Provisions regarding issue of fake invoice under Income Tax

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  • Finance Act 2020 introduced a penalty provision to curb malpractices of issuing fake invoice. It introduced Section 271AAD w.e.f. 1st April, 2020.
  • Quantum of Penalty; a sum equal to aggregate of amount of false entries or omitted entries.
  • Power to levy penalty is with assessing officer. Under faceless assessment, powers to invoke penalty can be used if found unsatisfactory.
  • Sec 270A provides a penalty of 200% of tax evaded in the case of misreporting of income.
  • So if a company accepts fake invoice of Rs 50 Lakhs without actual supply of goods or services and shows the same as his purchases or expenses and claims income tax benefit on the same, the amount of penalty shall be U/S 271 AAD of Rs 50 Lakhs PLUS 200% of tax evaded U/S 270A of Rs 30 Lakhs (assuming tax of 30%) i.e. Rs 80 Lakhs (more than the value of the fake invoice).

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