Chapter II: Appreciation of Accountants’ certifications

2.1       Introduction

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:

  1. Where the CAs failed to report full and correct information.
  2. Where the AOs failed to utilize the information available in the reports/certificates submitted to them.

Audit findings on the above issues are discussed under Section A and Section B respectively.

Section A
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
Total 367 2,813.11

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

Categories Cases
  1. Allowance of exemptions/deductions
  1. Charging of tax on Book Profit under Section 115JB
  1. Non-adoption of Arm’s Length Price
  1. Reporting by CAs on Cash payment exceeding Rs. 20,000 per day
Total 616

Table 2.3: Cases where assesses did not furnish required Forms/Certificates

Forms/Certificates Cases
Non furnishing of Form 3CEB on verification of ALP 43
Non furnishing of Form 29B on certification of Book Profit 66
Total 109

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 [2012] 28 100 (Gujarat)

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  1. Paromita Banerjee says:

    I being a practicing member, agree with Mr. Ashok Roy Chowdhury w.r.t. what he said regarding the fees part, Yet any professional should keep in mind the over riding Institute’s guidelines applicable to each.I feel the idea of recording internet protocol is adoptable.It will require many steps to enforce it but the basic idea of Tax audits & their reports is doomed by such practices which needs to be curbed somehow.

    But is anyone listening?

  2. Ashok Roy Choudhury says:

    I appreciate the steps taken by CAG in issuing such reports as this will act as great deterrent for insincere and unethical Chartered Accountants to refrain from unhealthy practices that bring disrepute to a respected profession. As a member of many years in the profession I feel proud and great satisfaction in doing a good job for a client, but also experience humiliation when some client mentions that the work could be done at a lesser fee. The implication is obvious. In a competitive market small practicing CAs generally succumb to the demands of clients in order to retain them. Unless there are some stringent rules to protect the independence of auditors, of whatever profession, the above maladies will continue. In my view a holistic approach is required.

  3. honey says:

    internet protocol address should be recorded while uploading audit report.
    many ca in india using membership number of other by paying low fees of tax audit merely 2000 per audit

    . its really bad profession in these days

  4. N.K.TRIPATHI says:

    Chartered Accountants have great responsibilities and they play a big role to gain the confidence of the society .If any CA is committing such type of mistakes then he may not be sincere to their profession .

  5. Paromita Banerjee says:

    Isnt this enough proof of the monopoly of CAs in accountintg work & misuse thereof.I read two report of CAG, one which is mentioned above & one showing the number of TARs issued by CAs which far exceeded the threshhold limits set by their Institute.If these articles really mean anything for the policy makers, we wish them to hear that we the monopoly be evaded ASAP & give CMAs & CSs chance to come to the forefront parallel to the CAs so that when they will feel the competition they will be bound to correct themselves & their Institute will feel the need to take action against the defaulters.

  6. Krishan says:

    Dear Sir,
    Is there similar Law or Rules or provision for Check/action if CA during the Audit of a Co-op Gr. Hsg. Society Ltd. Gives a report full of errors and mistakes as well as do not match with the certification given by Managing Committee of the Society.

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October 2020