Chapter II: Appreciation of Accountants’ certifications
Certain assessees7 are required to get their accounts audited by a CA under Section 44AB of the Income Tax Act, 1961 (Act) and submit the report in the Forms prescribed in Rule 6G of the Income Tax Rules, 1962 (Rules). The CAs (also tax auditor) furnish the Tax Audit Report (TAR) in Form 3CA or 3CB and 3CD. In TAR, the CAs are required to furnish various information/details. In addition, the assessee is required to obtain certificates from a CA in the prescribed Forms and furnish them to the AOs to claim various deductions/ exemptions available under the various provisions of the Act. All these reports/certificates are helpful to the AOs in detailed scrutiny of the accounts during the assessment proceedings. It is, therefore, necessary that (a) the AOs collect all the required reports/certificates at the time of assessment and (b) the CAs furnish correct reports/ certificates.
CBDT’s Instruction no. 1959 issued in January 1999 provides that cases where the information given in the TAR is incomplete or non-committal, should be taken up by the CIT to see if these reflected any professional negligence on the part of the Accountant signing the TAR whereupon action is to be taken as per Section 288 of the Act.
Section 288 of the Act provides that if any person who is a legal practitioner or an Accountant is found guilty of misconduct in his professional capacity by an authority entitled to institute disciplinary proceedings against him, an order passed by that authority shall have effect in relation to his right to attend before an income tax authority as it has in relation to his right to practice as a legal practitioner or Accountant, as the case may be.
Cases where inadequate/inaccurate information is furnished in Accountant’s report and additions is made by the AO or at the instance of the audit, this fact should be brought to the notice of the ICAI for initiating action against the Accountant who had certified inadequate/inaccurate information in TAR.
In a Court case8, it was held that not only ‘gross negligence’, but ‘due diligence’ is equally relevant and important criterion in measuring and determining “professional misconduct” in case of a CA. Thus, a CA shall be punishable even if he does not exercise due diligence and it is not necessary for ICAI to prove that there was negligence on the part of the Accountant.
During this performance audit, we came across certain instances:
Audit findings on the above issues are discussed under Section A and Section B respectively.
Cases where CAs failed to report full and correct information
2.2 The present section deals with cases where CAs reported incorrect/ partial information to the AOs. We found 367 cases with tax effect of Z 2,813.11 crore where CAs either in their TAR or various certificates committed mistakes (See Table 2.1).
Table 2.1: Category-wise cases with tax effects
|Categories||Cases||Tax Effects (Rs. in crore)|
|a.||Allowance of depreciation and amortization||66||457.79|
|b.||Allowance of brought forward losses/depreciation||46||557.79|
|c.||Allowance of personal/capital expenditure||42||477.89|
|d.||Incorrect certification of claims||74||259.72|
|e.||Incorrect/Incomplete information in TAR/Certificate||132||1,037.61|
|f.||Irregular allowance of provisions||7||22.31|
Table 2.2 shows cases where CAs committed mistakes in compliance with various provisions of the Act.
Table 2.2: Category wise mistakes committed by CAs
Table 2.3: Cases where assesses did not furnish required Forms/Certificates
|Non furnishing of Form 3CEB on verification of ALP||43|
|Non furnishing of Form 29B on certification of Book Profit||66|
7 Corporate, Firms, Association of Persons, Body of Individuals, Charitable Trusts and Institutions etc.
8 C A Rajesh vs. Disciplinary Committee the High Court of Gujarat  28 taxmann.com 100 (Gujarat)