Section 444 — Penalty for false entry, etc , in books of account. Successor to s.271AAD of the 1961 Act.
Section 444 is in Chapter XXI — Penalties, which runs from section 439 to section 472.
Sub-section (1) lets the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) impose a penalty equal to the aggregate amount of the false or omitted entry where, during any proceeding under the Act, the books of account maintained by a person are found to contain a false entry, or to omit an entry relevant to computing his total income, to evade tax liability. Sub-section (2) extends the same penalty, without prejudice to sub-section (1), to any other person who in any manner causes the first person to make the false entry, or who omits or causes the omission. Sub-section (3) gives an inclusive definition of "false entry" covering the use or intended use of forged or falsified documents such as a false invoice or other false documentary evidence, invoices for supply or receipt of goods or services issued without any actual supply or receipt, and invoices for supply or receipt to or from a person who does not exist.
The penalty is aimed at fabricated books rather than at understated tax, so it is measured by the amount of the entry itself instead of the tax evaded. Sub-section (2) reaches the other side of an invoicing arrangement, so the supplier of a bogus invoice is exposed to the same amount as the person who books it.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Amount of penalty | A sum equal to the aggregate amount of the false or omitted entry | The same amount applies both to the person whose books contain the entry and to any other person who caused it | 444(1) and (2) |
The penalty is the value of the entries, not the tax on them, so a large bogus invoice can attract a penalty far exceeding any tax that was at stake. Both parties to an accommodation invoice are exposed: sub-section (2) makes the person who caused the entry liable for the same aggregate amount, and it operates independently of the penalty on the person whose books were falsified. Note that the definition in sub-section (3) is inclusive and catches the intention to use a forged document, so it does not require that the false invoice was actually acted upon.
A company books purchases of Rs. 3 crore against invoices from a supplier who does not exist, and its books also omit Rs. 40 lakh of receipts relevant to computing its total income, to evade tax. Found during a proceeding under the Act, sub-section (1) exposes it to a penalty equal to the aggregate amount of the false and omitted entries — Rs. 3.4 crore — measured on the entries themselves and not on the tax evaded, which may be a small fraction of that. The person who supplied the bogus invoices does not escape by being outside those books: sub-section (2) imposes the same Rs. 3 crore on any other person who in any manner caused the entry, and it operates without prejudice to the penalty on the company. Nor does it matter that a forged document was never acted upon, since sub-section (3) covers the 'use or intention to use' it.
In a penalty order made by the Assessing Officer, the Joint Commissioner (Appeals) or the Commissioner (Appeals) after a proceeding in which the books of account were examined — and, at the other end of an accommodation invoice, in a penalty order against a person who never featured in that assessment at all.
may impose a penalty equal to the aggregate amount of false or omitted entry
See the full 1961 to 2025 concordance.