The Hindu Business Line : Falsification of accounts — New I-T clause can bring tax experts into net

IF YOU are preparing to be a tax consultant or a practicing chartered accountant guiding a new assessee on tax compliance and filing of income tax returns, you better be forewarned of a minefield of a clause in the new Finance Act.

A proposed new section in the Income-Tax Act, Section 277A, pertaining to falsification of books of account or documents, has raised the hackles of all direct tax experts here.

The section says, "If any person (referred to as first person) wilfully and with intent to enable any other person (as second person) to evade any tax or interest or penalty chargeable and imposable under this Act, makes or causes to be made any entry or statement which is false and which the first person either knows to be false or does not believe to be true, in any books of account or other document relevant to or useful in any proceedings against the first person or second person under this Act, the first person shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."

Speaking at a symposium on the Union Budget organised by the Merchants Chamber of Commerce here on Saturday, Mr Amitav Kothari, senior tax consultant and Director, Allahabad Bank, said the dangerous portent of this section was in the explanation to the new clause.

"It shall be sufficient in any charge under this section to allege a general intent to enable the second person to evade any tax, penalty or interest, without specifying any particular instance or sum of tax, penalty or interest which has been or would have been evaded by such second person."

Describing the explanation as highly unjust and having major implications for all tax practitioners, Mr Kothari said it was dangerous to say no specific allegation is required and mere general intent is enough to punish an assessee, as it may bring all consultants into a net on mere suspicion with establishing mens rea (guilty mind), as required by common law. It will have huge repercussions on all members of the tax profession, advising clients, and a re-drafting of this explanation is immediately called for, he said.

Mr N.K.Poddar, Senior Supreme Court lawyer and tax consultant, while suggesting that the intent behind the new clause was laudable as it sought to prevent falsification of accounts by assessees with the help of unscrupulous tax advisors, the explanation was certainly a loaded dynamite. He said enough mischief can be created, and the tax department can launch prosecution proceedings, which may make life miserable for all concerned.

Mr Poddar said the substitution of a new section in place of section 285BA, imposing a new obligation on assessees and others to furnish a `Annual Information Return', with effect from April 1, 2005, was also highly impractical, as it involved filing of such a return for transactions, during the financial year, exceeding a mere Rs 50,000. He said this provision needed a fresh look, and the transaction amount should be raised to Rs 50 lakh, as people running petty businesses do not maintain any books of accounts, and cannot file such information return. Even the existing Government machinery would not be enough to tackle the inflow of such returns,he added.

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