The Hindu Business Line : Sins of the past

THE dependence of fiscal authorities on the audit by chartered accountants is enormous and more arduous than the dependence of the courts of law on the lawyers. The Revenue authorities rely upon the integrity of the chartered accountant to assist the tax authorities in finalising assessment on the basis of the audit report.

Often, the income-tax authorities not only accept the auditor's report, but also draw the proper inference from the same. The authorities can, therefore, come to the conclusion that since the auditors were required by the statute to find out if the deductions claimed by the assessee in his balance-sheet and profit and loss account were supported by the relevant entries in the account books, the auditors must have done so and must have found that the account books supported the claims for deductions.

The aforesaid position in law clearly demonstrates the faith that various government departments have in the qualification, competency and integrity of a CA and, hence, cast various statutory duties and responsibilities upon a CA under various provisions of the Act.

There are other statutes such as the Co-operative Societies Act, the Bombay Publish Trust Act, and so on, where also the importance of the report of the chartered accountant has been statutorily recognised and accepted.

Section 44AB of the Income-Tax 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 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 I-T Act empowers the assessing officer (AO) to obtain a special audit report from a chartered accountant nominated by the Chief Commissioner or Commissioner.

The Manusuri case

In this background, it may be useful to examine the Y. M. Mansuri case (Council of ICAI vs Y. M. Manusuri (Gujarat) 145 2005).

Here, Mansuri, a chartered accountant with a standing of 15 years in the profession, was required to issue tax audit certificate under Section 44AB for the financial year 1990-91; the certificate was dated October 30, 1991. The I-T authorities surveyed the premises of Arti Enterprises and found that the books of accounts of the said concern had not been completed till April/May 1992 as per the statement of the accountant of the said concern. How Mansuri was able to show an audit certificate bearing the date of October 30, 1991, was the issue?

He was examined an oath under Section 131. He stated categorically that the certificate was in fact issued sometime in February 1992 and that actual audit of the books of account had been carried out only in January 1992. He had issued the back dated certificate showing completion of audit in October 1991 only at the behest of, and to oblige, his friend Bhupendra L. Patel, Tax Consultant of Arti Enterprises.

The I-T authorities found that the books of accounts did not bear any markings to show that any audit was in fact carried out and, therefore, they drew the inference that the tax audit report was prepared without examination and verification of the books of accounts. On these facts, the Commissioner of Income-tax Gujarat, complained to the Council of the ICAI about the professional misconduct of Mansuri. The counsel enquired into the matter and found substance in the allegation that Mansuri signed the backdated report to save Arti Enterprises from the rigours of the penalty under Section 271B of the Act. Full enquiry was conducted and the Disciplinary Committee of the counsel found Mansuri guilty of professional misconduct. The Counsel recommended that Mansuri be removed from the Register of Members for six months.

Mansuri's defence before the High Court was that the certificate was backdated only to oblige a friend and there was neither mala fide intention, nor loss of revenue. His professional fee was just Rs 1,000. He had an unblemished carrier record of more than 15 years.

The Gujarat High Court dismissed this defence. It observed: "The contention that backdating of the tax audit report has not occasioned any loss of revenue nor has it benefited anyone does not merit acceptance. Though in financial terms, the respondent may be correct in stating that there is no loss of revenue, but the said contention is bereft of any substance when the underlying idea of obtaining tax audit report is considered."

Once statutory obligation is cast on a person and such obligation provides for a period of limitation within which a particular document is required to be submitted, failure to do so within the prescribed period of limitation, is by itself liable to be visited with penalty, unless explained by a reasonable cause".

Mansuri had no reasonable cause for backdating the report. The court upheld the findings of the ICAI's counsel about professional misconduct.

(The author is a former Chief Commissioner of Income-Tax.)

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