Bid to curb bogus bills: Companies to pay stiff penalty for faking expenses

MUMBAI: There’s now a heavy price to pay for a common tax fraud many businesses indulge in. Fake bills to lower profits and evade tax through artificial expenses will attract a stiff penalty from the next financial year.Companies caught with false entries in their account books will have to cough up a penalty as high as the total value of such an invoice — over and above the amount of tax it will have to pay.“The penalty will now be 100% of the aggregate of the amount of such false or omitted entry, and not on the tax evaded, as per old provisions. Now, the law has a new provision primarily targeted at bogus purchases or capital gains or expenses,” said Priyank Ghia, partner at Chokshi & Chokshi, LLP, a tax and forensics consultancy.Earlier, a fake entry of Rs 10 crore would have led to a total outgo of Rs 6-8 crore (including tax and penalty); now, it will be Rs 14 crore (including penalty of Rs 10 crore). 73948678 Not Always Tax EvasionAt times, though, such entries that show an apparently bona fide purchase or a regular payment to a vendor are made with the intention to generate cash and not dodge tax. A simple form of such transactions entails a company paying by cheque to a vendor with the understanding that the latter would pay back the amount, minus a small ‘service charge,’ in cash. However, as senior tax practitioner TP Ostwal said, “There is nothing wrong in a law that imposes stiff penalty on bogus entries. Such practices should be discouraged.”There is also a chance that the law could get an otherwise compliant company into trouble. “For instance,” said Ghia, “a person may be penalised if the vendor defaults in filing GST (goods and services tax) returns, or in making requisite payments, leading to the transaction being termed as non-genuine or false. This is akin to the defaulters of a sales tax regime where income tax authorities are penalising the company for using non-genuine bills.” Bogus entries can be a handy tool for trading companies to push up turnover and borrowings from banks. Such companies show fake purchases as well as sales to build false trade volumes.The higher penalty provision now introduced may have been partly driven by instances where managers have used vendors to make bogus payments to siphon funds from companies. The move reflects the government’s continued obsession to curb tax evasion and cash deals with sterner laws.The budget also requires charitable trusts to share the names and PANs of all donors now. There are cases where some trusts accepted cheques and paid back cash to enable ‘donors’ to lower their tax liability without making any real donation.The underbelly of the money market is replete with operators offering ‘entry services’ by posing as vendors — similar to shell outfits rigging up penny stocks to let individuals and businesses either regularise unaccounted cash, or book losses, to lower taxable income.

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