The income-tax department feels there is no need to curtail the powers given to tax officials for proceeding against cases of "falsification of accounts" by companies and individuals.

Revenue department officials said they had given the tax department powers similar to those laid down in the Indian Penal Code to track the production of false vouchers and other trade receipts, which has become a flourishing trade, especially in Mumbai.

The measure has been introduced as a new Section 277A in the Income Tax Act, 1961. It provides for punishment with rigorous imprisonment for up to three years, for what it calls falsification of books or documents to evade tax liability.

The Explanatory Memorandum accompanying the Finance Bill says it shall be sufficient for the tax department to allege that the general intent is to enable another person to evade any tax, penalty or interest, without naming any specific case, to support the argument.

The provisions will come into force from October 1, 2004. The new clause in the Finance Bill, comes in addition to the provisions of Section 278 of the Income Tax Act.

Under this provision, those who manufacture false documents to escape tax liability cannot be prosecuted unless the charges against the persons who have used such papers are established in a court.

However, tax experts feel that such a subjective satisfaction on the part of the assessing officer to charge the person with a criminal offence is sweeping.

They said under the new provisions, a person suffering losses and not required to pay any tax could still be charged with the intent of evading penalty. According to Explanation 4 to Section 271(1)(c), if a loss is reduced as a result of assessment, penalty could still be imposed.

The increase in the powers of tax officials in this area is against the recent trend within the department to soften its treatment of business and industry. It has curtailed search and seizure powers and centralised the authority to conduct such operations with the Director-General (Investigation).

Moreover, selection of tax returns for scrutiny has been made transparent and random to avoid any bias in the selection of such returns.