The Hindu Business Line : A betrayal of trust

THE Income-Tax Department relies heavily on the audit certificate given by the chartered accountant (CA) regarding the income and expenditure of a taxpayer. He carries out statutory functions both under the company and tax laws. Many of the deductions under Chapter IV A of the Income-Tax Act, 1961, require, apart from audit under Section 44AB and special audit under Section 142(2A), a separate audit report. The revenue authorities rely upon the integrity of the CA in finalising the assessment.

Various government departments repose faith in the professional qualification, competency and integrity of the CA. In this situation, what is the assessing officer (AO) to do when the CA indulges in fraud and obtains refund for the clients on fake advance tax challans?

Mukesh Shah, a practising CA of Ahemadabad, fabricated and filed challans for advance tax in respect of certain clients and relatives and filed their return of income showing nominal income so as to claim refund against advance tax paid. On suspicion being roused over large refunds being claimed in small income cases, the I-T department found that Mukesh Shah had changed the amount of advance tax paid in copies of challans retained by the assessee and those sent to the Department along with return. The CA had also verified the returns in many cases.

The address given in the returns was his own so that the refund vouchers could reach him and he had, in fact, encashed these vouchers by opening bank accounts in the names of the assessees.

He admitted before the Department that he had committed, among other things, forgery, thereby defrauding the exchequer to the tune of Rs 15 lakh.

By way of atonement, he paid Rs 21.98 lakh, including the interest on the defrauded amount. In all, the fraud related to 168 cases before the I-T Department.

At the stages of filing as well as post-filing of the returns, the figures in the counterfoil and the challans showing payment of self-assessment tax were manipulated and refund claims were made on the basis of such fake challans. The refunds were credited in the various bank accounts and the money was withdrawn from the bank accounts.

The Department lodged a police complaint and Shah was arrested. The matter was referred to the ICAI. The Disciplinary Committee considered the matter in great detail and heard Mukesh Shah. It recorded a finding that Shah was guilty of conduct unbecoming of a professional.

The report was forwarded both to the Department and the CA concerned in August 2002. The ICAI investigated the matter on the basis of the report and gave opportunities to Mukesh Shah to state his case. The ICAI held that the conduct of the CA was most unethical and highly unprofessional. It decided to recommend the severest of punishments and sought the removal of his name permanently from the Register of Members. Under Section 21 of the Chartered Accountants Act, 1949, the reference containing the recommendation of the Institute was placed before the Gujarat High Court.

The case was fought from all sides. Mukesh Shah argued on technical grounds about natural justice being denied and the guilt not being proved to the hilt. He finally prayed that considering his age, his wife and children and the aged parents, he should not be removed from practice.

The Gujarat High Court rejected all his submissions. It pointed out that the return of the monies to the Department showed that it was the CA who had enjoyed the fruits of the fraudulent transactions and when discovered, he refunded the amount with interest. He even supplied the list of cases in different I-T wards wherein refunds were fraudulently obtained. Even fraud in one case was enough to dam the CA and the number of cases became irrelevant.

"A proven misconduct remains so and there cannot be any mitigating circumstance on this count."

The court finally sustained the recommended punishment and approved of the removal of the CA permanently from the membership of the institute.

The Department deals with more than 300-lakh returns and an equal number of assessments made from year to year. It relies heavily on the word of the CA.

The advocate is considered an officer of the court. A similar convention should prevail with regard to the relationship between the AO and the CA. The Government has considered it necessary to amend the Chartered Accountants Act so as to get better supervisory control over the profession. The move is both timely and wise.