Dear hypocrites, Beware of False Entries!

We often cross paths with many individuals who hail all the actions of the Central Government against corruption, as if they are the paid brand ambassadors. Happy to see such citizens!  Sadly, when we scrutinize their books, we find it full of dead rats and rodents (creative accounting!). Such people won’t follow the rules internally, but only preach to others!

For such hypocrites, finally, the Government has introduced a custom-made product, you can happily call it as ‘first of its kind’, make in India product! This unique product is serviced by both GST and Income Tax departments. The service is offered in different modes –   Offline or Online, or even at the doorstep! The name of the service is called ‘scrutinizing the Invoices to ascertain its genuineness!

Those who are reading this article may say proudly – “We don’t do any false invoicing!” Wait, sir, please read the definition of ‘false’ before coming to the conclusion.

The term ‘false entry’ means and includes

  • Forged document – (Altering / modifying the genuine Invoices or documents to increase the expense or reduce the income – The most famous forgery was the diaries of Adolf Hitler by Konrad Kujau who sold them for over USD 5 million. The forensic audit conducted later found the diaries to be fake.
  • Falsified document – (creating a new bogus/false document with an intent to defraud)
  • False piece of documentary evidence – (show the documents which don’t belong to the company/entity)
  • Invoice in respect of goods or services or both issued by a person without actually supplying such goods or services. (This is called book entries/accommodation entries. Company A issues Invoices to Company B, where no supply is done, except the Invoice!!)
  • Invoice in respect of the supply of goods or services to or from a person who doesn’t exist. (Company A creates the Invoice in the name of Company C, a company which doesn’t exist at all)
  • an omission of any entry which is relevant for computation of total income of such person, to evade tax liability (the income is underreported by not showing all the Invoices)

Hope you got a glimpse of the scope of ‘False Entry’. To make it simple, let me put forth this way –

  • Expenses – should have proper Invoice and the spending should be done for conducting the business (Example – Can’t book personal credit card expenses)
  • Income – Don’t hide! Show all the sales and account it properly

Beware! Any deviation from the above may fall under false entry definition!

Consequences – (under Section 271AAD)

If the department catches the false entries, then the treatment follows!

  • If the value of false entry, say company A gets a bogus Invoice from Company B, is 1,00,000; the penalty is Rs.1,00,000 (equal amount payable by Company A)
  • Company B, for facilitating this Invoice has to pay Rs.1,00,000 (equal amount)
  • This means for a false entry of Rs.1,00,000, the total penalty is Rs.2,00,000

Note: Similar or even more harsh/shock treatment will be given by GST Department for claiming Input Tax Credit on such false entries.

What do you say? A very powerful and strong, Make in India product, right? Should we ever take this costly treatment, which has a lot of side effects also!!! If you want to stay away from the treatment, take precautions! Don’t mask the books. Keep social distancing (do Gaj dhoor!!) from all fake entries or false billings!  You and your business will be healthy, people around you and the economy as a whole, can breathe clean money and live long!

Some people create their own storms and then get mad when it rains.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at [email protected]

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