The Institute of Chartered Accountants of India (ICAI) has imposed a penalty of ₹5,000 on CA Bal Chandra Khaitan, partner at M/s Agarwal Gupta Nokari & Rustagi Associates, for professional misconduct relating to audit irregularities. The action followed a complaint by Purushottam Das Tulsyan regarding alleged misreporting and non-compliance with accounting standards during audits conducted by CA Khaitan.
The ICAI Disciplinary Committee examined three primary allegations against the respondent.
The first allegation pertained to misreporting under the Companies (Auditor’s Report) Order (CARO) regarding guarantees given by the company to banks for loans disbursed to farmers. The complainant alleged that the company acted as a nodal agency and the loans should have been disclosed as third-party liabilities. However, the Committee observed that the company recorded the loans as its own liability, a treatment approved by management. Since no material misstatement was attributed to the auditor, the Committee held CA Khaitan not guilty on this count.
The second allegation related to improper disclosure of reserves arising from an amalgamation. The complainant contended that “Amalgamation Reserve” was inappropriately classified under “General Reserve” instead of “Capital Reserve” and that this reserve was used to charge a portion of depreciation. The Committee noted that Accounting Standard (AS)-14 requires such reserves to be treated as Capital Reserve. It found that while the company named it “Amalgamation Reserve,” it was reported under General Reserve and used for depreciation adjustments. The auditor failed to highlight these issues in his report. The Committee concluded that this constituted professional misconduct, as the misclassification and subsequent treatment represented non-compliance with both AS-14 and Schedule VI of the Companies Act, 1956.
The third allegation involved the recognition of government grants in relation to depreciation. It was argued that the company incorrectly charged 1/5th of the total grant to the Profit & Loss account in the year of receipt, rather than spreading it over the asset’s useful life as per AS-12. The Committee, however, observed that the company’s accounting policy was disclosed in the notes to accounts and did not amount to gross negligence. Hence, CA Khaitan was held not guilty on this point.
After considering all submissions and evidence, the Disciplinary Committee held CA Khaitan guilty of professional misconduct under Item (5), (6), and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949, for his failure to report critical non-compliances regarding amalgamation reserves. As per the order dated June 26, 2024, the Committee imposed a fine of ₹5,000 to be paid within 90 days. Failure to comply would result in his name being removed from the ICAI Register of Members for 30 days.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
[DISCIPLINARY COMMITTEE (BENCH-I (2024-2025)]
[Constituted under Section 218 of the Chartered Accountants Act, 19491]
ORDER UNDER SECTION 218(3) OF THE CHARTERED ACCOUNTANTS ACT, 1949 READ WITH RULE 19(1) OF THE CHARTERED ACCOUNTANTS (PROCEDURE OF INVESTIGATIONS OF PROFESSIONAL AND OTHER MISCONDUCT AND CONDUCT OF CASES) RULES, 2007.
[PR/128/2016/DD/189/2016/DC/1442/2021]
In the matter of: –
Purushottam Das Tulsyan,
…..Complainant
-Vs-
CA. Bal Chandra Khaitan,
M/s. Agarwal Gupta Nokari & Rustagi Associates,……Respondent
MEMBERS PRESENT: –
CA. Charanjot Singh Nanda, Presiding Officer
Shri Jugal Kishore Mohapatra, IAS (Retd.) (Government Nominee)
CA. Chandrashekhar Vasant Chitale, Member
CA. Gyan Chandra Misra, Member
Date of Hearing : 2nd April 2024
Date of Order : 26.06.2024
1. That vide findings under Rule 18(17) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, the Disciplinary Committee noted that) CA. Bal Chandra Khaitan, (hereinafter referred to as the Respondent”) was held GUILTY of professional misconduct falling within the meaning of Item (5), (6) & (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949.
2. That pursuant to the said findings, an action under Section 216(3) of the Chartered Accountants (Amendment) Act, 2006 was contemplated against the Respondent and communication was addressed to him thereby granting opportunity of being heard in person / through video conferencing and to make written & verbal representation before the Committee on 2nd April 2024.
3. The Committee noted that on the date of the hearing held on 2nd April 2024, the Respondent was present through video conferencing, and he made his verbal submission on the findings of the Disciplinary Committee.
4. In his verbal submission the Respondent inter alia requested Committee to take a lenient view on him.
5. The Committee considered the reasoning as contained in the findings holding the Respondent Guilty of professional misconduct vis-a-vis verbal submissions of the Respondent.
6. Keeping in view the facts and circumstances of the case, material on record including verbal/ written submissions of the Respondent on the findings of the Committee, the Committee is of the view that the professional misconduct on the part of the Respondent is established. Accordingly, the Committee ordered that a fine of Rs. 5,000/- (Rupees Five Thousand only) be imposed upon the Respondent i.e. CA. Bal Chandra Khaitan, to be paid within 90 days of receipt of the Order. If the Respondent fails to pay the fine within the stipulated period, his name be removed from the Register of Member for a period of thirty days.
Sd/-
(CA. CHARANJOT SINGH NANDA)
(PRESIDING OFFICER)
Sd/-
(SHRI JUGAL KISHORE
MOHAPATARA), I.A.S. (RETD.),
(GOVERNMENT NOMINEE)
Sd/-
(CA. CHANDRASHEKHAR VASANT
CHITALE)
(MEMBER)
Sd/-
(CA. GYAN CHANDRA MISRA)
(MEMBER)
