The Tax Publishers

Finance Act, 2023--Penalty

Penalty and Prosecution Provisions Vis-a-Vis Finance Act, 2023

Shripal Mehta

The Finance Act, 2023 has introduced certain amendments in provisions dealing with penalty and prosecution under the Income Tax Act. The present write-up aims at highlighting all these amendments.

1. Penalty for submitting false self certification by reportable persons and the account holders as required under Section 285BA read with Rule 114H

 Section 285BA makes it mandatory for a person responsible for registering, or, maintaining books of account or other document containing a record of any specified financial transaction or any reportable account as may be prescribed, under any law for the time being in force, to furnish a statement in respect of such specified financial transaction or such reportable account to the prescribed income-tax authority. Further, vide Finance (No. 2) Act, 2014, Section 271FAA was inserted to provide for penalty for furnishing inaccurate statement of financial transaction or reportable account.

Self-certifications by reportable persons and the account holders are mandated under the Rule 114H of the Income-tax Rules, 1962 for different purposes. This includes, inter alia, cases where new accounts are opened (to certify the country of tax residence), cases involving curing of indicia for pre-existing accounts (to certify the country of tax residence) and cases of entities to certify whether they are Passive Non-Reporting Financial Entities. While the requirement of having a valid self-certification has been specified in Rule 114H, however, there was no penal provision for the submission of a false self-certification which in turn leads to furnishing of an incorrect statement under Section 285BA. Therefore, there was a need to introduce a provision for penalizing false self-certification in the Act.

The Finance Act, 2023 has therefore inserted a new sub-section (2) in Section 271FAA w.e.f. assessment year 2023-24 which provides that if there is any inaccuracy in the statement of financial transactions submitted by a prescribed reporting financial institution and such inaccuracy is due to false or inaccurate information submitted by the account holder, a penalty of five thousand rupees shall be imposable on such institution, in addition to the penalty leviable on such financial institution in the said section, if any. This penalty shall be levied by the income tax authority prescribed under sub-section (1) of Section 285BA of the Act. Further, the reporting financial institution may recover the amount so paid on behalf of the account holder or retain out of any moneys that may be in its possession or may come to it from every such reportable account holder.

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