Section 444: penalty for a false entry in books of account

Introduction

Section 444 permits a penalty measured by the aggregate amount of a false or omitted entry in books of account where the statutory conditions are met during an Act proceeding.

It also permits a penalty on another person who causes the false entry or omission. The Act describes examples of false entries including forged invoices and invoices without an actual supply.

Key takeaways

What the section covers

The Assessing Officer, the Joint Commissioner (Appeals), or the Commissioner (Appeals) may impose a penalty equal to the aggregate amount of a false or omitted entry, where during any proceeding under the Act it is found that a person's books of account contain a false entry, or an omission of an entry relevant to computing that person's total income, made to evade tax liability.

How severe this penalty is

Unlike most penalties in this chapter, which are a percentage or a fixed sum, this one is pegged at 100% of the false or omitted amount - reflecting that deliberate falsification of accounting records, as opposed to an honest error or a reporting lapse, is treated as one of the more serious compliance failures under the Act.

Liability of a person who causes the entry

Sub-section (2) separately permits a penalty equal to the aggregate false or omitted amount on another person who causes the taxpayer to make or omit the entry. The alleged act of that other person needs its own evidence.

What the Act includes as a false entry

Sub-section (3) includes forged or falsified documents, invoices without actual supply or receipt, and invoices involving a non-existent person. Review the invoice and underlying transaction rather than its accounting label alone.

Step-by-step flow for applying the penalty under Section 444

1. 1

   Is it found, during a proceeding under the Act, that the person's books of account contain a false entry or omit a relevant entry?

   An omitted entry is one relevant for computing total income. Section 444(1) links the false or omitted entry to evading tax liability.

   • No: Section 444(1) does not apply.
   • Yes: Go to the next step.
2. 2

   Does the entry fall within the meaning of "false entry"?

   Under Section 444(3) it includes use or intended use of forged or falsified documents (such as a false invoice), invoices issued without actual supply or receipt of goods or services, and invoices to or from a person who does not exist.

3. 3

   Aggregate the false and omitted entries

   The Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) may impose a penalty equal to the aggregate amount of the false or omitted entries.

4. 4

   Did any other person cause the false entry or omission?

   • Yes: Under Section 444(2), that other person may also be liable to a penalty equal to the aggregate amount of the false or omitted entries, without prejudice to the penalty on the first person.
   • No: Only the person whose books contain the entries is covered.

Practical checklist

Glossary

False entry

Under Section 444(3), it includes use or intended use of forged or falsified documents, invoices issued without actual supply or receipt of goods or services, and invoices to or from a person who does not exist.

Frequently asked questions