CA Cleared of Financial Irregularities and Shell Company Allegations: Insufficient Evidence Found

The Board of Discipline, constituted under Section 21A of the Chartered Accountants Act, 1949, has concluded its investigation into the case involving CA Sashi Kant Khetan, Member No. 052324, of M/s S K Khetan & Company, Chartered Accountants. The case, referenced as PRIG/195/2017-DD/197/2017-BOD/452/2018, was brought forward by Shri Bhola Ram Dewasi, Deputy Director of Income Tax (Inv.), Unit-4 (2), Kolkata. The complaint alleged serious financial misconduct involving the creation and management of bogus shell companies and facilitating fraudulent financial transactions.

Detailed Analysis

The complainant alleged that CA Sashi Kant Khetan was engaged in facilitating the formation and management of shell companies that had no real business activities. These companies were allegedly used to provide bogus Long Term Capital Gains (LTCG), Short Term Capital Losses (STCL), and other financial accommodations through pre-arranged entries involving share capital, share premium, and unsecured loans.

Charges and Allegations:

1. The respondent was accused of managing multiple companies with no genuine business operations, which were used to conduct fraudulent financial activities.

2. The primary source of his income was claimed to be from real estate and commission from arranging accommodation entries.

3. The modus operandi included transferring funds through a series of companies and brokers to create the appearance of legitimate financial transactions.

Proceedings: The case saw multiple hearings between May 2019 and March 2024, with several adjournments at the request of the complainant. Despite the extensive period, the complainant department failed to provide conclusive evidence to substantiate the charges against the respondent.

Respondent’s Defense: CA Sashi Kant Khetan did not provide any written statement or defense during the investigation. The primary evidence against him was his own statements recorded in 2014 during an inquiry by the Directorate of Income Tax (Investigation), Kolkata. He admitted to engaging in arranging accommodation entries through a network of companies.

Board’s Observations: The Board meticulously reviewed the evidence and noted that the complainant department did not present any concrete evidence beyond the respondent’s statements. No substantial additions were made to the respondent’s income during assessments, nor was there proof of financial irregularities or tax evasion through shell companies controlled by the respondent.

Conclusion: After thorough consideration of the available evidence and the submissions by both parties, the Board concluded that there was insufficient evidence to prove the allegations against CA Sashi Kant Khetan. Consequently, the Board declared the respondent ‘Not Guilty’ of misconduct under the Chartered Accountants Act, 1949, and ordered the closure of the case.

Conclusion

The findings of the Board of Discipline underscore the importance of concrete evidence in allegations of professional misconduct. The case against CA Sashi Kant Khetan, involving complex financial transactions and alleged shell companies, highlights the rigorous scrutiny such cases undergo. Despite serious allegations, the absence of substantial evidence led to the Board’s decision to absolve the respondent of all charges. This case serves as a reminder of the high standards of proof required in professional disciplinary proceedings.

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PRIG/195/2017-DD/197/2017-BOD/452/2018
CONFIDENTIAL

BOARD OF DISCIPLINE

Constituted under Section 21A of the Chartered Accountants Act 1949

FINDINGS UNDER RULE 14 (9) READ WITH RULE 15 (2) OF THE CHARTERED ACCOUNTANTS (PROCEDURE OF INVESTIGATIONS OF PROFESSIONAL AND OTHER MISCONDUCT AND CONDUCT OF CASES) RULES, 2007

CORAM (PRESENT IN PERSON):

CA. Rajendra Kumar P, Presiding Officer
Smt. Dolly Chakrabarty, IAAS (Retd), Government Nominee
CA. Priti Savla, Member

IN THE MATTER OF:

Shri Bhola Ram Dewasi
Deputy Director of Income Tax (Inv.)
Unit — 4 (2) “Aaykar Bhawan”, Annexe Building
P-13, Chowringhee Square, 5th Floor
Kolkata — 700 078

Complainant

Versus

CA. Sashi Kant Khetan (M. No. 052324)
M/s S K Khetan & Company, Chartered Accountants
46, B B Ganguly Street, 1st Floor, Room No. 4
Kolkata — 700 012

Respondent

Date of Final Hearing • 20th March 2024

Place of Final Hearing • “ICAI Bhawan”, Kasba, Kolkata

PARTY PRESENT:

Shri Shailendra Prasad Kanaujia — Counsel for the Complainant (In person)

FINDINGS:

CHARGES ALLEGED:

1. The Complainant alleged that the Respondent was involved in financial irregularities in the activities of providing/facilitating formation/running, control & management of bogus shell / paper entities/companies having no business activities and carrying out the activities of providing bogus Long Term .Capital Gain (LTCG), Short Term Capital Loss (STSL) through pre-arranged accommodation entries of share capital, share premium and unsecured loans, etc. The complainant further stated that the Respondent in his statement dated 08th January 2014 and 24th July 2014 stated as under:

(a) As regards nature of his source of income, he has stated that his main source of income was from promoting in the Real Estate Business. Prior to 2010 major part of his income consisted of commission income for providing facilitating/arranging accommodation entries to various beneficiaries and income from real estate business.

(b) As regards nature of his business / profession, he has stated that he was engaged in the job of providing / facilitating / arranging accommodation entries to various beneficiaries in the form of share capital, unsecured loans and long term capital gains through a cartel of companies, exclusively formed for the purpose of providing Long Term Capital Gain (LTCG) to various beneficiaries who are bereft of any actual business till 2010.

(c) As regards name of companies/proprietorship firms managed / controlled by the Respondent, the Respondent stated that names of the companies which were managed/controlled by him for the purpose of providing accommodation entries to different beneficiaries. He also stated that all dummy directors were his employees, friends, relatives, acquaintances and they signed all the papers, documents, cheques, etc. as per his direction without having knowledge about what they were signing in lieu of money paid to them as s alary or incentive. It is further answered by the Respondent in reply to Q. No. 9 that the companies were formed exclusively for the purpose of providing accommodation entries to various beneficiaries.

(d) As regards details of modus operandi of the business of providing accommodation entries done by him through M/s Vora Gems Dealers Pvt. Ltd., it has been stated by the Respondent that cash had been deposited in the bank accounts of M/s Vora Gems Dealers Pvt. Ltd. On different dates from several places across India. In the books of M/s Vora Gems Dealers Pvt. Ltd., the same was shown as ‘receipts from sale of investment (shares)’. Then from M/s Vora Gems Dealers Pvt. Ltd. Accounts, the funds usually had been transferred to the account of Ideal Fertilizers Pvt. Ltd. and M/s Girija Shankar Marketing Pvt. Ltd. Which were also controlled by him. These two companies had shown sale of investments (shares) to Vora Gems in their respective books of accounts. From these two companies accounts, the fund had generally been transferred to the accounts of M/s Ashirwad Tie-up Pvt. Ltd. And M/s BND Polymers Pvt. Ltd. Which were also controlled by him. Again, these two companies followed similar accounting pattern and shown the same as receipts from sale of investments (shares). From these two companies, the funds had generally gone to the accounts of various brokers of Calcutta Stock Exchange viz. P. Dedwania & Co., Siddharth Securities Pvt. Ltd. And Toshith Securities for purchase of shares. These three brokers in turn, transferred the funds to Calcutta Stock Exchange for providing accommodation entries in the form of LTCG.

BRIEF OF PROCEEDINGS:

2. The details of the hearings held in the instant matter are as under:

BRIEF SUBMISSIONS OF THE RESPONDENT:

3. From the perusal of the records, it has been found that the Respondent in his defence, inter-a/ia, has not submitted any reply neither at the time of calling the Written Statement before forming the Prima Facie Opinion by the Director (Discipline) nor at the time of hearing of the matter.

OBSERVATIONS OF THE BOARD:

4. As regard the charge alleged, the Board noted the complainant department had recorded Statement of the Respondent on Oath before DDIT (Inv.), Unit 4 (2), Kolkata on 8th January 2014 and 24th July 2014 in connection with an enquiry conducted by Directorate of Income Tax (Investigation), Kolkata under Section 131 of the Income Tax Act, 1961, wherein he, inter-alia, deposed as under:

“Q. 5: What is your source of Income’.

Ans.: My main source of income is from promoting in the Real Estate Business. However, prior to 2010 major part of my income consisted of commission income for providing / facilitating / arranging accommodation entries to various beneficiaries and income from real estate business.

“Q. 6: Please state the nature of your business/profession?

Ans.: I was engaged in the job of providing/facilitating/arranging accommodation entries to various beneficiaries in the form of share capital, unsecured loans and long-term capital gains through a cartel of companies, exclusively formed for the purpose of providing long term capital gains to various beneficiaries who are bereft of any actual, business till 2010. Presently, I have shifted to real estate sector and am engaged as the promoter.

“Q. 9: Please state the nature of business done by the companies.

Ans: The companies are formed exclusively for the purpose of providing accommodation entries to various beneficiaries.

“Q.10: Please explain in detail the modus operandi of the business of providing accommodation entry done by you through M/s Vora Gems Dealers Pvt. Ltd.”

Ans.: Cash has been deposited in the bank accounts of Vora Gems Dealers Pvt. Ltd. on different dates from several places across India. In the books of Vora Gems Dealers Pvt. Ltd., the same is shown as “receipts from sale of investments (shares). Then from Vora Gems account, the funds usually have been transferred to the account of Ideal Fertilisers Pvt. Ltd. and Girija Shankar Marketing Pvt. Ltd. which were also controlled by me. These two companies have shown sale of investments (shares) to Vora Gems in their respective books of accounts. From these two company accounts, the fund has generally been transferred to the accounts of Ashirwad Tie-up Pvt. Ltd. and BND Polymers Pvt. Ltd. which were also controlled by me. Again, these two companies followed similar accounting pattern and shown the same as receipts from sale of investments (shares). From these two companies, the funds had generally gone to the account of various brokers of Calcutta Stock Exchange, viz. P. Deidamia & Co,, Siddharth Securities Pvt. Ltd. and Toshith Securities for purchase of shares. These three brokers in turn, transferred the funds to Calcutta Stock Exchange for providing accommodation entries in the form of long-term capital gains. To the best of my knowledge, the above-mentioned brokers are the beneficiaries in these transactions “

5. From the perusal of the statements recorded by the Respondent, the Board also noted that the Complainant Department brought on record copies of the Statement recorded before the Income Tax Department on 8th January 2014 and 24th July 2014 in which it was said to have been stated as under:

(a) As regards nature of his source of income, he has stated that his main source of income was from promoting in the Real Estate Business. Prior to 2010 major part of his income consisted of commission income for providing facilitating / arranging accommodation entries to various beneficiaries and income from real estate business.

(b) As regards nature of his business / profession, he has stated that he was engaged in the job of providing / facilitating / arranging accommodation entries to various beneficiaries in the form of share capital, unsecured loans and long-term capital gains through a cartel of companies, exclusively formed for the purpose of providing Long Term Capital Gain (LTCG) to various beneficiaries who are bereft of any actual business till 2010.

(c) As regards name of companies/proprietorship firms managed / controlled by the Respondent, the Respondent stated that names of the companies which were managed/controlled by him for the purpose of providing accommodation entries to different beneficiaries. He also stated that all dummy directors were his employees, friends, relatives, acquaintances and they signed all the papers, documents, cheques, etc. as per his direction without having knowledge about what they were signing in lieu of money paid to them as s alary or incentive. It is further answered by the Respondent in reply to Q. No. 9 that the companies were formed exclusively for the purpose of providing accommodation entries to various beneficiaries.

(d) As regards details of modus operandi of the business of providing accommodation entries done by him through M/s Vora Gems Dealers Pvt. Ltd., it has been stated by the Respondent that cash had been deposited in the bank accounts of M/s Vora Gems Dealers Pvt. Ltd. On different dates from several places across India. In the books of M/s Vora Gems Dealers Pvt. Ltd., the same was shown as ‘receipts from sale of investment (shares)’. Then from M/s Vora Gems Dealers Pvt. Ltd. Accounts, the funds usually had been transferred to the account of Ideal Fertilizers Pvt. Ltd. and M/s Girija Shankar Marketing Pvt. Ltd. Which were also controlled by him. These two companies had shown sale of investments (shares) to Vora Gems in their respective books of accounts. From these two companies accounts, the fund had generally been transferred to the accounts of M/s Ashirwad Tie-up Pvt. Ltd. And M/s BND Polymers Pvt. Ltd. Which were also controlled by him. Again, these two companies followed similar accounting pattern and shown the same as receipts from sale of investments (shares). From these two companies, the funds had generally gone to the accounts of various brokers of Calcutta Stock Exchange viz. P. Dedwania & Co., Siddharth Securities Pvt. Ltd. And Toshith Securities for purchase of shares. These three brokers in turn, transferred the funds to Calcutta Stock Exchange for providing accommodation entries in the form of LTCG.

6. The Board further noted that the complainant department brought on record that in the Assessment Order, the Assessing Officer has not made any addition in the income of the Respondent and no evidence have been brought on record by the complainant department that after Assessment, any addition has been made in the income of the Respondent.

7. Thus, on a detailed perusal of the submissions by the parties and documents on record, the Board noted that the primary evidence which the complainant department has brought on record for the charges alleged against the Respondent is the copy of his own Statement recorded on 8th January 2014 and 24th July 2014 by the Respondent before the concerned official of the complainant department. Beyond that,. despite opportunities given to the complainant department to substantiate the charges alleged against the Respondent, the complainant department failed to bring on record any conclusive evidence to substantiate the charges against the Respondent that he formed various shell companies for the purpose of pre-arranged accommodation entries, involved in financial irregularities by providing pre-arranged accommodation entries of share capital, share premium and unsecured loans and was involved in evasion of taxes by various beneficiaries of pre-arranged accommodation entries through the companies controlled & managed by the Respondent. Under the facts and circumstances of the instant case besides in absence of any concrete and reliable evidence, the Board held the Respondent ‘NOT GUILTY’ in respect of the charges alleged.

CONCLUSION:

8. Thus, in conclusion, in the considered opinion of the Board, the Respondent is ‘NOT GUILTY’ of Other Misconduct falling within the meaning of Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22 of the said Act. Accordingly, the Board passed Order for closure of the case in terms of the provisions of Rule 15 (2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.

Date: 30-05-2024