Penalty on CAs for Filing Wrong Information: Plea in Madras HC Challenging Vires of Sec 271J of Income Tax Act [Read Petition]

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Madras High Court sought response from Finance Ministry and Central Board of Direct Taxes (CBDT).

A petition has been filed in the Madras High Court challenging the newly inserted section 271J of the Income Tax Act.

The Court admitted the plea recently and issued notice to the Finance Ministry.

The provision imposed a penalty of Rs. 10,000 against Chartered Accountants for each wrong certification or report.

The court has accepted the objection and has asked the Finance Ministry and Central Board of Direct Taxes (CBDT) to explain their view within three weeks.

The petitioner, Mr. Venkatasiva Kumar, a Chennai based Chartered Accountant approached the High Court challenging legality of the provision under section 271J of the Income Tax Act.

From April 1, 2017, under section 271J of the Income Tax Act, if any accountant or merchant banker or registered valuer provides incorrect information in a report or certificate under any provisions of the Act or the rules, the tax officer or the Commissioner (Appeals) may direct him to pay a sum of Rs. 10,000 for each such report or certificate as penalty.

The petition stated that the provision imposes a Presumption of guilt on the person concerned unless it is proved otherwise. Hence, the same amount to violation of rule of law and Article 20 of the Constitution, liable for quashing.

In Budget 2017, the Government has instituted an action against CAs if they knowingly falsify or provide incorrect information while rendering their professional service.

The petition stated that the section provides ‘sweeping and uncontrolled power’ to tax officers. As per the impugned provision, the tax officials can decide the accuracy of the reports and certificates given by a chartered accountant and make him responsible for incorrect statements, which, in many cases, will be based on the guidelines issued by the ICAI (Institute of Chartered Accountants of India) and as per the accounting and auditing standards of international accounting bodies.

V Venkatasiva Kumar, told TaxScan, “Government should think ICAI is formed as per the act of the legislature. It’s a limb of the government to achieve an important economic function. That’s why Abdul Kalam ji had called it a partner in nation building. But the government is sidelining CAs as if they are responsible for black money. When the whole system is corruption ridden, attacking a noble profession by penalizing CAs as a whole is not fair.”

Before the insertion of this penalty provision, the tax officer could make a complaint to the ICAI, the regulating body for chartered accountants, if he believed that a chartered accountant had submitted any incorrect report or certificate.

The petition is taken up for hearing in June.

Read the full text of the petition below.

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