

  1. Double Jeopardy Principle vis-a-vis multiple penalties imposed in this Act.

  • The Double Jeopardy principle existed in India prior to the enforcement of the constitution of India. It was enacted under in section 26 of The General Clauses Act, 1897. Section 26 states that “provision as to offences punishable under two or more enactments.

  • Article 20(2) of the constitution says that no person shall be prosecuted and punished for the same offence more than once. This is called Doctrine of Double Jeopardy. The objective of this article is to avoid harassment, which must be caused for successive criminal proceedings, where the person has committed only one crime. There is a law maxim related to this – nemo debet bis vexari. This means that no man shall be put twice in peril for the same offence.

  • In the various cases, it has been held that double jeopardy’ does not apply to tax cases. However, the

  • use of the phrase “Without prejudice to any other provisions of this Act” has made it somewhere clear that such penalty will be in addition to any other provision of tax, penalty or prosecution under any other section of the Income Tax Act, 1961.

  1. Section 271AAD vis a vis Rule of construction by reference to CONTEMPORANEA EXPOSITIO and other disputed issues

  • Contemporanea expositio is a well-known doctrine of interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. The “administrative construction” (i.e., the contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned. Such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, and is highly persuasive. A contemporaneous exposition by administrative authorities is a very useful and relevant guide to the interpretation of the expressions used in the statutory instrument. The doctrine of contempranea expositio is relied on to remove any possible ambiguity in understanding the language of the relevant statutory instrument.

    Thus, applying this rule of interpretation to section 271AAD where legislative intent is primarily targeted on fraudulent and manipulative practices in issuing fake invoice, legislative intent must be considered while deciding the scope of section 271AAD. It is important to note that the Finance Ministry in its speech at para 6.8 has nowhere talked about the omission. Therefore, this has to pass the test of judiciary that whether the word omission as used in the section is ultra vires.

  • The section 276C dealing with tax evasion prosecution, in explanation of section 276C in clause(ii) and clause(ii) the word false entry and omission of entry has been used. When penalty and prosecution was already there in income tax act for stated offense and default of false and omitted entry which could also covers fake invoice cases, the reason to bring this section 271AAD in addition to section 270A(9) and section 276C already covering stated cases is unfounded and is subject matter of litigation. This argument gets support from para 6.8 of Hon’ble FM budget speech for 2020 “To discourage taxpayers to manipulate their books of accounts by recording false entries including fake invoices to claim wrong input credit in GST, it is proposed to provide for penalty for these malpractices”. It is important to note that the word omitted entries is not used by FM in her speech. Whether provision of this section is constitutionally valid? Even if the constitutionally validity of section 271AAD is challenged before the constitutional bench the revenue stand will survive as the purpose of introduction was to curb malpractices of issuing fake invoice.

  1. Section 273B (Penalty not to be imposed in certain cases)

Section 273B grants immunity from levy of penalty if the assessee proves in certain cases that there was a reasonable cause. The section 273B has not been amended as such the assessee cannot take the shelter of provision of section 273B for imposition of penalty under section 271AAD.

  1. Power of Settlement Commission to waive penalty

The section 245H empowers the Settlement commission to provide immunity from penalty and prosecution. The word used in Section 245H is that immunity can be granted for any penalty under this act. As all the penalties are covered in chapter XXI therefore the Settlement commission has power to provide immunity from penalty u/s 271AAD subject to the conditions as mentioned in section 245H(1).

Conclusion

This provision is a very harsh provision, because this provision leads to multiple penalties not in under Income Tax, but under other Acts also. Furthermore, this will also lead to prosecution as the section 276C also includes false entry or omission of entry

1. The power to tax is an incident of Sovereignty and since the Constitution of India being supreme law of the land all other laws including Income Tax Act, Goods and Service Tax Act and others are subordinate to the Constitution. The Apex Court in India Cement Limited v. State of Tamilnadu (7 Judge Bench) 188 ITR 690 (SC) observed that the Constitution is “the mechanism under which the laws are to be made and not merely an act which declares, what the laws is to be”.

2. The most important provision of the Constitution relating to Taxation is Article 265, which states “no tax shall be levied or collected except by authority of law”. So therefore, not only the levy but the collection of tax, must be under the authority of some law.

3. Article 14 of the Constitution of India provides that the states shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. The Supreme Court ruled that taxing statutes can be held to contravene Article 14, if it purports to impose on the same class of persons or property similarly situated, an incidence of taxation which leads to obvious inequality. It is also well settled that in a taxing statute, the legislature enjoys much greater latitude for selection of subjects of taxation as also for classification and that the legislative dispensations are based on an interaction of diverse economic, social and policy considerations. The legislature is competent to classify persons or properties into different categories and tax differently and if the classification thus made is rational the taxing statutes cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. To pass the test of permissible classification two conditions must be fulfilled (1) The classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and (2) the differentia must have a rational nexus to the object sought to be achieved by the statutes.

4. Rules of limitation are founded on considerations of public policy and is viewed by some as an “infamous power created by positive law to decrease litigation and encourage dishonest defences”. The law of limitation affords a guarantee to the litigant public that after the lapse of a particular period of time prescribed by the law, the cause of action rests. The object of rules of limitation is preventive not curative. They interpose a statutory bar after a certain period and give a quietus to suits, appeals or other remedies to enforce an existing right. Limitation does not affect a Court’s jurisdiction it merely regulates the time within which courts powers are to be invoked and hence it does not take away any powers of the Court either. Law of limitation limits the time after which suits or other proceedings cannot be maintained in a Court of Justice. It is procedural in character and simply prescribes that the remedy could be exercised only up to a certain period and not thereafter.

5. Latches, means doing nothing. Lapse of time or delay in suing, unaccounted for by disability or ignorance or other circumstances constitute latches. Delay in seeking an equitable remedy is technically known as latches and will disentitle the claimant to come in and establish his claim even if the claim is not disputed. Latches however has not the effect of cutting short any allowable statutory period.

6. Limitation is founded on consideration of public policy, whereas the doctrine of latches is based on equitable considerations. Limitation rests upon express law whereas latches depends upon general principles. Rules of limitation are inflexible whereas latches represent conclusions drawn from the facts of each particular case. Latches may be adopted to the facts of a case whereas limitation however is a matter of inflexible law irrespective of whether there is latches or not. A positive law of limitation applies even when there is no actual latches.

7. There are three related and familiar propositions of the law of limitation namely (1) limitation does not extinguish the right but also bars the remedy (2) only where a remedy becomes barred under the law of limitation, a subsequent change in law giving a longer period of limitation will not by itself revive or rather recreate the remedy, (3) the law of limitation to apply is the law in force at the time the proceedings in question is instituted. We have the Law of Limitation Act, 1963 and section 29(2) has been made applicable to Special or Local Laws.

8. The dominant purpose in construing a statute is to ascertain the intention of the Parliament. One of the well recognized canons of construction is that the Legislature speaks its mind by use of correct expression and unless there is any ambiguity in the language of the provision, the Court should adopt literal construction, if it does not lead to an absurdity.

9. No canon of construction of a statute is more firmly established than this that the purpose of interpretation is to give effect to the intention underlying the statute and therefore unless the grammatical construction leads to an absurdity, it is safe to give words their natural meaning because the former is presumed to use the language which convey the intention.

10. The rules of limitation are not meant to destroy the rights of parties; they are meant to see that the parties do not resort to dilatory tactics but seek their remedy within a time fixed by the Legislature. The time must therefore be deemed to run from the moment when there is knowledge and not from any hypothetical point on the assumption of knowledge.

11. The outbreak of COVID-19 pandemic has impacted businesses, financial markets and economies all over the world including India. COVID-19 pandemic created uncertainty and stress for all sectors for reasons beyond their control. All markets closed, all factories, enterprises, in fact everything came to a stand-still. Major economies world over announced bailout packages, regulatory relaxations under various laws. Unprecedented lockdown across the country was announced by the Hon’ble Prime Minister on 24th March, 2020 taking into consideration the spreading of deadly virus – Corona inter alia effecting people of all classes.

12. The Government of India including Finance Ministry came into action immediately and taking into consideration that financial year was coming to a close and various compliances and time bound actions are to be taken by everyone made several regulatory relaxations under Direct Taxes, Indirect Taxes, Insolvency and Bankruptcy Code as also several other laws impacting all class of citizens.

13. H.E. The President of India in exercise of the powers conferred under Article 123(1) of the Constitution promulgated “The Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020” which stands published in The Gazette of India on 31st March, 2020 by which both under Direct and Indirect Taxes the timelines/limitations were relaxed and extended.

14. The Hon’ble Apex Court having inherent powers under Article 142 Suo-moto taking into consideration hardships being faced by litigants / lawyers and others on account of Lockdown extended time lines / limitations from 15th March 2020 till further orders under various laws in “Suo Moto Writ Petition (Civil) No(s) 3/2020, heard by the Bench of Hon’ble The Chief Justice of India Mr. Justice S.A. Bobde, Hon’ble Mr. Justice L. Nageswara Rao and Hon’ble Mr. Justice Surya Kant, it passed the following order: –

“UPON hearing the counsel, the Court made the following Order: This Court has taken Suo Moto cognizance of the situation arising out of the challenge faced by the country on account of Covid-19 Virus and resultant difficulties that may be faced by litigants across the country in filing their petitions / applications / suits / appeals / all other proceedings within the period of limitation prescribed under the general Law of Limitation or under Special Laws (both Central and/or State).

To obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective Courts/Tribunals across the country including this Court, it is hereby ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings.

We are exercising this power under Article 142 read with Article 141 of the Constitution of India and declare that this order is a binding order within the meaning of Article 141 on all Courts/Tribunals and Authorities.

This order may be brought to the notice of all High Courts for being communicated to all subordinate Courts/ Tribunals within their respective jurisdiction.

Issue notice to all the Registrars General of the High Courts, returnable in four weeks.”

15. Thereafter the Supreme Court in the same petition (supra) on 6th May 2020 on application having being moved extended the scope of its order dated 23.3.2020 under the Arbitration and Conciliation Act, 1996 and Under Section 138 of the Negotiable Instrument Act, 1881.

16. The order of Court dated 6.5.2020 reads as under: –

“In view of this Court’s earlier order dated 23.03.2020 passed in Suo Moto Writ Petition (Civil) No.3/2020 and taking into consideration the effect of the Corona Virus (COVID 19) and resultant difficulties being faced by the lawyers and litigants and with a view to obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such proceedings in respective Courts/Tribunal across the country including this Court, it is hereby ordered that all periods of limitation prescribed under the Arbitration and Conciliation Act, 1996 and Under Section 138 of the Negotiable Instruments Act 1881 shall be extended with effect from 15.03.2020 till further orders to be passed by this Court in the present proceedings.

In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown.”

17. The Andhra Pradesh High Court in the case of Walchandnagar Industries Limited v. Commercial Tax Officer in Writ Petition No.8425/2020 and 8451/2020 vide judgement dated 11.5.2020 taking into consideration that ex-parte assessment order was made by the VAT/ Commercial Taxes Authorities during the period of Lockdown despite repeated request by the assessee that it’s industry is based at Pune and its offices are situated in other states and because of the prevalent pandemic Covid-19, they are unable to comply or to file reply. Surprisingly despite the VAT Commercial Tax Authority having noticed the decision of order of the Supreme Court of India dated 23.3.2020, disagreed with the order passed by the Hon’ble Supreme Court of India and passed assessment orders ex-parte. The Andhra Pradesh High Court quashed and set aside the assessment orders even without hearing the respondents namely Commercial Taxes Authorities and observed as under: –

The impugned order dated 17.04.2020 and the consequential order 23.04.2020 are both set aside.

Therefore, both writ petitions are allowed, with the following directions:

1) Immediately after the pandemic situation eases and the restrictions are lifted on the movement of men and material etc., 1st respondent is directed to issue a notice to the petitioner giving him two weeks’ time to appear along with his reply and all his documents.

2) In view of the fact that the petitioner is aware of the case set up against him, he is directed to use the interim period to prepare his counter and also his objections to the extent possible.

3) 1st respondent is therefore, directed to give two weeks’ notice, after the Central Government relaxes the lock down in India, fix a suitable date for the appearance of the petitioner and for disposal of the matter. It is made clear that if the petitioner seeks time or otherwise tries to delay the matter, 1st respondent is at liberty to proceed strictly in accordance with law.

With these directions, the writ petitions are allowed. No costs.

Consequently, miscellaneous petitions, pending if any, in the writ petition shall stand closed.”

18. It would be appropriate to quote Article 141 and 142 of the Constitution of India: –

Article 141

“Law declared by Supreme Court to be binding on all Courts”

The law declared by the Supreme Court shall be binding on all Courts within the territory of India.

Article 142

“Enforcement of decrees and orders of Supreme Court and orders as to discovery, etc.”

(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or orders so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and until provision in that behalf is so made, in such manner as the President may by order prescribe.

(2) Subject to the provisions of any law made in this behalf by Parliament, the Supreme Court shall, as respects the whole of the territory of India, have all and every power to make any order for the purpose of securing the attendance of any person, the discovery or production of any documents, or the investigation or punishment of any contempt of itself.

19. Taking into consideration the orders of the Apex Court dated 23.3.2020 and 6.5.2020 and Article 141 and 142, it is patent that the Supreme Court of India has inherent and absolute powers as is necessary for doing complete justice in any case or matter pending before it and any decree so passed or order so made shall be enforceable throughout the Territory of India, as may be prescribed. The Indian Judiciary and the Constitution of India believe that every citizen of India must get “complete justice”. The Apex Court on its own took pragmatic and practical view and stepped in the shoes of a litigant and taking into consideration that the litigant or/and lawyers cannot come and attend to or/and file their petition applications/ suits/appeals within the period of limitation, in all such proceedings suspended the period of limitation irrespective of the limitation prescribed under the General Law or Special Laws till further order / orders. In effect, the Law of Limitation stands suspended by the Apex Court from 15.3.2020 till further orders and which is binding on all Courts, Tribunals and Authorities throughout India.

20. The Andhra Pradesh High Court (supra) had taken into consideration the order of Supreme Court of India has rightly quashed and set aside the assessment orders to be made afresh and denovo after the lockdown was to be lifted.

21. In my view, any order passed by any authority on or after 15.3.2020 is illegal, is arbitrary, is bad in law and without jurisdiction and bereft of any valid reasons, violative of principle of natural justice and violative of Articles 14 and 265 of the Constitution of India.

22. In my view, the Andhra Pradesh High Court was rather soft on the assessing officer / VAT officials, who passed assessment order during the period of lockdown knowing fully well about the judgment / orders of the Supreme Court of India dated 23.3.2020 and stern action or contempt proceedings ought to have been initiated against the assessing officer for violating the statutory orders of the Supreme Court of India. Be that as it may, even till today, the order dated 23.3.2020 and 6.5.2020 passed by the Supreme Court has not yet been modified or any fresh order has been passed, therefore, I carry a view that the Law of Limitation is still suspended and the litigants are entitled to get benefit as still the situation with regard to Covid-19 virus is not yet over and at many places there are several restrictions and even “Lockdown” and the litigants / lawyers may not be able to strictly comply with the various timelines prescribed under the General Law or/and Special Laws specified under the Limitation Act or/ and other Laws both Central and States. Therefore, since the order of the Apex Court still holds good, therefore, the period of limitation in all proceedings gets extended, irrespective of the time lines fixed by the Union Finance Ministry under the Taxation Laws, namely relating to filing of appeals, revisions and other time bound periods specified.

23. The questions may arise in the mind about time lines fixed and extended from time to time by the Union Finance Ministry and as to what happens for proceedings whose due dates were prior to lockdown periods but could not file return, applications and as to whether for computing period of limitation for delay, the period of lockdown would be condoned, say in GST the power to condone delay is for specified periods only. The next question could be as to on what matters the order/directions of Supreme Court apply. Whether any penal provisions apply for delay due to lockdown. Whether coercive recovery action can be taken for non-payment due to lockdown period.

24. In the light of the specific orders of Hon’ble Supreme Court of India dated 23.3.2020 and 6.5.2020 (supra) Articles 141 and 142 of the Constitution of India (supra) and judgment of Andhra Pradesh High Court, it can be opined that the directions of the Hon’ble Supreme Court relates to all laws general or special both Central and/or States and it relates to petitions/applications/suits/appeals/all other proceedings wherever the period of limitation stands prescribed, whether condonable or not and the same would mean that in effect “law of limitation” under all acts (including Taxation laws) gets suspended from 15th March 2020 onwards; therefore the tax payer or as the case may be, can certainly take advantage and get benefitted for the period of lockdown and this period would be excluded for all purposes irrespective of whether delay is condonable or not for specified periods by the authorities under the Taxation laws. In case someone wants to file old returns of which due date was over one, is entitled to file subject to payment of late fees which in my view would be excluding the period of lockdown i.e. one may exclude the period of lockdown and then deposit late fee. The authorities are bound by the specific orders of Supreme Court as it is law of the land and applies to all Courts, Tribunals and Authorities and authorities would cover and mean all quasi-judicial or/and other authorities situate within the territories of India who gets some power under the various Acts/Laws.

25. As expressed hereinabove the orders of Supreme Court applies to all proceedings under all laws and wide enough to cover Acts/ Statutes and all Authorities governed by the Constitution of India before whom matters are pending/may be pending or otherwise.

26. No penalty can be imposed by any authority particularly by the Taxation authorities during the period of lockdown. Any adverse order/findings with reference to the period of lockdown would be carrying the ire of contempt of the orders of the Supreme Court of India and would be contemptuous.

27. Irrespective of the above once Union Finance Ministry has extended various time lines from time to time coupled with the fact that “The Taxation and other Laws (Relaxation of certain provisions) Ordinance 2020 was promulgated, therefore the Taxation Authorities are bound by the relaxations made/granted by the Union Finance Ministry from time to time. The authorities are not required to take coercive action for recovery of Non-payment of dues, due to lockdown periods and should act liberally and grant due benefits to all who have suffered on account of Covid-19 pandemic.

TIMELINES EXTENDED BY THE UNION FINANCE MINISTRY FROM TIME TO TIME DURING COVID-19.

28. To ease out situation and hardships to the tax-payer, the following steps have been taken from time to time by the Finance Ministry so as to mitigate the hardship and it would be appropriate to refer to the important timelines/limitations fixed by the Finance Ministry:-

(i) Income Tax Return for the FY 2018-19 belated and revised (AY 2019-20)

• Due date is extended from 31st March 2020 to 31st July 2020

(ii) Income Tax Return for the FY 2019-20 (AY 2020-21)

• For Non-Auditable Assessee – Due date is extended from 31st July 2020 to 30th November 2020

• For Auditable Assessee – Due date is extended from 31st October 2020 to 30th November 2020

(iii) Tax & Statutory Audit for the FY 2019-20 (AY 2020-21)

• Due date is extended from 30th September, 2020 to 31st October 2020

(iv) TDS & TCS Return of Qtr. IV for the FY 2019-20 (AY 2020-21)

• Due date is extended from 31st May 2020 to 31st July 2020

(v) Due date for deposit of TDS/TCS for the month of May 2020

• Due date is 7th June 2020

(vi) Online submission of form 15G/15H

• Due date is extended from 30th April 2020 to 30th June 2020 (Payer, who had not deducted tax on the basis of said forms shall require to report details of such payment/credits in the TDS Statement for the quarter ending 30th June 2020 in accordance with relevant rules (Rule 31A)

(vii) Linking PAN with Aadhar

• Due date is extended from 31st March 2020 to 31st March 2021

(viii) Date for making investments & payments for claiming deduction under Section 80C/80D/80G

• Date of making investment & payment under Section 80C (LIC, PPF, NSC etc.), 80D (Mediclaim), 80G (Donations) extended from 31st March 2020 to 31st July 2020 for FY 2019-20

(ix) Date for making investments / claiming deduction from Capital gains for Financial Year 2019-20, date extended to 30th September 2020

(x) Where any time limit falls during the period from 20th March 2020 to 31st December 2020 for the completion of the following actions and where completion of such action has not been made within such time then the time limit for completion of such action has been extended to 31st March 2021 namely:

• Completion of any proceeding or passing of any order or issuance of any notice, intimation, notification, sanction or approval, by any authority, commission or Tribunal.

• Filing of any appeal, reply, application or furnishing of any report, document, return, statement, etc.

• Beginning of manufacture or production of articles or things or providing any services referred to in Section 10AA, in a case where letter of approval, required to be issued in accordance with the provisions of the SEZ Act has been issued on or before the 31 March 2020.

Reduction in Interest Rate-

• Where any due date specified under the Act for payment of any amount towards tax or levy, by whatever name called:

• Falls during the period from 20th March to 29th June 2020,

• And such amount has not been paid within such date, but has been paid on or before 30th June 2020, then:

• The rate of interest payable for the period of delay shall not exceed 0.75% per month or part thereof.

• No penalty shall be levied & no prosecution shall be sanctioned.

• Note: The term ‘Period of delay’ has been defined to mean the period between the due date and the date on which the amount has been paid.

(xi) The timelines for various other compliances following between 20th March 2020 and 31st December 2020 has been extended to 31st March 2021 namely:-

• Issuance of notices falling within the above period, say notice for reopening of assessment under Section 147 of domestic tax laws, penalty notices, issuance of the questionnaire under on-going assessments;

• Issuance/processing of intimations under Section 143(1)/200A of the Income Tax Statute;

• Issuance of orders for completion of any proceedings under Direct Tax Laws;

• Submission of statement (in Form No. 49C) by Non-Resident having a liaison office in India;

• Filing of applications by the taxpayers under various provisions of the statute (such as revision applications/interest or penalty waiver applications) etc.

29. All the above measures are applicable mutatis mutandis to the applicable provisions under the Wealth-tax Act, Prohibition of Benami Property Transaction Act, Black Money Act, STT Law, Equalization Levy Law, Vivad Se Vishwas Law (the due date for making payment without additional amount under “Vivad Se Vishwas” Scheme stands extended to 31st December, 2020).

30. Reduction in Rates of “Tax Deduction at Source” and “Tax Collected at Source” – The TDS/TCS rates for all non-salaried payment to residents stands reduced by 25% of the specified rates for the remaining period of Financial Year 2020-21 so as to provide overall liquidity of about 50000 crores.

31. GOODS AND SERVICE TAX (GST)

(i) Due date for GSTR – 3B

• Turnover in preceding FY < 5.00 crore

Feb. 20 – 30 June 2020

Mar. 20 – 05 July 2020

Apr. 20 – 09 July 2020

May 20 – 15 September 2020

June 20 – 25 September 2020

July 20 – 29 September 2020

Aug 20 – 03 October 2020

(ii) Due date for GSTR – 3B

• Turnover in preceding FY > 5.00 crore

Feb. 20 – 24 June 2020

Mar. 20 – 24 June 2020

Apr. 20 – 24 June 2020

May 20 – 27 June 2020

June 20 – 20 July 2020

July 20 – 20 Aug 2020

Aug 20 – 20 Sep 2020

(iii) Due date for GSTR – 1 Quarterly

Jan – March 20 – 17th July 2020

April to June 20 – 03rd Aug 2020

(iv) Due date for GSTR – 1 Monthly

Mar. 20 – 10 July 2020

Apr. 20 – 24 July 2020

May 20 – 28 July 2020

June 20 – 05 Aug 2020

July 20 – 11 Aug 2020

(v) GSTR 9/9C Annual return for FY the 2018-19

• Due date is extended from 30.06.2020 to 30.09.2020

(vi) Input GST credit – restriction rule of 10% with reference to GSTR 2A

• The said condition shall not apply to input tax credit availed by the registered persons in the returns in FORM GSTR-3B for the month of February, March, April, May, June, July and August, 2020, but that the said condition shall apply cumulatively for the said period and that the return in FORM GSTR-3B for the tax period of September, 2020 shall be furnished with cumulative adjustment of input tax credit for the said months in accordance with the 10% condition

(vii) Measures for Trade facilitation:

• Reduction in Late Fee for past Returns:

Late fee for non-furnishing FORM GSTR-3B for the tax period from July 2017 to January 2020 has been reduced / waived as under:-

(a) ‘NIL’ late fee if there is no tax liability;

(b) Maximum late fee capped at ₹ 500/- per return if there is any tax liability.

The reduced rate of late fee would apply for all the GSTR-3B returns furnished between 01.07.2020 to 30.09.2020.

• Relief for small taxpayers for late filing of returns for February, March & April 2020 Tax periods:

For small taxpayers (aggregate turnover upto ₹ 5 crore), for the supplies effected in the month of February, March and April, 2020, the rate of interest for late furnishing of return for the said months beyond specified dates (staggered upto 6th July 2020) is reduced from 18% per annum to 9% per annum till 30.09.2020. In other words, for these months, small taxpayers will not be charged any interest till the notified dates for relief (staggered upto 6th July 2020) and thereafter 9% interest will be charged till 30.09.2020.

• Relief for small taxpayers for subsequent tax periods (May, June & July 2020):

In wake of COVID-19 pandemic, for taxpayers having aggregate turnover upto ₹ 5 crore, further relief provided by waiver of late fees and interest if the return in FORM GSTR-3B for the supplies effected in the Month of May, June and July, 2020 are furnished by September, 2020 (staggered dates to be notified).

• One-time extension in period for seeking revocation of cancellation of registration:

To facilitate taxpayers who could not get their cancelled GST registrations restored in time, an opportunity is being provided for filing of application for revocation of cancellation of registration up to 30.09.2020, in all cases where registrations have been cancelled till 12.06.2020.

32. Central Excise, Customs and Service Tax

• Original due date between 20.03.2020 to 30.08.2020 with reference to “Furnishing of any report, document, return or statement. Filing of any appeal, reply or application. Issuance of any order, notice, intimation, notification, sanction or approved” shall stand extended to 31st August 2020 under relevant sections of Central Excise Act 1944, Customs Act 1962, Customs Tariff Act 1975 and Finance Act 1994.

33. Company Law

• The Mandatory requirement of holding Board Meeting of the Board of the Companies within the intervals provided in section 173 of the Companies Act 2013 (120 Days) stands extended by a period of 60 days till next two quarters i.e. till 30th September. Accordingly, as a one-time relaxation the gap between two consecutive meetings of the Board may extend to 180 days till the next two quarters instead of 120 days as required in Companies Act 2013. (Notification dated 24.03.2020).

• As per Companies Fresh Start Scheme (CFSS) 2020, file Form DIR-3KYC/DIR-3KYC-Web shall be filed without additional fees till 30.09.2020.

• As per Rule 4 of The Companies (Meetings of Board and its power) Rules 2014 all board meetings shall be held through video conferencing or other audio-visual means, which would include following matters:

o The approval of the annual financial statements;

o The approval of the Board’s report;

o The approval of the prospectus;

o The Audit Committee Meetings for [consideration of financial statement including consolidated financial statement if any, to be approved by the board under sub-section (1) of Section 134 of the Act]; and

o The approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

• No additional fee shall be charged for late filing during a moratorium period (01.04.2020 to 30.09.2020) in respect of any document, return, statement etc. required to be filed in MCA system irrespective of its due date.

An era of uncertainty;

Its ironical that neither the Government nor the citizens are in position to reply to the question, whether we would be having normal life again?

No doubt, everyone wants the life full of hustle bustle back, it was tiring, full of stress but there was a freedom, which we never valued but realised after Covid-19 lockdown.

Let me tell you my dear members, this is New Normal Life. The life with Mask, social distancing, regular hand sanitisation, restriction on large gathering etc., till effective remedy/vaccination is found and made available to public at large. Till then, the shadow of covid-19 would hover over us.

Can we continue to remain indoors with no activity? No, the life must move on, with required cautions. Don’t be stagnant, start moving and the World would start moving, the wheels of economy must start rolling.

Three years of GST – Fading Glory

The Goods and services tax recently hit the 3 year milestone! It has been a roller coaster ride. I have briefly analysed some interesting aspects of the journey so far –

GST was ushered in with much of pomp and show, by canvassing – One Nation One Tax – Goods and simple Tax. Indeed many heads of taxation could be subsumed. Standardisation of Indirect tax Act and procedures through – out India is a greater achievement. Buoyancy in Government Revenue and transparency resulting in reduction in corruption is a promised agenda.

But the aura and the hype didn’t last long. The first hurdle is the Act itself. It reminds me of an elephant being described by five blind folded men. The mixture of Sales tax, Excise and Service tax provisions has failed to result in definite compound. The result is endless notifications, circulars, and clarifications. To add to confusion you have contradicting AAR and AAARs. It’s becoming litigation paradise.

The Centralisation of power in the hands of GST Council has failed to achieve desired objects. Decision making is delayed at the cost of registered persons. None of the Chief Commissioner or top Executives can independently resolve any issue, without intervention by the Court. We earnestly suggest we should have a State authority empowered to resolve State level or simple issues

The failure in technical front is prone to litigation. After three years the Council has not been able to introduce standard returns as per Original design, GSTR 1, 2 and 3. Trans 1 issues are innumerable. Variety of Returns make it a complex administration issue. The new returns were awaited, we spent hours in conferences to learn new returns. The latest news, as on today is all these would be dumped and the present returns may be continued with further modification. This shows failure in strategic planning and unity in thought process. The provision to permit amendment in return enacted in section 39(9) must be implemented soon, it is the need of the hour.

Try to find a notification as on today, you can’t. You must read original, with many more amendments, smaller or bigger, clarifications. The website should have a final notification, incorporating all amendments, with footnote on date wise amendment/clarification. A challenging task but a must.

The assessment under GST would be much less then under VAT. Appellate forums are notified after two years. The GST Tribunal has yet to see the light of the day. Various petitions are filed challenging its constitution having Revenue members as majority. Despite clear guidelines by the Courts, the legislation has opted to open flood gates of litigation.

I would end with two more specific areas. The first is E-way bill administration. Whether it has achieved desired result, time only can tell. But today it’s a nightmare for persons who are not well-versed with technology. A small registered person sending goods to other State has no resources to litigate with the other States Authority if the goods and the transport Vehicle are stopped/ confiscated in other State. Any remedy against such action, right or wrong is in that State, this is practically difficult and legislation must find solution to such impractical remedies. Council is planning e invoicing, but let me warn, if the planning and execution is not perfect, there would be utter failure on this front too.

Seamless flow of Input Tax credit was the big carrot shown to all registered Persons. The biggest drawback is right to take refund is to only few classes of registered persons. The accumulation of credit in credit ledger, instead of refund, as in Vat era, means lack of cash flow available to a registered Person. This leads to various means devised by unscrupulous persons to use the credit. The refund procedures for the persons entitled to receive refund, like exporter etc., is simple but made complex and frustrating by administrators. The worst part of GST legislation is, if for any reason, a persons fails/missed to claim credit, even though genuine, in annual return for the year he is estopped from showing excess credit!

Our Indirect tax teams consistently represents on various issues, but is there any one listening????

Representation and education activities continues

The opening up has helped the members to complete the pending procedural and audit formalities. Obviously we had to slow down the pace of webinars. We had only three more webinars in July month. The leader in webinars, Central Zone has designed a 7 day refresher certificate course under Income-tax Act form 20th July onwards. South zone is planning a two day Virtual tax Conference in second week – 8th and 9th of August.

The few other NTC are also under planning. Keep watching our website or announcements in AIFTP whatsapp groups. If you are not part of any group, please write to us, we would add you in AIFTP family groups.

The representations under GST and Direct tax continues. I am happy to say many of the suggestions are being accepted by the Government. The latest representation under the direct tax made yesterday is requesting CBDT to extend the date for filling return for AY 19-20 to 30th November 2020, instead of 31st July 2020. The reason being major areas in big cities continue to be containment zones. The public transport has not started in major cities. We would be able to get positive response.

I am happy to say we could collect from members and submit to the PM Cares fund an amount of ₹ 11,74,905/-. We would stop accepting any donations now.

So friends back to work, goodbye to lockdown, but stay safe. All the best.

Nikita R. Badheka
National President, AIFTP

2020 Challenge

The year 2020 has posed several challenges to our country and world at large in the form of COVID-19.

We had to face greater challengers because we have a very large population to manage. The steps taken by the Government were louded by WHO and followed by several nations in the world.

The lockdown provided us time to prepare and gear up to face the pandemic when we were in the process of preparing for COVID-19, Cyclone UMPHAN has hit at West Bengal and Orissa leaving lakh’s of homeless people. Again a Cyclone has hit Maharashtra and Gujarat. Our disaster management teams have worked hard to save the people from natural onslaughts and we could get over the disaster.

The real challenge is Chinese aggression at our eastern borders coupled with hostile attitude by Pakistan on western borders and Nepal on east. It was trying time for the Nation, we were facing problems of maintaining large rural population rendered jobless due to pandemic, take care of flood stricken population of north east in Assam and Meghalaya at the same time to equip our Army and Air force to combat China. It has resulted in to tremendous economic pressure on our government.

The result of lockdown was loss of revenue to Central and State Governments coupled with several economic booster steps undertaken by the Finance Ministry. Drop in industrial production and the cause of supporting poor has not left many avenues to garner funds except increasing the price of Diesel and Petrol for Central as well as State Governments.

In the above scenario, most of the businessmen and population at large including professionals are facing great problems of our own survival and also the survival persons connected with us as our employees and domestic helps. It has resulted in to depression for many of us and particularly the persons who are outgoing in nature were feeling jailed in our own flats and residences. The Government also realizes that lockdown cannot continue indefinitely and economic activities have to be allowed come what may.

It brought unlock-I and II that has its own repercussions by increase in number of COVID-19 cases which is still continuing and the numbers have spurt to around 30000 cases every day. It is the time for us to reorganize ourselves and assure our families with what we have rather than thinking about what we do not have. We the professionals are the elite class of society and are able to manage the hard time faced by one and all. We need to think about our brothers and sisters who are not as fortunate as we are and must try to help them in whatever manner we can support them.

There is a pleasant morning after every dark night. China has backed off, economy to slowing recovery, stock markets are bouncing back, we are back to work, now is the time to be very careful particularly regarding precautions to save your health falling ill at this time is devastating hence we must observe all recommended cautions to save ourselves, our family, friends, our city, state and nation at large.

We have to work with full of positivity, enthusiasm and vigor. I am sure united we should win and get over all odds and come out with flying colures, every citizen has a duty to perform and we should not leg behind in performing our part of duty.

With best efforts let us fight and defeat all negative circumstances and join hands to carry our Nation forward on trajectory of growth, peace and prosperity.

Ganesh N. Purohit

Member, Editorial Board