Case Law Details
Read Full Text of the Affidavit Filed by CA Venkatasiva Kumar in Madras High Court
AFFIDAVIT OF THE PETITIONER
I, V. Venkata Siva Kumar, son of Late V S Gandhi aged above 50 years, residing at No 10/11 Dr. Subbaraya Nagar main road Kodambakkam, Chennai -600 024 do hereby solemnly affirm and sincerely state as follows:
I am the Petitioner here in and as such well acquainted with the facts and circumstances of the case and as such competent to affirm this affidavit for the kind consideration of this Honorable Court. I submit that I am a gold medalist in graduation, did masters in law (LL.M. constitutional law) practicing as a Chartered Accountant for the past 30 years and am a member of the Institute of Chartered Accountants of India. I state that I have been a Professor in constitutional law, cost accounting, management accountancy and Strategic financial management for students pursuing professional courses like CA, MBA, CWA, LLB. I have also been a member of the faculty of leading management and professional institutions and banks like Institute of Chartered Accountants of India, Loyola Institute of Business Management and RBI Staff College etc…, among others.
SYNOPSIS OF THE CASE
1. The Respondent 1, in the finance act 2017 which came into force from 1st April 2017 has inserted a penal provision section 271J read with 273B of the Income Tax Act, 1961 empowering the assessing officer to penalize a chartered accountant for submitting any incorrect statement / certificate by imposing a fine of Rs. 10,000 for each such report.
2. Prior to this enactment, if the assessing officer believes that a chartered accountant has submitted any incorrect report / certificate, the assessing officer could make a complaint to the respondent 3 the regulating body for chartered accountants with a robust disciplinary jurisdiction manned by people of eminence (As government nominee’s in the council of ICAI) drawn from CBDT (Central Board of Direct taxes), CAG (Comptroller and Auditor General of India), CLB (Company Law Board) and the elected representatives of respondent 3 Presently the disciplinary board comprises of retired Chairman of Central Board of Direct Taxes, a retired Chief commissioner of Income tax and other intellectuals.
3. Any compliant against a chartered accountant to respondent 3 will be processed quickly through the strong inbuilt mechanism minimizing the chances of errors due to bias and the complications in the technical knowledge required for interpreting accounting and auditing standards.
4. A live example for better appreciation and understanding the working of the disciplinary mechanism in ICAI is once a chartered accountant was penalized by the respondent 3 debarring him from the membership for signing a statement / income tax returns wherein the ITO (Income Tax officer) found a totaling error of few thousand rupees and made a compliant for professional negligence only to be set aside by the Honorable Kerala high court on appeal.
5. ” The term incorrect report” has not defined anywhere in the act and its nothing but a vague term giving uncontrolled powers to a single individual, the consequences of which will expose the chartered accountants untold sufferings affecting their livelihood and freedom to carry on the profession with independence.
6. The section 271J gives sweeping and uncontrolled powers to the assessing officer to decide on the accuracy of the reports and certificates given by a chartered accountant and make him responsible for incorrect statements which in many cases will be based on the guidelines issued by the ICAI and as per the accounting and auditing standards of international accounting bodies. It may also include interpretation of conflicting judicial pronouncements.
7. Most of the times the due diligence before signing the reports will be based on the information and documents provided by the assesses themselves. If the client indulges in wrong doing like forging certificates, documents Etc..,. It is not possible for the chartered Accountant to determine the frauds if any carefully perpetuated by the assesses but the assessing officer can drag him to litigation Imposing penalty and paying the same will amount to admission of the guilt and that will be fatal to the chartered accountants livelihood, as he will be tried and convicted for professional misconduct by ICAI the respondent 3.
8. The Impact of the enactment of 271J can be illustrated as under: A patient complained that a surgeon has carried out wrong surgery and administered incorrect medicines on him. The patient himself is given power to punish the surgeon for the wrong doing. Which normally will have to be carried out by the eminent doctors constituted by the medical council who are only competent to come to the conclusion after due process and procedure in fixing the liability for negligence, then consider the punishment which has the civil consequences seriously jeopardizing the reputation, livelihood of the member.
9. The revenue departments are known for corruption, therefore the object of the taxation laws during the past several decades was to remove the discretionary powers to the tax authorities. Contrary to this practice Sec 27 1J not only gives draconian powers to the assessing officer for breeding corruption and misuse it also fails to fix responsibility or penalty on the assessing officer for exercising these powers in an arbitrary manner jeopardizing not only the life of a Chartered accountant but survival of the Chartered accountancy profession which is considered as partner in the nation building. Therefore section 271J is highly unreasonable, manifestly unjust, malifide, highly oppressive and grossly interferes with the rights of the chartered accountants without any justification that can be found in the mind of a reasonable man and therefore liable for quashing.
10. The explanation given for the insertion of the provision 27 1J is silent on the reason for ignoring the present robust disciplinary mechanism of the respondent 3 and empowering the assessing officer with such draconian powers. It only mentions, 27 1J is for increasing tax revenues meaning that by punishing chartered Accountants the assesses will pay more taxes which is nothing but highly irrational, Arbitrary, Capricious, illogical reasoning, Hence liable for quashing.
11. Hence this petition is filed praying this Honorable Court to issue
a. Writ of declaration declaring that the explanation clause (a) of section 271J of the Income Tax Act, 1961 by Finance Act, 2017 which reads as “Accountant” means an accountant referred to in the Explanation below sub-section (2) of section 288 as invalid, Null and void violating Article 19(1)(g) & 21 of our constitution.
b. Issue an order of Ad Interim injunction restraining the respondent 1 & 2 from taking any penal action against chartered accountants as defined in explanation under clause (a) of section 27 1J of the Income Tax Act, 1961 by Finance Act, 2017 pending the disposal of this writ petition and pass any further order this Honorable court deem fit and thus render justice.
I. THE FACTS LEADING UPTO FILING OF THIS WRIT PETITION ARE AS UNDER:
MATTER OF FACT:
1. That the Respondent No. 3 is the regulatory body of the Chartered Accountants, the second largest professional body of Chartered Accountants in the world, with a membership of around 2,50,000 + and one million students on rolls, widely acknowledged by the eminent personalities and institutions of repute as having robust and independent adjudicating mechanism comprising of eminent people nominated by the government from CAG, CBDT & CLB Etc..,
2. The respondent 3 Exercises disciplinary jurisdiction on chartered accountants through a legislature enacted mechanism and functions through its two quasi-judicial arms constituted as per the provisions of the Chartered Accountants (Amendment) Act, 2006 Board of Discipline (under Section 2 1A): to look into matters of professional and other misconduct by members which fall within the purview of First Schedule to the Chartered Accountants Act, 1949and/or cases wherein the members are held prima facie NOT guilty of any misconduct by Director (Discipline); Disciplinary Committee (under Section 21 B): to look into matters of professional misconduct by members which fall within the purview of Second Schedule and both First and Second Schedules to the Chartered Accountants Act, 1949 as amended by Chartered Accountants (Amendment) Act, 2006;
Disciplinary Committee under Section (21 D): conducts enquiry and submits its report to the Council in respect of residual cases pending prior to the amendments made in the year 2006.
The facts leading up to the filing of the current writ petition are as follows:
3. The finance act 2017 which comes into force from 1st April 2017 has inserted a penal provision section 27 1J of the Income Tax Act, 1961 by Finance Act, 2017.That for sake of convenience section 271J of the Act is reproduced as hereunder giving sweeping powers to the income tax officials without a proper backup of adjudicating mechanism through a fair procedure as mandated by the article 21 of our constitution:
’27 1J. Penalty for furnishing incorrect information in reports or certificates.—Without prejudice to the provisions of this Act, where the Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under this Act, finds that an accountant or a merchant banker or a registered valuer has furnished incorrect information in any report or certificate furnished under any provision of this Act or the rules made there under, the Assessing Officer or the Commissioner (Appeals) may direct that such accountant or merchant banker or registered valuer, as the case may be, shall pay, by way of penalty, a sum of ten thousand rupees for each such report or certificate.
Explanation.—For the purposes of this section,—
a) “accountant” means an accountant referred to in the Explanation below sub-section (2) of section 288;
b) “merchant banker” means Category I merchant banker registered with the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
c) “registered valuer” means a person defined in clause (oaa) of
section 2 of the Wealth-tax Act, 1957 (27 of 1957).
4. That in the Finance Bill, 2017 the reasons for introducing section 271J of the Act was stated as under:
Penalty on professionals for furnishing incorrect information in statutory report or certificate. The thrust of the Government in recent past is on voluntary compliance. Certification of various reports and certificates by a qualified professional has been provided in the Act to ensure that the information furnished by an assesse under the provisions of the Act is correct. Various provisions exist under the Act to penalize the defaulting assessee in case of furnishing incorrect information. However, there exists no penal provision for levy of penalty for furnishing incorrect information by the person who is responsible for certifying the same.
5. In order to ensure that the person furnishing report or certificate undertakes due diligence before making such certification, it is proposed to insert a new section 27 1J so as to provide that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made there under, the Assessing Officer or the Commissioner (Appeals) may direct him to pay a sum of ten thousand rupees for each such report or certificate by way of penalty.
6. It is further proposed to define the expressions ??accountant??, ??merchant banker?? and ??registered valuer??. It is also proposed to provide through amendment of section 273B that if the person proves that there was reasonable cause for the failure referred to in the said section, then penalty shall not be imposable in respect of the proposed section 27 1J.
These amendments will take effect from 1st April, 2017.
[Clauses 86 & 87]
That simultaneous amendment u/s. 273B has also been provided so as to provide within its ambit the ground of arguing “reasonable cause” for non-levy of penalty.
7. The petitioner humbly submits that several thousands of members across the nation of the respondent 3 petitioned to the respondent 1 & 2 to withdraw this draconian provision which will act as death blow to this most respected chartered accountancy profession but without any success. The petitioner further submits that he took up the matter with the president and the council members of respondent 3 and was given to understand that the respondent 3 made several representations to respondent 1 & 2 without any success.
GROUNDS
1. The petitioner submits that the criminal jurisprudence world over is based on the presumption of innocence. In other words a person is presumed innocent until he is proved guilty, where as Sec 27 1J is based on Presumption of guilt unless proved otherwise. Hence it is violation of rule of law and article 20 of the constitution, liable for quashing.
2. The petitioner submits that Sec 27 1J which gives sweeping powers to the officials of respondent 2 is without complying a fair procedure ignores the time tested robust adjudicating disciplinary mechanism of the respondent 3, hence it is totally arbitrary and un reasonable liable for quashing as per the law laid down by the Honorable Supreme court in catena of judgments including that of
{ Tejashree gag Vs prakash p. Patil (2007) 6SCC 220} said “Principles of natural justice are attracted whenever a person suffers a civil consequence or a prejudice is caused to him by any administrative action. Civil Consequences means infraction of personal or property rights, violation of Civil liberties, material deprivation or sufferance of non pecuniary damages. Loss of legitimate expectation may also attract the principles of natural justice. Thus where a person cannot justify his claim on the basis of any law but suffer a prejudice or adverse consequences he is entitled to the benefit of principles of natural justice.”
{ L. Chandra Kumar vs Union of India (1997) 3 SCC 261 }
Para 26
“There is no doubt that what has been said in Sampath Kumar’s case would require safeguarding the interest of litigants in the matter of disposal of their disputes in a judicious way. Where complex questions of law would be involved the dispute would require serious consideration and thorough examination. There would, however, be many cases before the Tribunal where very often no constitutional issues or even legal points would be involved. We are prepared to safeguard the interests of claimants who go before the Tribunal by Holding that while allocating work to the Single Member – whether Judicial or administrative – in terms of Sub-section (6), the Chairman should keep in view the nature of the litigation and where questions of law and for interpretation of constitutional provisions are involved they should not be assigned to a Single Member. In fact, the proviso itself indicates Parliament’s concern to safeguard the interest of claimants by casting an obligation on the Chairman and Members who hear the cases to refer to a regular bench of two members such cases which in their opinion require to be heard by a bench of two Members…
3. The petitioner most humbly submits even in cases of tribunals and quasi-judicial bodies like BCI, MCI, ICAI inspite of several checks and balances. There is a rampant misuse and exercise of Judicial power in an Arbitrary whimsical manner detrimental to the litigants as observed by the Apex court in {L. Chandra Kumar vs Union of India (1997) 3 SCC 261}. So giving sweeping powers to one individual without any accountability will be voilative Article 19(1) (g) & 21 of our constitution liable for quashing.
4. The petitioner humbly submits that the term ” incorrect statement ” is in itself very vague, liable for misuse as it has not been defined or illustrated in Sec 27 1J of the act gives raise to several interpretations and room for litigations and therefore liable for quashing “well known parliamentary draftsman as Francis Bennion has pleaded in the Manchester guardian against incomprehensible law forgetting that it is fundamentally important in a free society that the law should be readily ascertainable and reasonably clear, and that otherwise it is oppressive and deprives the citizen of one of his basic rights. It is also needlessly expensive and wasteful’ Reed Dickerson, the famous American draftsman, said: its costs the government and the public many dollars annually.”
5. The petitioner humbly submits that Sec 27 1J is against public policy and breeds rampant corruption in as much as the assessing officer is given wide discretionary powers without any accountability for misuse particularly when there is no judicial mechanism to determine what constitutes as incorrect statement which in itself has not been defined in the act according to the Honorable Supreme court in catena of judgments including that of {State of kerala Vs Unni (2007) 2 SCC 365.}
“If the violation of the condition attracts the penal liability it must not be vague and must not be beyond the limits of the parent act”. Thus the Sec 271 J is against the public policy and also unreasonable, manifestly unjust nothing but in bad faith / malifide, highly oppressive and grossly interferes with the rights of the chartered accountants without any justification that can be found in the mind of a reasonable man and therefore liable for quashing.
6. The petitioner humbly submits Honorable supreme court made it clear that whenever a petitioner alleges violation of his fundamental rights it is for the respondents being statutory bodies who should come clean by convincing that there is a fair procedure / due process in place, however in this case the due procedure is totally absent and therefore the section 27 1J is un constitutional and liable for quashing.
7. The petitioner submits that being left with no other alternative remedy he is constrained to approach this Honorable Court under Article 226 of the constitution of India. The petitioner submits that he has an excellent case on merits and the prima facie case and balance of convenience lie entirely in favor of his petition for the grant of interim relief as prayed for. On the other hand no prejudice or hardship would be caused to the respondents by granting an interim order as sought. This Honorable Court has territorial jurisdiction and the petitioner has the locustandi being a chartered accountant in practice.
In this circumstance the petitioner most humbly prays that this Honourable Court may be pleased to issue a
A. Writ of declaration declaring that the explanation clause (a) of section 271J of the Income Tax Act, 1961 by Finance Act, 2017 which reads as “Accountant” means an accountant referred to in the Explanation below sub-section (2) of section 288 as invalid, Null and void violating Article 19(1)(g) & 21 of our constitution.
B. Issue an order of Ad Interim injunction restraining the respondent 1 & 2 from taking any penal action against chartered accountants as defined in explanation under clause (a) of section 27 1J of the Income Tax Act, 1961 by Finance Act, 2017 pending the disposal of this writ petition and pass any further order this Honorable court deem fit and thus render justice.
I am with Mr Sivakumar on this 271 J issue.
I support the move.