CA Not Liable for Client’s Bogus Entries: ICAI Clears Accountant with No Certification Role

CA Not Liable for Client’s Bogus Entries: ICAI Clears Accountant with No Certification Role

The Board of Discipline of ICAI exonerated the Chartered Accountant (CA Pravin Kumar) from charges of professional misconduct arising out of an Income Tax investigation alleging bogus sub-contract expenses used for tax evasion.

The complaint was based on a search under Section 132, where it was alleged that the company had created fake subcontractors, filed TDS returns in their names, and claimed bogus expenses, and that the Respondent CA had facilitated this by filing returns of such parties and assisting in accounts preparation.

However, the Board found that the Respondent’s role was limited to assisting in preparation of accounts and he was neither the statutory auditor nor tax auditor, nor a signatory to financial statements. There was no evidence of certification, attestation, or statutory responsibility, and importantly, no proof of knowledge or active involvement in fraudulent entries.

The Board further held that mere assistance in accounting work, without certification or conscious involvement in wrongdoing, does not amount to “Other Misconduct” under the Chartered Accountants Act. It also noted the absence of action against statutory auditors, reinforcing that responsibility for certification did not lie with the Respondent.

Accordingly, the allegations were held unsubstantiated, and the Respondent was declared “Not Guilty”, leading to closure of proceedings.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)

[PR/G/325/21-DD/374/2021/BOD/718/2024]
CONFIDENTIAL

BOARD OF DISCIPLINE
(Constituted under Section 21A of the Chartered Accountants Act 1949)

FINDINGS OF THE BOARD OF DISCIPLINE 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

File No: PR/G/325/21-DD/374/2021/BOD/718/2024

CORAM: (PRESENT IN PERSON)

CA. Rajendra Kumar P, Presiding Officer
Ms. Dolly Chakrabarty, Government Nominee

IN THE MATTER OF:

Shri Pradeep Dungdung,
Dy. Director of Income Tax (Inv.) …………Complainant

Versus

CA. Pravin Kumar  …………Respondent

Date of Final Hearing : 16th January 2026

Place of Final Hearing : ICAI Bhawan, Lucknow

PARTY PRESENT (IN PERSON):

Counsel for Complainant Department : Shri. Shikhar Nigam, Advocate

Counsel for Respondent : CA. Suneel Kumar Appaji

FINDINGS:

BACKGROUND OF THE CASE:

1. As per the version of the Complainant, a search and seizure action U/s 132(1) of the Income Tax Act, 1961 was conducted in the case of M/s Vijeta Projects Group of Companies, Ranchi on 09.02.2021. During the search & seizure, gross irregularities were found regarding the maintenance of books of accounts of M/s Vijeta Projects & Infrastructure Limited (hereinafter referred to as the ‘Company “). It was found that the Company was engaged in the practice of booking bogus sub-contract and profession fee expenses to lower the profit and evade taxes. As per the Complainant, the Respondent was working as a consultant in the Head Office of the Company at West Morabadi, Ranchi. His role in the office of the Company was to finalize the books of accounts of the Company. The Complainant also stated that the residence of the Respondent was also searched U/s 132(1) of the Income Tax Act 1961.

2. As regard the modus operandi, the Complainant stated that the company used to file TDS return in the name of bogus sub-contractors. Payments against sub-contract work were shown to be paid to these bogus sub-contractors and TDS amount was shown to be deducted and deposited against their PAN. But actually, no payment regarding the contract work was made to them, only the TDS amount was deposited against their PAN. Bank statements of these bogus sub-contractors were also requisitioned from the respective banks and there was no proof of any bank transactions between the Company and these persons found pertaining to the contract/professional work. The Complainant also stated that on perusal of the ITR of these bogus sub-contractors, they found that these sub-contractors have taken the receipts as appeared in their 26AS, and declared very low net profit accordingly, which resulted in the refund of such TDS amount. These bogus expenses booked in the books of accounts of the company resulted in reducing of profit.

3. The Director (Discipline) vide his Prima Facie Opinion bearing reference number PR/G/325/21-DD/374/2021 dated 08th January 2024, held the Respondent prima facie Guilty in respect of the allegation made out in the instant complaint for the reasons as recorded in the said PFO.

CHARGE ALLEGED:

4. The Complainant alleged that during the search and seizure proceedings, the Respondent was confronted with all material facts, and his statement was recorded under Section 132(4) of the Income Tax Act, 1961 on 10th February 2021, at his residential premises. In the said statement, the Respondent categorically admitted that the Company was indulging in the practice of booking bogus expenses in the guise of sub-contract work and professional expenses. The Respondent further admitted that he himself had filed the Income Tax Returns of most of these bogus sub-contractors and had furnished his personal email ID in their respective returns. The Complainant further stated that the Respondent reiterated these facts in his subsequent statement on oath recorded under Section 131(1A) of the Income Tax Act, 1961 at the Company’s office, wherein he again acknowledged that he had filed the Income Tax Returns of most of the bogus sub-contractors. The Complainant also alleged that it was found during the search proceedings that the PAN of the Respondent’s father was used to book such bogus expenses, and that the Respondent’s father stated during the search that his son, i.e., the Respondent, had filed his Income Tax Return on his behalf.

5. The Complainant alleged that the Respondent was fully aware of all the facts and had actively facilitated the Company in booking bogus expenses by providing and using false information relating to such expenses. It was further alleged that the Respondent wilfully indulged in such acts, which are contrary to the standards of integrity, objectivity, and professional conduct expected of a Chartered Accountant. Accordingly, the Complainant contended that the Respondent is guilty of professional misconduct as defined under the Second Schedule to the Chartered Accountants Act, 1949.

BRIEF OF PROCEEDINGS HELD:

6. The details of the hearings fixed and held in the instant matter are given as below:

SUBMISSION OF THE PARTIES:

7. The Respondent respectfully submits that the complaint, as filed, suffers from a fundamental procedural defect since the Complainant has failed to specify the exact clause or item of the Second Schedule to the Chartered Accountants Act, 1949 that is alleged to have been violated. In terms of Sub-rule (5) of Rule 5 of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, such a defect is required to be mandatorily rectified before proceeding further. However, the Director (Discipline) proceeded with the matter without directing the Complainant to rectify the said defect, thereby rendering the entire action invalid and void ab initio.

8. The Respondent further submits that, through his detailed submissions dated 20th January 2023, he had categorically explained that none of the clauses of the Second Schedule were attracted to the facts of the case. The Respondent had also specifically requested the Directorate to intimate the precise clause allegedly violated, so as to enable him to submit an effective and appropriate response. Despite this clear request, no clarification or reply was received from the Directorate, and the matter was proceeded with as though no submissions had been made by the Respondent at all.

9. It is further submitted, that, to the Respondent’s utter surprise, the Prima Facie Opinion records a finding that the Respondent is guilty under Item (2), Part IV of the First Schedule to the Chartered Accountants Act, 1949, even though no such allegation was ever made by the Complainant. The Respondent submits that the Director (Discipline) has no jurisdiction or authority to independently invoke or introduce a new clause or item not alleged in the complaint. The role of the Director (Discipline) is confined strictly to investigating the allegations as made by the Complainant. The determination of the applicability of any particular clause or schedule is a matter that falls exclusively within the domain of the Board of Discipline or the Disciplinary Committee, as the case may be.

10. Accordingly, the Respondent submits that the action of the Director (Discipline) in invoking a fresh clause and forming the Prima Facie Opinion thereon is beyond the scope of his powers, illegal, and void ab initio. Since the Board has also concurred with such a defective Prima Fade Opinion without examining the underlying legal infirmities, the entire disciplinary process stands vitiated.

11. In view of the above, it is respectfully submitted that the Prima Facie Opinion being legally defective deserves to be set aside, and the matter ought to be closed forthwith, or in the alternative, proceeded with strictly in accordance with law after curing the fundamental defects. The Respondent further submits that any continuation of proceedings without addressing these basic legal infirmities would constrain him to seek appropriate judicial intervention, including a claim for costs.

OBSERVATIONS OF THE BOARD:

12. The Board noted that doing the proceeding both the Counsels for the Complainant and the Respondent appeared and  made their  submissions. A specific query was made regarding the identity of the statutory Auditor  and Tax Auditor of the Company and whether any action had been initiated by the income Tax Department against them. The Counsel for the Complainant Department stated that no such information is available to them, and they had not received any details in this regard. Further, the Counsel for the Respondent confirmed that they had no information on this matter.

13. On perusal of the material on record, the Board observed that the Respondent’s role was limited to assisting in the preparation of the Company’s accounts. He was not the Statutory Auditor or Tax Auditor of the Company, nor was he a signatory to the financial statements. There was no evidence that the Respondent had certified the accounts or had any statutory responsibility for the finalization of the financial statements submitted to the authorities. The Complainant’s inability to identify or demonstrate any adverse action against the Statutory Auditor or Tax Auditor further highlighted that the responsibility for the accounts’ certification and submission did not lie with the Respondent.

14. The Board also noted that mere assistance in the preparation of accounts, without any involvement in certification or attestation, does not, by itself, constitute “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949. There was no evidence to suggest that the Respondent had acted with knowledge of any wrongdoing, or that he had actively facilitated or authorized any false or bogus entries in the accounts.

15. Considering the above, the Board was of the view that the allegations against the Respondent, insofar as they relate to professional/ other misconduct, were not substantiated. The Respondent had only helped in preparing the accounts and had no statutory or certification role. Consequently, the Board concluded that the Respondent could not be held guilty of “Other Misconduct” under the Chartered Accountants Act, 1949 and the rules framed thereunder, based on the material available. Accordingly, the Board held that the Respondent is Not Guilty of the charge of Other Misconduct in this matter.

CONCLUSION:

16. 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. Accordingly, the Board passed an 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.

17. Ordered Accordingly. The Case stands disposed of.