TaxTMI 
TaxTMI 
2012 (12) TMI 510
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....t [hereinafter referred to as "CA"] had undertaken, on agreement, assignment as Chartered Accountant of a multi-location unit i.e. M/s. Sumilon Industries Ltd, Surat. The assignment also included work of auditing the accounts of the said company. It appears from the record that on the basis of the certificate issued by the petitioner in his capacity as CA, the Excise Department had made certain assessments and liability of the said company towards excise duty under Excise Act were assessed. Thereafter, it came to the notice of the Excise Department that the accounts and audit report submitted by the petitioner was inaccurate and there were several serious and material discrepancies and anomalies. In this view of the matter, the office of Commissioner of Central Excise, Surat lodged complaint with the institute of the Chartered Account [hereinafter referred to as "the institute"] and vide letter dated 24.10.2008 brought to the notice of the institute the irregularities as well as the inaccuracies, anomalies and mistakes committed by the petitioner in the accounts and audit report. 2.1 After examining the said complaint by the Joint Commissioner (Audit) of Excide Department, the i....
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....ompetent authority on 12.9.2011 and was forwarded to the petitioner under institute's letter dated 15.9.2011. 2.5 Thereafter, the petitioner preferred appeal against the decision of the competent authority. The appeal was registered by the appellate authority as Appeal No.17/ICAI/ICSI of 2011. 2.6 On 28.1.2011, the appellate committee heard the petitioner and after considering the record including the report of the Disciplinary Committee and the decision of the competent authority, passed order dated 5.5.2012. The appellate committee concurred with the decision of the competent authority i.e. order dated 12.9.2011 and observed that, the appellant i.e. present petitioner is rightly held guilty of professional misconduct within meaning of clause (7) of Part-I of IInd Schedule to the Act. The appellate committee also held that the petitioner did not exercise due diligence and he had shown gross negligence and carelessness in certifying Tax Audit Report which did not reflect true and fair picture of the affairs of the company and he signed the Tax Audit Report without actually performing the audit as required. 2.7 Aggrieved by the said two concurrent orders, the petitioner has....
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.... the petitioner and that the alleged mistakes cannot be construed as gross negligence. 4. Mr. Soparkar, learned Senior Counsel, with Mrs. Soparkar, learned advocate, has appeared for the respondent institute and submitted that the penalty imposed by the institute is minimum penalty which could be imposed in such type of cases. The learned Senior Counsel submitted that the institute is responsible for maintaining professional standards and standard of accuracy of the reports submitted by its members, more particularly when the report by the members of the institute are being relied on, almost blindly, by all private as well as Government organizations. Mr. Soparkar, learned Senior Counsel, also submitted that in his reply submitted to the committee, the petitioner accepted the inaccuracies and anomalies in his report/certificate. He also submitted that the details mentioned by the Disciplinary Committee in its report enumerates the inaccuracies and anomalies. Mr. Soparkar submitted that the mistakes from the tax audit report submitted by the petitioner demonstrate that the petitioner did not exercise due diligence and/or he was grossly negligent in performing his professional dut....
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.... noted that no new facts have also been brought on record by the Respondent." 5.2 By exploiting the observation recorded in paragraph no.4 of the said order dated 12.9.2011, more particularly in light of the observation in paragraph no.3, the learned advocate submitted that vide his letter dated 26.7.2011 adjournment was requested for by the petitioner, however, the Committee/Competent Authority did not consider it proper to wait for some more time, but proceeded to pass order regarding penalty, which is unjustified and arbitrary. 5.3 While relying on the said observations in paragraph nos.3 and 4, the learned advocate for the petitioner has conveniently overlooked the fact that the report of the Disciplinary Committee was submitted on 10.2.2011 and thereafter, the petitioner was granted opportunity to submit written representation. Besides this, at his requests, under communications dated 30.5.2011 and 18.7.2011, opportunity/time was granted to the petitioner. These details and aspects are recorded in paragraph no.2 of the very same order i.e. order dated 12.9.2011, which reads thus:- "2. That an action under Section 21B(3) of the Chartered Accountants (amendment) Act, 20....
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....ned person does not avail the opportunity even after the opportunity is made available, the authority should continue to adjourn the proceedings ad-infinitum so as to honour and comply the requirement of granting opportunity of hearing on the issue about proposed penalty. 5.10 If the petitioner was too busy in his professional work to appear before the competent authority/institute, he could have submitted written reply/representation raising all available contentions on the point of proposed penalty. However, the petitioner, in present case, did not care to even take that trouble to submit even written reply/representation as regards proposed penalty. 5.11 The said aspects cumulatively establish that the petitioner was merely trying to delay the proceedings. Therefore, the said submission is not accepted. 5.12 In this context, reference may be made to the observations by the Hon'ble Apex Court in para-13 of the decision in the case between The Chairman, Board of Mining Examination and Chief Inspector of Mines, and Anr. v. Ramjee. [AIR 1977 SC 965], which reads thus:- "13......Natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness....
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....r letter dated 15.01.2008 submitted that there are some typing errors in the notices on the accounts of schedule 19. Accordingly, they filed the revised figures as below:- Source Documents Figures As given in letter as per old figures New Figures As per corrected statement Raw material consumption Production Sales Raw material consumption Production Sales Annual Report 2005-06 3405.622 6870.380 5755.415 3815.198 6836.000 4565.858 Annual Report 2006-07 4359 479 5587.099 6520.461 4657.962 6778.051 4622.758 Tax Audit Report 2006-07 5093.540 5196.792 3799.446 6678.527 6778.047 4622.752 The said Tax Audit report is prepared by the auditor M/s. R.V. Dudhwala & Co. Chartered Accountants, 104, Dalal Chambers, Bhajiwali Pole, Bhagal, Surat. (M.No.38264) It seems that the Company's Auditor have not verified the accounts and certified report properly prior to issuing the same, as a result of which, lot of time of our officers have been wasted. Annual Report is an important financial document for many stake holders and it cannot be ta....
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....uditor, the Respondent is required exercise his duties in a professional & diligent manner." (emphasis supplied) 6.5 The committee, in the said prima facie opinion, recorded that "the respondent i.e. present petitioner" also did not provide copies of balance sheet and tax audit reports of the company for financial year 2005-2006 and 2006-2007. After considering the available material, the Director (Discipline) observed, in the said prima facie, opinion that, "I am of prima facie opinion that the respondent is guilty of professional and/or other misconduct falling within the meaning of clause (7) of Part-I of IInd Schedule to the Act". 6.6 Now, at this stage, it is pertinent to note that in his written statement/reply dated 27.5.2010, the petitioner himself mentioned that, "the mistakes found in the annual report and revised data are in the nature of typing error of a computer operator....". 7. Thus, actually, the petitioner had admitted and acknowledged that the report was infected with mistakes and that mistakes had been committed in preparing, signing and submitting the report. However, the petitioner has tried to underplay the mistake by claiming that the "mistake....
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....ion. The purchase report of plane polyester film from the books of account of Sumilon Industries Ltd. is enclosed to prove purchases". (v) Under the heading discrepancies in production, the petitioner has stated, inter alia, that, "note 1, due to mistake by accountant in F.Y.2005-2006, the actual production quantity of metal quoted polyfilm taken as 3743.330 instead of 3708.950 MT. Hence, the discrepancy of MT in production. There was no mistake in other products. (vi) Under the heading tax audit report, the petitioner stated, inter alia, that, "the mistake in quantity data of metalized and lacured polyfilm is given below....." "8. Tax Audit report:- ** ** ** (i) The plain poly film transferred from Gandhidham unit of 1276.999 M.T. was recor 1366.994 M.T. in Metalilised and Lacquered poly film division of Gandhidham unit, the consumption of Metallised and Lacquered poly film in Gandhidham division was higher by 90 M.T. The actual consumption of ....
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....e diligent, careful and cautious, i.e. it was his duty to exercise due diligence, in preparing and signing and certifying the report and to carefully examining and verifying it before signing it and before issuing certificate. 9.2 It is in this context that the provision under clause (7) of Part-I of IInd Schedule of the Act is required to be taken into account, which makes lack of due diligence misconduct inasmuch as it is prescribed that when practicing Chartered Accountant does not "exercise due diligence" or when a practicing Chartered Accountant is grossly negligent in conduct of his professional duties then it would tantamount to professional misconduct. 9.3 In paragraph no.4 of the report dated 10.2.2011, the Committee has taken note of the prima facie opinion firmed by the Director (Discipline) and in paragraph no.5 the committee has considered the written statement submitted by the petitioner. The committee has also recorded that the time of hearing, the petitioner had remained present with his advocate. In paragraphs no.9 to 12, the details of the proceeding are recorded by the committee. The said observations are relevant and read thus:- "9. During the course of....
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....in letter (as per old figures) New Figures As per corrected statement Raw material consumption Production Sales Raw material consumption Production Sales Annual Report 2005-06 3405.622 6870.380 5755.415 3815.198 6836.000 4565.858 Annual Report 2006-07 4359.479 5587.099 6520.461 4657.962 6778.051 4622.758 Tax Audit Report 2006-07 5093.540 5196.792 3799.446 6678.527 6778.047 4622.752 15. The Committee noted that in the financial statements of the Company for the years 2005-06 and 2006-07, the sales of finished goods were disclosed inclusive of Inter Branch transfer where as per the Accounting Standard - 9, Revenue Recognition, the Inter Divisional Transfer can not be recognized as Sales/revenue as in case of inter-divisional transfers, risks and rewards remain within the enterprise and also there is no consideration from the point of view of the enterprise as a whole, the recognition criteria for revenue recognition are also not fulfilled in respect of inter-divisional transfers. However, in the present matter, the Company in its financial stateme....
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....to the petitioner. 13. In the said communication, the committee had also cautioned the petitioner that, "in case you do not present yourself on the said date and time before the Disciplinary Committee or your written submissions/representation do not reach this office within prescribed period, the Disciplinary Committee shall presume that you have nothing more to represent...."(emphasis supplied) further establishes that the petitioner was also informed that in event of his failure to appear or failure to submit written representation, the committee will be constrained to proceed further in the matter, and yet the petitioner failed to or avoided to appear before the committee (and also failed in submitting his reply/representation). In the said communication dated 18.7.2011, the Committee had offered two alternatives/options to the petitioner viz. to attend the hearing or to file written statement/representation. If the petitioner was not able to attend the hearing, as he has claimed, he could have submitted his written statement/representation. When both alternatives/options are made available and the petitioner does not avail either of them, then, the petitioner has no r....
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....id that the report/order is unreasoned or 17.1 The report and the findings cannot be said to be without any basis or without evidence or contrary to evidence, much less perverse. 18. Actually, the mistakes, inaccuracies, errors, etc. have been admitted by the petitioner and then he has tried to underplay the said mistakes, etc. So as to show that they are insignificant, he has tried to brush them aside and sweep them under carpet claiming and describing them as negligible. The report/order also does not suffer from any jurisdictional error. 19. Besides this, the entire material including the evidence on record and the report/order by the Disciplinary Committee has been thoroughly reexamined and reappreciated by the appellate committee while entertaining and deciding the appeal preferred by the present petitioner. 19.1 Thus, reappreciation of the material and evidence on record has been undertaken by the appellate committee which is another reason for the Court to not enter into realm of reappreciation of evidence. 20. Under the circumstances and for the foregoing reasons, the Court does not find any basis or justification to hold that the findings and conclusions ....
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....te to remit the matter back to the Bar Council of India. This matter is one pertaining to the ethics of the profession which the law has entrusted to the Bar Council of India. It is their opinion of a case which must receive due weight because in the words of Hidayatullah, CJ, in Mohindroo's case (AIR 1971 SC 107 at p. 116); "this matter is one of the ethics of the profession which the law has entrusted to the Bar Council of India. It is their opinion of a case which must receive due weight." In the said case, the petitioner, an advocate, was suspended from practicing his profession for 3 years on the charge of having withdrawn a suit (as settled) without the instructions from his client. In the said decision the Hon'ble Apex Court framed below mentioned questions: "(1) Whether a charge apprising him specifically of the precise nature and character of the professional misconduct ascribed to him needs to be framed? (2) Whether in the absence of an allegation or finding of dishonesty or mens rea a finding of guilt and a punishment of this nature can be inflicted on him? (3) Whether the allegations and the finding of guilt require to be proved beyond r....
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....Act, which, inter alia, prescribes lack or absence of exercising due diligence as professional misconduct. 22. However, in present case, the aspect is required to be examined in light of clause (7) of Part-I of IInd Schedule of the Act read with provision under Sections 21(3), 21(B)(3) and 22 of the Act, which, inter alia, also prescribe that failure to exercise "due diligence" or lack of "due diligence" also amounts to misconduct. Thus, the petitioner is not justified in overemphasizing or concentrating only on the term "gross negligence" in clause (7) of Part-I of IInd Schedule to the Act and in ignoring the term "due diligence" in the said clause. 22.1 Therefore, "gross negligence" alone is not required to be taken into account while examining the conclusions by the disciplinary committee and the appellate committee. It is pertinent that exercise of due diligence is equally vital aspect which also is to be taken into account in examining a Chartered Accountant's conduct and decide whether his acts of omission and/or commission amounts to misconduct. 22.2 When the mistakes or errors or inaccuracies and anomalies in the report prepared and certified by the petitioner are ....
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....ing. It has been specifically found that the building material was hardly worth Rs. 10,000/- at the site whereas the building as stated in the certificate was not at all in existence. The said fact can be clearly seen by the evidence which was adduced before the Disciplinary Committee. There is no reason to disbelieve the witnesses who adduced their evidence which was duly scrutinised by the Disciplinary Committee. 21. In our humble opinion, the punishment proposed to be inflicted upon the respondent is less and, therefore, though we do not propose to order removal of the respondent's name from the Register of members, in our opinion, the ends of justice would be served if the name of the respondent is removed from the Register of members for a period of six months. One very well knows that a certificate given by a Chartered Accountant is blindly relied upon and if a Chartered Accountant knowing fully well about the value of his certificate, issues a Certificate either negligently or in a fraudulent manner, he thereby not only performs his duties negligently, but he also helps someone in commission of a fraud. In a given case, someone can be easily defrauded by a dishonest and u....
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.... accounts have to be audited by a Chartered Accountant in case of a trust or institution seeking registration. Similarly Section 44AB of the said Act provides for audit of accounts of certain persons carrying on business or profession. There are various provisions permitting deductions in respect of certain incomes under Chapter VI-A of the said Act wherein it is necessary to obtain a separate audit report in relation to the specified deduction under a particular provision. Section 142(2A) of the Income Tax Act empowers the assessing officer to obtain a special audit report from a Chartered Accountant nominated by the Chief Commissioner or Commissioner. It is not necessary to refer to the various provisions in detail, suffice it to state that the revenue authorities rely upon the integrity of a Chartered Accountant to assist the tax authorities in finalizing assessment on the basis of the audit report submitted by such Chartered Accountant. The decision rendered by the Delhi High Court in the case of Additional Commissioner of Income Tax Vs. Jay Engineering Works Ltd.,(1978) 113 ITR 389 indicates the extent to which the income tax authorities can place reliance upon a report submit....
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....d cannot take, such obligation or perform his duties lightly or casually. A mistake by a petty clerk or lower level accountant may be dealt with in different manner but a mistake by a Chartered Accountant cannot be treated with indifference or casually or lightly. A mistake by a clerk or an accountant, which may be considered or allowed or overlooked as inadvertent error, cannot be overlooked lightly or casually if committed by a practicing Chartered Accountant, more so when it is committed in Annual report duly certified by him as correct and authentic report. It has to be, and should be, dealt with seriousness which it would deserve. The professional or trained Chartered Accountant is equipped with knowledge, training and experience to catch a mistake and if such trained and experienced professional allows so many mistakes, errors, inaccuracies and anomalies pass-by without detecting them and if he signs and authenticates report containing such mistakes, etc. and also issues certificate, then, in such circumstances, any fault cannot be found with the conclusions by the Disciplinary Committee, also confirmed by the Appellate Committee, that the petitioner did not exercise due d....