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ITAT Should Report Unethical CAs To ICAI For Disciplinary Action: High Court

After Narendra Modi and Piyush Goyal, the High Court has come down heavily on the CAs for conducting their practice in an allegedly corrupt manner. It has signaled zero-tolerance policy towards the alleged unethical practice of CAs of certifying bogus accounts with a view to mislead bankers and revenue authorities

Piyush Goyal Censures CAs For ‘Corrupt Practice’

Hon’ble Piyush Goyal, the Minister for Railways, Coal and Corporate Affairs, is a distinguished rank holder CA in his own right.

He did some plain speaking at the ICAI Annual Function.

He bluntly accused the CAs of practicing in an alleged “corrupt” manner and facilitating “tax chori” by unscrupulous taxpayers.

Prime Minister Narendra Modi also hits out at CAs

Hon’ble Narendra Modi, the Prime Minister, also made it clear that he does not have a high opinion about CAs.

In a speech delivered at the foundation day function of the ICAI, the Prime Minister sent a strong message against chartered accountants trying to help entities in black money dealings.

He pointed out that after demonetization, the work of CAs increased and many cancelled their Diwali holidays in attempting to help entities dealing with illicit funds post-demonetisation.

I am not sure how many did work for their clients and how many for the nation,” he said.

The Hon’ble Prime Minister also hauled up the ICAI for its tardy action in prosecuting guilty CAs.

He pointed out that more than 1,400 cases are pending for many years and disciplinary action has been taken against only 25 CAs for irregularities.

Narendra Modi reminded the CAs that they need to safeguard society’s economic health and have a big responsibility.

Your signature is more powerful than that of the prime minister and the government also believes the accounts signed by you,” he said.

He also advised CAs to warn persons with black money that they would not be spared and should reform themselves before it is too late.

CAs upset with the plain-speaking

Understandably, some distinguished CAs took strong exception to the fact that the entire CA fraternity had been maligned due to the misdeeds of a few unscrupulous professionals.

CAs feel heat and resign in droves from post of auditors

It is not a coincidence that after the plain-speaking by Narendra Modi and Piyush Goyal, a number of auditors have developed cold feet and resigned en-masse to avoid being hauled up for alleged malpractice.

Bloomberg reported that auditors of at least 30 listed companies abruptly resigned in the first five months of the year, almost double the 16 for all of 2017.

It claimed that these departures are because the regulators are cracking down on governance lapses and outright corporate fraud as part of Prime Minister Narendra Modi’s efforts to recast the image of Asia’s No. 3 economy as a corruption-free place to do business.

Now Calcutta High Court comes hammer & tongs at CAs

In the latest judgement in Binod Kumar Agarwala vs. CIT, the Hon’ble Calcutta High Court has signaled a zero-tolerance policy towards the alleged nefarious practice of CAs.

The High Court slammed the CAs for certifying bogus loans and misleading lenders, which in turn has led to the colossal NPAs.

The matter is typical of how business is conducted in this country and why loans obtained from banks remain unpaid,” the High Court observed.

The assessee committed fraud on the bank and obtained credit facilities by misrepresenting its financial position.

To aid him in the criminal act, a firm of chartered accountants named ‘Roy Ghosh and Associates’ issued a certified balance sheet containing bogus figures.

The CA firm boldly issued a disclaimer stating that the figures “have no relation with the actual figures”.

We are giving the information and explanations herewith purely based on estimate basis and have no relation with the actual figures and to avail the bank loan.”, it was stated.

The High Court seethed with anger at the blatant temerity of the Chartered Accountant in certifying the bogus balance sheet.

The substance of the appellant’s submission is that to suit a person’s purposes before one authority or the other, different pictures as to the financial position of such person or any entity under the control of such person may be presented.

This is a question larger than any legal issue under the Income Tax Act and is a matter of public policy.

It is inconceivable that a person may approach a bank by inflating the value of his assets and a few months down the line he can deflate the value of the assets, so to say, while queuing up to pay tax.

It is scarcely expected of a banker to question the veracity of any accounts certified by a firm of chartered accountants or to look into the fine print and comprehend therefrom that utterly bogus figures had been furnished only for the purpose of availing of the credit facilities from the bank”, it was observed.

The High Court came down heavily on the practice of painting a rosy picture as to the financial position of the applicant seeking credit facilities while at the same time slipping in another balance-sheet and P&L A/c in the income-tax records indicating a less robust financial position of the constituent.

It described Roy Ghosh and Associates as a “willing accomplice” to this criminal and fraudulent practice.

It also held that the accounts cannot be “tailor-made to suit a particular purpose or window-dressed to make it attractive for bankers to rely thereupon and all the gloss and sheen removed thereafter when it was the time to pay tax.

ITAT hauled up for not reporting the CA to the ICAI

The ITAT passed strictures and observed that a Chartered
Accountant is governed by certain discipline and he has to conduct audit in accordance with the provisions and rules of the Chartered Accountants Act.

It also noted that Schedule II and Part 1 holds a chartered accountant guilty of professional misconduct if he permits his name or name of his firm to be used in connection with the audit based on estimate.

However, the High Court hinted that the ITAT should have gone further and been vigilant towards the abetment by the CA in the “commission of a colossal act of misrepresentation”.

Indeed the Appellate Tribunal may only be faulted for not reporting Roy Ghosh and Associates to the Institute of Chartered Accountants for having apparently abetted in the commission of a colossal act of misrepresentation which the appellant assessee undertook before his bankers for the purpose of obtaining credit facilities by indicating a financial position that was not warranted by the books of the assessee”, it held.

ICAI directed to examine the issue

Ultimately, the Hon’ble High Court directed that a copy of the order be sent to the ICAI for appropriate steps, if thought fit, to be taken against Roy Ghosh and Associates in accordance with law and upon due notice to such firm of CAs.

Whether the ICAI has taken any steps pursuant to the directions of the High Court is not known as of date.

Click here to read the judgement of the Calcutta High Court in Binod Kumar Agarwala vs. CIT

5 comments on “ITAT Should Report Unethical CAs To ICAI For Disciplinary Action: High Court
  1. Sher Singh says:

    What is the LOCUS of ITAT ?? Does powers u/s 253 covers all this ??

  2. CA N.PATIDAR says:

    If all CHARTERED ACCOUNTANTS come together and decide that they will only practice honesty, then the problem of corruption in the country will be resolved. Honorable Misiterji Please replace the word CHARTERED ACCOUNTANTS BY POLITICIANS, AND BUREAUCRATES

    : @PiyushGoyal

  3. raj says:

    Y to blame only CA’s – what is the role of other 3 legs of this democratic country? i.e. Legislature, Judiciary and Executioner bodies. Think politicians r trying to pass d buck. Action please.

  4. Shashikant G Parasramka says:

    Let the politicians and High Court say anything, yes a wrong is wrong and cannot be upheld as being right, but what’s the root cause of the same, no body tries to analyse the same. Let the Politicians comprising MPs, MLAs, Agriculturists, judges and political parties first pay taxes by removing the exemption given to them in sec. 10(17) and sec 13. Let them first pay taxes, have self discipline and then have a right to rule others’ to make pay taxes.

    • ram babu B. Com says:

      does these politicians have guts to question any bureaucrat in the IT dept. for irresponsive attitude towards tax payers. Let the minister pick 100 letters from inward dept. Let him verify – how many of the letters received are answered by bureaucrats.
      can he speak to the officers In the IT department for their corrupt practices.

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