2003 (11) TMI 602 - HC - Indian Laws

Chartered Accountant Permanently Removed for Fraudulent Tax Misconduct; Court Affirms Ethical Standards in Disciplinary Action.

Council of Institute of Chartered Accountants of India Versus Mukesh R. Shah

The HC upheld the recommendation of the petitioner-Council to permanently remove the respondent, a Chartered Accountant, from the Register of Members due ... Guilty of professional misconduct - removal of the Chartered Accountant from the Membership of the Institute permanently - Chartered Accountant fabricating and filing false challans for advance tax for certain clients and relatives - filing returns showing nominal income to claim refunds - Principles of natural justice - Retraction of statements - HELD THAT:- Nowhere in the entire statement can one find any indication that the statement was obtained by any coercion or threat or inducement of any nature. This becomes amply clear when one takes into consideration the fact that the respondent had appeared in response to summons issued to four different assessees. It was not as if the respondent had been issued any summons to appear and depose before the authorities. This factor significantly points to the unequivocal direction of volition of the respondent in tendering the statement. In the event of the respondent not being responsible for the fraud, there was no occasion for the respondent to pay over the sum to the revenue because the case of the respondent has been that though a fraud has been committed so as to obtain amounts in the nature of refund fraudulently from the Income-tax Department, the respondent is not the person who has committed such a fraudulent activity and, hence, he should not be visited with any penal consequence. Moment the respondent agreed to return/pay the amount to the Income-tax Department it became abundantly clear that it was only he, who had enjoyed the fruits of the fraudulent transaction and when such a fraudulent practice was discovered he admittedly agreed to refund the amount and in fact refunded the amount with interest. It is not necessary to refer to the various statements/charts giving details and the gross receipts by way of income-tax refunds credited during various assessment years in different Bank Accounts, transferred therefrom to the Bank Account of the respondent and/or his family members and utilisation of such funds. There are also statements/charts available on record showing the names of different persons in whose names various Bank Accounts were opened and operated by the respondent. In brief : there are sufficient details to link the respondent with the fraud complained of. Once there is admission of the respondent in the form of identically worded letters dated 21-4-1993 supplying the list of cases in different wards wherein refunds have been fraudulently obtained, the contention that the complainant has led evidence in only four cases out of 168 does not merit acceptance. Even otherwise : it is the conduct of the respondent that is under scrutiny. If it amounts to misconduct - in one case or more - the number of cases becomes irrelevant. A proved misconduct remains so and there cannot be any mitigating circumstance on this count. There is no explanation forthcoming as to why the letter dated 8-6-1993 retracting statement made in April, 1993 was not filed at any earlier point of time. Similarly, the affidavit dated 1-3-1995 also comes on record at a very belated stage. There is no explanation for the delay. A retraction, so as to dislodge the admission made, should come about at the earliest point of time. It goes without saying that a retraction made after a considerable length of time, would not have the same efficacy in law as a retraction made at the earliest point of time from the day of admission. A belated retraction would fall in the category of afterthought instead of being retraction. That apart, for a retraction to be effective so as to dislodge the admission made earlier in point of time, the retraction has to be supported by contemporaneous evidence and the onus is on the person making such admission and retraction. In the present case, admittedly, the respondent has not been able to show even on the basis of preponderence of probabilities that the statements recorded on different dates, and more particularly recorded on 21-4-1993, were made under coercion or threat or inducement of any nature. The Disciplinary Committee has taken note of the fact that the respondent has categorically accepted that he has no animosity against any of the officers of the department and similarly, none of the officers of the department have any personal bias, grudge or animosity against the respondent. In these circumstances, it is not possible to find any infirmity in the reasoning adopted by the Disciplinary Committee and the Council for rejecting so-called retractions made on 8-6-1993 and 1-3-1995. While dealing with the merits of the matter, the Disciplinary Committee has recorded the case of the complainant that a fraud had been committed in as many as 168 cases, but for the purpose of the present proceeding, the complainant had restricted itself to 4 major taxpayers in whose case the fraud could be established. It was submitted on behalf of the complainant before the Disciplinary Committee that the proceedings in regard to the others had been initiated and were pending trial in Criminal Courts but detailed evidence in this regard was not being produced before the Disciplinary Committee so as to avoid burdening the record of the said Committee because methodology and the modus operandi in regard to claim of fake refunds in all the cases was almost identical. The petitioner-Council is one such representative body charged with responsibility of ensuring discipline and ethical conduct amongst its members and impose appropriate punishment on members who are found to have indulged in conduct which lowers the esteem of the professionals as a class. Adopting the aforesaid approach, it is not possible to find any infirmity, either on facts or in law, in the reasoning and the findings recorded by the Disciplinary Committee and the petitioner- Council by holding the respondent as being guilty of 'other misconduct' under section 21, read with section 22 of the Act and, hence, there is no necessity to interfere with the punishment recommended. It has been proved beyond reasonable doubt, in the facts and circumstances of the case and by the evidence on record, that the respondent, and only the respondent, is guilty of 'other misconduct' and hence liable to punishment u/s 21(6)(c) of the Act i.e., removal from membership of the Institute permanently. The Reference is accordingly disposed of with a direction to the petitioner-Council to remove the respondent from the Membership of the Institute permanently. Issues Involved:1. Allegations of misconduct against the respondent.2. Procedural aspects of the inquiry.3. Principles of natural justice.4. Evaluation of evidence and admissions.5. Retraction of statements.6. Appropriate punishment for misconduct.Summary:1. Allegations of Misconduct:The respondent, a Chartered Accountant, was accused of fabricating and filing false challans for advance tax for certain clients and relatives, filing returns showing nominal income to claim refunds, and encashing these refunds by opening bank accounts in the names of the assessees. The charges, if proved, would render the respondent guilty of 'other misconduct' u/s 21, read with section 22 of the Chartered Accountants Act, 1949.2. Procedural Aspects of the Inquiry:The petitioner forwarded a copy of the complaint to the respondent, who failed to submit a written statement despite multiple reminders. The Disciplinary Committee held various hearings and concluded that the respondent was guilty of misconduct. The Council considered the report, the respondent's written submissions, and decided to recommend the severest punishment, i.e., permanent removal from the Register of Members.3. Principles of Natural Justice:The respondent contended that the proceedings were vitiated due to the violation of principles of natural justice, including non-supply of incriminating documents and denial of a hearing before the Council formed its prima facie opinion. The Court held that the respondent was given ample opportunity to defend himself, and the procedural requirements were duly followed.4. Evaluation of Evidence and Admissions:The Disciplinary Committee found that the respondent had admitted to the fraud in his statements and letters, which were corroborated by documentary evidence and witness testimonies. The respondent's conduct was deemed unbecoming of a professional, and the evidence on record established his guilt beyond reasonable doubt.5. Retraction of Statements:The respondent's retraction of his statements was not accepted as it was made belatedly and without any contemporaneous evidence to support the claim of coercion or threat. The Court noted that the retractions did not dislodge the earlier admissions, which were clear, unequivocal, and voluntary.6. Appropriate Punishment for Misconduct:The Court upheld the recommendation of the petitioner-Council for the permanent removal of the respondent from the membership of the Institute. The Court emphasized the importance of maintaining the integrity and ethical standards of the profession and found no reason to interfere with the punishment recommended by the Council.Conclusion:The Court directed the petitioner-Council to remove the respondent from the Membership of the Institute permanently, thereby disposing of the reference.