TaxTMI 
TaxTMI 
2018 (7) TMI 923
X X X X Extracts X X X X
X X X X Extracts X X X X
....sequent upon a Report of the Disciplinary Committee dated 14th October, 2015, wherein the Appellant was held guilty under Clauses (7) and (8) of Part-I of the Second Schedule to the Act, whereby, the Appellant has been awarded the punishment of the removal of his name from the Register of Members for a period of one year and also imposed a consolidated penalty of Rs. 50,000/- (Rupees Fifty Thousand Only) upon him to be paid within a period of 30 days from the date of receipt of the Impugned Orders. 2. The second appeal has been filed by him against another Order of even date passed by the Disciplinary Committee of the Institute of Chartered Accountants of India, under section 21B(3) of the Chartered Accountants Act, 1949, consequent upon a Report of the Disciplinary Committee dated 9th February, 2016, wherein the Appellant was held guilty under clauses (7) and (8) of Part-I of the Second Schedule to the Act, whereby, the Appellant has been awarded the punishment of the removal of his name from the Register of Members for a period of one year and also imposed a fine of Rs. 25,000/- (Rupees Twenty Five Thousand Only) upon him to be paid within a period of 30 days from the date of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning Mills for the years 2004-05, 2005-06 & 2006- 07 as Rs. 5,25,23,250/-; Rs. 10,16,67,140/-and Rs. 13,35,86,690/- respectively. Acting on the said false and inflated audited financial statements, huge trade finance limit of Rs. 15 Crore was sanctioned by M/s GTFL in favour of M/s Kantha Spinning Mills on 19th March 2008. 5.3 Further, it is revealed that M/s Kantha Spinning Mills had never existed and is a fictitious M/s Kantha Spinning Mills and neither any manufacturing activity nor any business transactions ever took place by the said fictitious M/s Kantha Spinning Mills as certified by the Respondent. The Respondent had never checked any statutory records or any supporting documents before certifying the audited financial statements. Further, it is also provided that no IT return has been filed in the name of M/s Kantha Spinning Mills for the years 2004-05; 2005-06 and 2006-07. The same has been admitted by the Respondent before the CBI. Shri P. Vankatachalapathy had defaulted and failed to pay the limits availed by him to M/s GTFL and thus caused a wrongful loss of around Rs. 17, 89,972/- to M/s GTFL as on 28th February 2010. 5.4 That investigation has concl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10 buyers and these buyer/entities were non-existent and constituted only on papers of the Company for the purpose of fraudulently availing Trade Finance Limit from GTFL, by furnishing false and forged supply invoices in the names of these buyers and by mentioning imaginary lorry numbers in the invoices which are either pertaining to Motorcycles/LMV or unregistered vehicles. The above mentioned 10 buyer/entities have either filed NIL returns or no returns to the Commercial Taxes Department during the relevant period and have also not filed IT returns or paid Income tax. 6.4 The Respondent had not checked any statutory records or any supporting documents while certifying the audited financial statements, which has been admitted by him before CBI. The financial statements prepared at the behest of Shri R. Selvakumar, Managing Director of the Company were signed by the Respondent. The Company had no business transactions with above mentioned 10 buyer/entities and the financial statements of the Company has been falsely certified by the Respondent, reflecting a net profit of Rs. 150.47 lakhs as on 27th February 2008 and Rs. 181.49 lakhs as on 31st March, 2008. The Company has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the charge against the Respondent is that he had never checked any statutory records or any supporting documents before certifying the audited financial statements and audit reports in respect of M/s kantha Spinning Mills certifying huge turnover and profits for the years 2004-05, 2005-06 and 2006-07. It was also admitted by the Respondent before CBI that no Income Tax returns has been filed in the name of M/s Kantha Spinning Mills for these years. 9.2 The Committee noted that the Respondent in his statement dated 9/12/2010 recorded by the CBI, has admitted that he had certified Form 3CB & 3CD as on 31/3/2005, 2006 & 2007. Further in said statement, the Respondent has admitted that he had not gone through tax records, stock records and signed tax audit reports only on his belief on Shri E. Mathan. 9.3 It is also noted by the Committee that the Respondent had admitted before it that his working papers were taken by Shri E. Mathan and he is not having any working papers. The Committee noted that as per AAS-3, working papers are the property of the auditor and he ought to have retained the same for a period of time sufficient to meet the needs of his practice w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... admitted that he had signed the Balance Sheet of the Company after verification of Trail Balance produced before him by Shri E. Mathan. 10.3 It is further noted that in the said statement, it was also mentioned that he has not received the appointment letter regarding his appointment as auditor of the Company. The Committee also noted that with his written statement dated 20th July, 2012, the Respondent had submitted a letter dated 15th June, 2008 seeking no objection from previous Auditor in respect of audit for the Financial Year 2007- 08.The Committee observed that the Respondent now with his letter dated 23rd July, 2015 is producing his letter dated 29th August, 2008 from the Company in respect of his appointment for the Financial Year 2007-08. The Committee noted that it was matter of incongruence that for the appointment done on 29th August, 2008, the Respondent was sending a letter of no objection on 15th June, 2008. The Committee decided that additional evidences need not be taken into consideration because the Respondent is producing what appear to be antedated evidences to substantiate his defence. 10.4 It is also noted by the Committee that the Respond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant stated that Shri E. Mathan had undergone Brain surgery and he was not able to produce him and sought time. The Committee noted that it had already granted a number of adjournments in these matters but the Appellant was very casual in approach and he did not produce the said Shri E. Mathan. 12. Looking to the casual approach of the Appellant and considering that neither producing the complete working papers nor producing Shri E. Mathan as his witness, the Disciplinary Committee concluded the hearings and on merits of the case in both these matters, the Committee found the Appellant guilty for the violation of clauses (7) and (8) of Part I to Second Schedule to the Chartered Accountants Act 1949, as amended from time to time and awarded the punishment as narrated supra. 13. Thus, aggrieved by the aforesaid Orders passed by the Disciplinary Committee of the Institute of Chartered Accountants of India, the Appellant approached this Authority by way of filing the above mentioned two Appeals. 14. In both these Appeals, the Appellant raised various common grounds against the said Orders which are being dealt with in this Order. However, the first ground of Appeals is gen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal as raised by the Appellant about lack of opportunity, reliance placed on the statements recorded before CBI which are not admissible and delay not being on his part etc. Therefore, in the interest of justice, we have provided him opportunity to present all evidence in his defence even if it was not presented before the Disciplinary Committee of the Institute and have given him adequate hearings. Further, we have also observed that as far as the misconduct on which he is found guilty by the Committee, no reliance is placed by the Disciplinary Committee on the proceedings before the CBI. 18. Pursuant to rejection of the aforesaid grounds of Appeal, we would now like to examine the main issue involved in both these Appeals for which the Appellant has been found guilty under Clauses (7) and (8) of Part-I of the Second Schedule to the Chartered Accountants, 1949, as amended from time to time. The said Clauses are reproduced as here under : "Part-I Professional Misconduct in relation to Chartered Accountants in Practice A chartered Accountant in practice shall be deemed to be guilty of Professional Misconduct, if he - (7) does not exercise due diligence,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eard the parties at length, perused all records and evidence produced before us and examined all evidence on record. 23. We have also gone through the working papers relating to the audits conducted by the Appellant which were filed before the Disciplinary Committee and copies were also produced before us. Resultantly, we have observed that the working papers are very general and sketchy and do not contain the required information as mandated by the Auditing Standards i.e., AAS-3. In many cases even the year for which audit is done, name of person in-charge who carried out the examination and the details of his observations are not mentioned. Further, how the observations were satisfied is also not mentioned. When we asked about the Audit programme, even no proper audit programme was found in the working papers. 24. Additionally, we drew the attention of the Appellant towards the complaint that the financial statements certified by him were found to be fraudulent later on and huge losses were suffered by financial institutions/NBFC, therefore, there is more need on his part to establish that he carried out his duties diligently as per the Auditing Standards in vogue at that t....