CA alleged as master mind of issuing bogus bills gets relief in misconduct case

CA alleged as master mind of issuing bogus bills gets relief from Appellate Authority. ICAI had held Mumbai based CA guilty of Other misconduct on the complaint of Income Tax Authorities

ABCAUS Case Law Citation:
ABCAUS 2225 (2018) (02) CA-AA

The appellant Chartered Accountant (CA) had challenged the decision of the Disciplinary Committee of the the Institute of Chartered Accountants of India (ICAI) in holding him guilty of professional misconduct and awarding punishment of removing his name from the Register of Members for a period of three months together with a fine of Rs. 1,00,000/-.

The Director of Income Tax-Investigation (complainant) had filed a complaint in prescribed Form against the Chartered Accountant (the Appellant), before the Institute, inter-alia alleging that during the course of the Search and Seizure u/s 132 of the Income Tax Act, 1961 conducted at the office and residential premises of the said CA, it was detected that the CA was the master mind in the racket of issuing bogus bills to interested parties. Such bills were being issued in the name of a limited company whose Chairman categorically stated in his statement that he was giving such bogus bills to the tune of Rs.52 Crores through his non existing company at the behest of the said chartered accountant.

CA alleged as master mind of issuing bogus bills gets relief

Further, the said CA, during the course of search proceedings had admitted providing “table space” to the said chairman, at his office. Several blank cheque books of the said company some of them duly signed by the chairman, were also seized from the office of the CA on the day of the search.

However, later on, the chairman of the company retracted from the statement, allegedly under tutoring of the CA that he did provide the table space but did not mastermind the transactions.

Also, during the course of a survey operation on two trusts it was further established the fact of accommodation bills issued by the said company.

The Income Tax Department alleged that in view of the above, it was clear that the said CA had deliberately and consciously indulged in malpractice of issuing bogus bills.

The complaint was considered by the Director (Discipline) of ICAI in terms of Rules 8 (5) of the Chartered Accountants (Procedure of Investigations of Professional and other Misconduct and Conduct of Cases) Rules 2007 and he formed his ‘Prima Facie-Opinion’ (PFO) holding the CA guilty of other misconduct falling within the meaning of aforesaid Clause (2) of Part-IV of the First Scheduled to the Chartered Accountants Act, 1949 which states as under:

“PART IV: – Other misconduct in relation to members of the Institute generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if –

1. x x x

2. in the opinion of the Council, he brings disrepute to the profession or the institute as a result of his action whether or not related to his professional work”.

The matter was taken up for further investigation by the Board of Discipline of ICAI , wherein, the Board concurred with the ‘Prima Facie-Opinion’ of the Director (Discipline) and proceeded with the case.

During the course of proceedings, the CA admitted that he had provided only table space to the company in his office, he also admitted that the Books of Accounts, Cheque books and other records related to the company were available in his office.

The CA stated that the company had no employee of his own nor was any employee of his was working for him as per his directions like, withdrawal of cash, writing of Cheque (s) and other works related to the aforesaid company and there was no involvement of him in respect of any activity carried out by the said company. However , it was admitted that the CA did not charge any rent from the company for the table space provided in his office.

However before the Board, the Income Tax Department submitted that it has no evidence which prove that cash is withdrawn by the employee of the CA and or any other business activity carried out on behalf of the company by the employee of the CA. Moreover, the Income Tax Department admitted that it has no knowledge as to whether those beneficiary entities have any relation/link with the CA.

The Board of Discipline reached to the conclusion that the CA was guilty under Clause (2) of Part-IV of the First Schedule to the Chartered Accountants Act, 1949 and awarded the impugned punishment.

Being aggrieved, the CA had referred an Appeal before the Appellate Authority.

The Appellate Authority noted that while the complainant and the Board of Discipline had relied on the statement of the chairman the CA had insisted that his later statement should be relied upon, wherein he had retracted from his earlier statement. It was contended by the CA that Board of  Discipline did not afford an opportunity of cross examine the witness. It was further noted that the CA in his statement made before the Income Tax Authorities had requested for opportunity to cross examine the chairman.  However it was also clear that the CA himself was in close contact with the chairman of the company and he was in a position to produce him as his own witness before the Board, which he failed to do so.

During the proceedings it was also submitted that the Board of Discipline erred in holding the CA guilty under Clause (2) Part-IV of the First Schedule of the Chartered Accountants Act, 1949 as there was no opinion formed by the Council on record in terms of the said provision of law, wherein only the Council is empowered to opine as to whether or not an act of the professional has brought disrepute to the Profession or the Institute. To support this contention, the Counsel of the CA relied on an Order of the Hon’ble Income Tax Appellate Tribunal (ITAT). Accordingly, it was pleaded that after considering all the facts the Hon’ble ITAT had deleted all allegations. However, this was vehemently objected by the ICAI by submitting that it was a new evidence and was not available before the Board of Discipline (BOD) while deciding the present disciplinary matter, as the ITAT had passed this Order in the matter on a subsequent date. Further, it is also submitted that the order of the ITAT was on different matter and on different facts and hence is not applicable in this case. It was pointed out that the objection in respect of Clause (2) of Part-IV of the First Schedule to the Chartered Accountant Act, 1949, wherein no opinion of the Council had been given, had already been decided by the Authority by an earlier Order, whereby such objections have been rejected by this Authority.

The Hon’ble Appellate Authority opined that while relying on the statement of said Chairman, the BOD had not given any opportunity to the CA to cross examine him. The Authority opined that it is a fundamental rule of law that if any party of litigation wants to rely on any evidence, the other party should be given an adequate and fair opportunity to cross examine and rebut the same. Also it was observed that the Order of the Hon’ble ITAT in the case of CA was delivered on a subsequent date as against the date of the Report of the BOD Hence, it is obvious that the same was not available with and resultantly could not be examined by the BOD of ICAI.

The Authority opined that the ends of justice will be met out if the matter is set aside and remanded back to the BOD of ICAI for its reconsideration and examination of all the relevant evidences and examining the relevant persons / witnesses, in the light of the observations made by it for taking afresh decision

However, it was clarified that whosoever wants to rely upon the statement of any person, he shall be responsible to produce him on his own cost and shall provide an adequate opportunity to the other party to cross examine him before the BOD.

The Appellate Authority set aside the Impugned Report and the Order of the BOD of the ICAI and remanded back.

Master mind CA

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