Ignoring new reporting requirements of Form 3CD was misconduct by the CA being grossly negligence in the conduct of his professional duties – Appellate Authority
ABCAUS Case Law Citation:
ABCAUS 2504A (2018) 09 AA
In the instant case, the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) held the appellant practicing Chartered Accountant as guilty under Clauses (7) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949 and awarded punishment of removal of his name from the Register of Members for a period of one year.
According to the relevant clause, a chartered accountant in practice is deemed to be guilty of Professional Misconduct, if he does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.
The complaint against the CA was filed by an Income Tax Officer alleging that as per the Tax Audit Report issued by him in pursuance of the audit carried by him u/s 44AB of the Income tax Act, 1961, there was no disallowance u/s 40A(3) read with rule 6DD . However, during scrutiny assessment it was discovered that the assessee had made cash payments exceeding Rs. 20, 000/- in violation of the said section. Further, the assessee haf made payments without deducting TDS as required under the Income Tax Act, 1961. These facts had not been mentioned in the Tax Audit Report certified by the CA.
The Director (Discipline) found the CA “Prima Facie” Guilty of the professional misconduct falling within the meaning of aforesaid Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 and later on by the DC of the ICAI.
Before the Appellate Authority, the CA contended that the auditee assessee was not liable to deduct any TDS and hence there is no negligence in non-reporting the same. It was explained that sometimes due to unavoidable reasons/circumstances, the client had collected Doctors Consultation Fees on behalf of Doctors and the same has been paid back/returned to the doctors immediately. It was further explained that these are the payments made to the doctors and are not in any way expenses of the Assessee (client) and hence question of TDS does not arise.
Further, it was also prayed that the CA was passed Chartered Accountancy only in 2005, he was very new in the profession and it is possible that he did not understand the proper interpretation of Section 194J of the Income Tax Act 1961. Therefore he prayed that his mistake may be condoned and lenient view may be taken.
The AA observed that the CBDT vide Notification No. 208/2006 dated 10th August, 2006 had widened reporting requirements of Form 3CD. This Form came into effect for all audit reports signed on or after 10th August 2006. Admittedly in this matter the audit was carried out for the year ended on 31.3.2007 and audit report of the same was signed on 23.10.2007. Thus, it was the duty of the CA to report such transactions in the Form 3CD, which he failed to do.
The AA opined that the CA had completely ignored the new reporting requirements imposed by the CBDT from 10th August, 2006. Therefore, it agreed with the findings of the Disciplinary Committee that under the circumstances as present in the matter, the CA did not exercise due diligence in carrying out his professional duties, which is expected from him. Accordingly, the AA concurred with the finding of Disciplinary Committee holding the appellant CA guilty under the aforesaid Clause (7) of Part-I of the Second Schedule to the Chartered Accountants Act, 1949.
As regards the quantum of punishment, the AA took note of the prayer for taking lenient view and the fact that the appellant fully cooperated in all proceedings at every level of enquiry, the AA opined that the “ends of justice” would meet, if the punishment is reduced to “Reprimand”. Though, the CA was directed to be more cautious in future while dealing with such situations.
