The Institute of Chartered Accountants of India’s Disciplinary Committee (Bench-II) has reprimanded CA. Pradeep Kumar Gupta of Kanpur for professional misconduct. The committee found Mr. Gupta guilty under various items of Part I of the Second Schedule to the Chartered Accountants Act, 1949. The charges stem from his audit of Shri Lakshmi Cotsyn Limited for the year ended June 30, 2012, where he failed to highlight the company’s non-compliance with disclosure requirements of the Revised Schedule VI of the Companies Act, 1956. This included omissions related to investments, long-term borrowings, provision for expenses, fixed asset schedules, and loans and advances. Additionally, he did not address the non-disclosure of comparative figures for fixed assets and failed to ensure compliance with AS 22 regarding the break-up of Deferred Tax Assets and Liabilities. Despite Mr. Gupta’s argument of a long, unblemished career and claims that the deficiencies were technical and immaterial given the overall materiality levels, the committee maintained that the misconduct was established, noting his admission of mistakes during the hearing.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
[DISCIPLINARY COMMITTEE [BENCH-II (2024-2025)]
[Constituted under Section 21B of the Chartered Accountants Act, 1949]
ORDER UNDER SECTION 21B (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-254E/2016-DD/117/INF/2016/DC/1458/2021]
In the matter of:
CA. Pradeep Kumar Gupta …..Respondent
Members Present: –
CA. Ranjeet Kumar Agarwal, Presiding Officer (in person)
Mrs. Rani S. Nair, IRS (Retd.), Government Nominee (through VC)
CA. Sanjay Kumar Agarwal, Member (in person)
CA. Gotha S Srinivas, Member (through VC)
Date of Hearing : 10th April, 2024
Date of Order : 28th May, 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 was, inter-alia, of the opinion that Pradeep Kumar Gupta (hereinafter referred to as the ‘Respondent’) is GUILTY of Professional Misconduct falling within the meaning Item (5), (6), (7) and (8) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.
2. That pursuant to the said Findings, an action under Section 21B (3) of the Chartered Accountants (Amendment) Act, 2006 was contemplated against the Respondent and a communication was addressed .to him thereby granting opportunity of being heard in person / through video conferencing and. to make representation before the Committee on 10thApril 2024.
3. The Committee noted that on the date of the hearing held on 10thApril 2024, the Respondent was present through video conferencing and made his verbal representation on the Findings of the Disciplinary Committee, inter-alia, stating that that he had a fair record as a professional since the year 1979 when he started his practice. It is almost 45 years of his practice and he had diligently audited the company’s accounts without any blemish or negligence or professional misconduct at any time. He further added that all the alleged charges pertain to only technical deficiencies in disclosures in accordance with the revised Schedule VI of the Companies Act 1956, which was introduced for the first time in the year under audit. He has not been charged of any material misstatement relating to over or under statement of assets, liabilities, income and expenses with a consequential financial impact on the financial statements or any other misstatement which could have impacted the true and fair view of the affairs of the assesse. He further informed that he is no longer the auditor of the Company. The Committee also noted that the Respondent in his written representation on the Findings of the Committee, inter-alia, stated as under:
(a) None of the Investments were Trade Investments and the quoted shares were only Rs. 38.56 lakhs as against the total assets of Rs. 3,222.51 crores i.e., only .01 percent. Therefore, none of such information could be said to be a material fact since the amount was way below the overall materiality level of Rs 1,073.33 lakh calculated in terms of SA 320.
(b) The non-disclosure of “NON-FINANCIAL INFORMATION” cannot be said to have affected the true and fair character of the financial statements as all the other financial information is correctly stated. The said information is not a material fact and there is no “misstatement” being only technical in nature.
(c) Non-disclosure of the nature of expenses is not a non-compliance since the provision for expenses of Rs. 578.41 lakh was not material being below the overall materiality level of Rs. 1,073.33 lakh (in terms of SA 320) and did not further require specification of the nature of the individual expenses as the same would have had many heads.
(d) The figures for previous year relating to opening balance, additions, depreciation and written down value have been duly disclosed in last line of ‘Note 7’. Further, the prescribed Guidelines of the Revised Schedule VI of the Companies Act 1956 “do not require such details to be given in respect of each of Fixed Assets”.
(e) “Other loans and advances amounting to Rs. 330.78 lakh” was not material being below the overall materiality level of Rs. 1,073.33 lakh and did not further require specification of the nature.
(f) The Opening Balance, movement during the year and Closing Balance of Deferred Tax liability has also been duly disclosed in Note No. 15 relating to Taxes on Income. The break-up of its component was not relevant and material as the Deferred Tax liability related to only one item, i.e. Depreciation.
4. The Committee considered the reasoning as contained in the Findings holding the Respondent Guilty of Professional Misconduct vis-6-vis written and verbal representation of the Respondent. On consideration of the representation of the Respondent, the Committee was of the view that the same were basically a reiteration of the submissions made by the Respondent during the course of hearing, due cognizance of which has already been taken by the Committee before arriving at its Findings in the instant case.
5. Keeping in view the facts and circumstances of the case, material on record including verbal and written representation on the Findings, the Committee noted that the Respondent as Statutory Auditor of Shri Lakshmi Cotsyn Limited for the year ended 30thJune, 2012 failed to draw attention in his audit report towards the non-compliance of requirements given under ‘General Instruction of preparation of Balance Sheet’ of Part I of Revised schedule VI to the Companies Act, 1956 by the Company.
These non-compliances were regarding disclosures of information in relation to Investments, Long Term Borrowing, Provision for expenses, Schedule of Fixed Assets and Loans and advances.
5.1 The Committee noted that the comparative figures of the previous year relating to the opening balance of fixed assets, addition during the year and depreciation charged for each class of Fixed Assets have not been provided by the Company and the Respondent failed to point out the same in his Audit Report.
5.2 The Respondent also did not draw attention in his Audit Report towards the non-compliance of disclosure requirements of paragraph 31 of AS 22- relating to break-up of DTA (Direct Tax Assets) and DTL (Direct Tax liabilities) in Notes to Accounts. The Committee also noted that the Respondent admitted his mistakes during the course of hearing also. –
5.3 Hence, professional misconduct on the part of the Respondent is clearly established as spelt out in the Committee’s Findings dated 7th February 2024 which is to be read in consonance with the instant Order being passed in the case.
6. Accordingly, the Committee was of the view that ends of justice will be met if punishment is given to him in commensurate with his professional misconduct.
7. Thus, the Committee ordered that CA. Pradeep Kumar Gupta , Kanpur be Reprimanded under Section 21B(3)(a) of the Chartered Accountants Act 1949.
Sd/-
(CA. RANJEET KUMAR AGARWAL)
PRESIDING OFFICER
Sd/-
(MRS. RANI S. NAIR, IRS RETD.)
GOVERNMENT NOMINEE
Sd/-
(CA. SANJAY KUMAR AGARWAL)
MEMBER
Sd/-
(CA. COTHA S SRINIVAS)
MEMBER
