Case Law Details

Case Name : Wrigley India Pvt Ltd Vs ACIT (ITAT Delhi)
Appeal Number : I.T.A. Nos. 5648, 5649 and 5650/Del/12
Date of Judgement/Order : 31/12/2014
Related Assessment Year :

It seems CAs are under attack from all parts of the world for good or not so good reasons. Recently CAG in its report Criticised CAs for alleged Mistakes in Tax Audit Report and signing of Tax Audit Reports  more than the prescribed limit.

ITAT Mumbai has also sounded warning on falling standards of CA profession in the case of Vijay V Meghani vs. DCIT. 

In One more  blow Finance Ministry has already Proposed to amend the definition of the word Accountant under the Direct Tax law and to include Cost Accountant,  Company Secretary etc. in the definition.  This will enable other professionals also  to Conduct Tax Audit and other Certification under the Income Tax which is till now the sole domain of Chartered Accountants.

In a new blow to CA Professionals ITAT Delhi has held in the case of Wrigley India Pvt Ltd vs. ACIT has drawn the following conclusion from Transfer pricing Study Reports prepared by CAs and studied by them over a period of time:-

  1. These TP reports as also certifications by the chartered accounts inspire no confidence.
  2. Nothing can justify  pathetic level of professional work done by chartered accountants.
  3. Chartered Accountants also responsible for frivolous litigation.
  4. No purpose served by TP Reports of  chartered accountant  when reports do not even point   glaring infirmities in taxpayers approach vis-a-vis the transfer regulation.
  5.  in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals so as they stay within the confines of permissible professional conduct and are yet able to sidestep the inconvenient realities.

Relevant Para of the Judgment is as follows :-

Having held so, we must also point out that the transfer pricing reports with respect to the impugned determination of ALP leave a lot to be desired. Just because the action of the authorities below, in adopting cost plus method in the above manner, is legally unsustainable, the ALP determination by the assessee cannot be taken as correct. These TP reports as also certifications by the chartered accounts inspire no confidence and, quite to the contrary, raise doubts about efficacy of the built in checks and balances in transfer pricing regulations. It is somewhat fashionable to criticize the revenue authorities for their lack of objectivity or even inefficiency but what in the world can justify such a pathetic level of professional work relied upon by even the large corporate entities. If the tax judicial system is clogged by frivolous litigation today and if the tax finality still takes decades to reach, these saviours of taxpayers are as much to be blamed for this situation as anybody else. No purpose can be served in reporting by a chartered accountant when suchreports do not even point out glaring infirmities in taxpayer’s approach vis-à-vis the transfer regulation, in a comparison of budgeted profits margin with actual profit margins realized by the comparables which is stated to be ascertainment of ALP on the basis of the TNMM. It appears that in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals so as they stay within the confines of permissible professional conduct and are yet able to sidestep the inconvenient realities. Of course, it will be much worse a situation if they are actually so naïve as to be oblivious of simple provisions of law, of their onerous responsibilities or of the legitimate public expectations. It is not to belittle the brilliant work being done by many a professionals but it is just to point out the dilemma of those who explore the possibilities of relying upon such audit reports and certifications, and also the inertia of those who can do something to salvage this situation and, to thus avoid an inevitable systemic rejection of the ritualistic certifications. We are particularly pained today as the financial period before us is mostly even more than a decade old and yet since the TP reports and certifications before us are, in our considered view, are so much devoid of credibility that, instead of deciding the things one way or the other, we have no choice except to remit the matter to the file of the TPO for fresh ascertainment of ALP on the basis of residuary method, i.e. TNMM. (Para 24)

(Article is Compiled by CA Sandeep Kanoi)

Download Judgment/Order

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  1. Rajesh says:

    The only way out of vested interest is to create an independent panel or let the fees be decided by independent body under supervision of ICAI as well as decide on allocation of CAs to various assessees based on criterion such as experience, proximity, staff strength etc. Once allocated CA cannot refuse the same and once refused, he may cease to be part of panel and if same is online,the count on no of audits will be there so ca exhausting bucket will not get any extra audits. There can be an uniform structure based on various parameters which are objective and once done CAs will be fearless and true audits will come out and the independence will be restored and there will be balance between client’s and revenue interests.

  2. Ritesh says:

    When will the CBDT and government realize that how can a CA go against its own client when the fees itself is paid by the client.

    if the government want true reports than the assignment and payment should come from government cbdt or icai via a grid system.

    if CA gives a qualified report than who will pay him fees and why will he be reappointed. come on people think logically. CA to needs fees for survival.

    if the client doesnt pays the fees than what is the remedy left with CA all the non sense litigation which lets face it is utter rubbish given the INDIAN LAW SYSTEM.

    a very high number of CA are interested in working for cheap money and without any regard of how the client treated the previous CA, so there is no problem for client to find a new CA.

    COURTS and CBDT dont know the practical difficulties.

  3. Mukesh Kapoor says:

    The fault lies not only in individuals but in the system in which we are operating. The commercialisation of our education system has eroded the moral standards. The value of the VALUES has no value. We are all eyeing the money we make in assignments. Very few take pains in quality. Criticism or penalising a Professional is not the remedy.


    Actually ,whether Transfer pricing Audit or Tax Audit Report Chartered Accountant’s performance was reduced. The morality of CA’s are also reduced.Maximum number of CA’s are interested only for earning money.But CBDT & Ministry of Finance are blind.They cant’take any decision against the CA’s. Actually chartered institute have strong lobby with CBDT & Ministry of Finance .But my question is who is resposible the huge revenue lossess of the Govt.? Is it chartered Accountant’s, CBDT or Ministry of finance ?


    ICAI should collect the information about the outcome of audit i.e, Nature & quantum of fraud detected while doing various audits of Public sector companies / Banks etc., In a recently held meeting of a nationalised bank, only one fraud case was detected by auditors out of 40 cases of frauds in the branches covered by concurrent audit. Compliance with Service tax provisions are also bad among CAs; Then how can they meet Tax Officials with guts; Mere EGO will not serve any purpose;

  6. BSKRAO says:

    Very purpose of Tax Audit U/s 44AB of Income-Tax Act & uploading the same to e-filing website of Income-Tax Deptt. is to enable the assessing authority to conclude QUALITY ASSESSMENT on utilizing SECTION WISE/COLUMN WISE WRONG CLAIMS reported therein. This is also supported by Circular bearing No.387 issued for introduction of Tax Audit on 6.7.1984 and E-Filing Project Agreement F.No.E-Filing/1/2009/DIT(S)-III Dt.25.11.2011 signed by DGIT(Systems), DIT (Systems)-III, Member (L&C)& Chairman (CBDT) (Secret Document). CBDT has failed evaluate this issue since past 3 three decades & still retaining Section 44AB in Income-Tax Act in this computer era. CAG in their Report No.32 of 2014 (Performance Audit) also concluded that objective of section 44AB has been defeated. Hence, CBDT should think about retaining Section 44AB in Income-Tax Act, which is causing strict hurdle for voluntary compliance from Non-CA Tax Professionals, due to indirect control of ICAI (Financials) in the matter of tax compliance.

  7. Mappy Anand says:

    I agree to some part of this. IN recent time the quality of CA has gone down in big way. Some of them even use audits to extort money from clients with the nexus with revenue officials. Some portion of society even calls CA as brokers between Tax department and assesse.

    However, there is other aspect also. In case of TP study there is lack of clarity and information. Comparable of similar businesses are not available and auditors need to compare unrelated businesses which revenue authorities reject and state lack of professionalism among CAs.

    With change is time, increase complexities and large volumes it is not possible for any human being to audit in traditional ways. Our government should learn from west countries and adopt and accept practices followed there.

    On one side, Revenue department wants more detail audits while the MNCs call revenue audits as harassment and road blocker in conducting business in India. Foreign businessman feels they waste time and resources in fighting with revenue authorities on unwanted issues while same can be used in generating additional business and other productive issues.

    Our government should be flexible enough to close the assessments fact and go away with petty issues.

  8. CA Manoj [email protected] says:

    hello there is so many problem in quality of tax audit every CA is capable to provide the quality but due to competition to earn money the quality goes into the dustbin..and it will continue till the date,there is not a proper system of allocation of audits,assigning the responsibility of auditors etc…in my opinion the allocation of audit should be done by income tax department by itself and there should be rotation of auditor also the income tax department assign the fees structure for CA.if the govt and CAG want the quality of tax audit then they should go with this procedure.

  9. ASHWIN GALA says:

    Reduction in performance standard of CA s is fact. But the performance standard reduction is there in all professions. Just look at Medical Profession. In many cases ,It has gone beyond negligence level to serious guilt level where, actually, performance standard is the most required. The society systems are becoming more & more money oriented. CAs can’t be aloof.

    Yet it is a fact that , as compared to other professions, there are much controls on CA s. CA s are governed by comparatively much stricter Rules & regulations.

    As regards the Transfer Pricing , the law is not clear cut & precise. How far anyone can wrap in Dynamic business pricing in precise laws ?. On the one side there is conservative( may extend to rigid) legal environment & on the other hand there is business environment having inevitable features like fast growth, diversity , dynamics. Transfer pricing matters need not be generalized. It should be discussed strictly case to case. As regards the Transfer Pricing , In general , Is it possible to stretch the Tax officials approach & businessman approach to a common point ?

    Anyway still CA s must improve their performance.

  10. John Josh says:

    It is time that TANGAWALA realize that they are way far behind in keeping with the requirement, and they cannot keep on grudging about new entrants like CNG/LNG and Electronic risha.
    Of course the livelihood need to be protected.

  11. MANDEEP SINGH says:

    1) What is need of verify same financial data again and again under different acts like INCOME TAX, VAT and SERVICE TAX etc. When same DAY BOOK, CASH BOOK, LEDGER AND STOCK REGISTERS are kept by assessees to maintain financial record of their business activities ?

    2) Which Chartered Accountant is conducting statutory audit to find out concealment in books of account on behalf of Revenue and same CA is representing the same assessee before revenue authority.Pl tell me how can CA protect the interests of both revenue and assessee equally ?

    3) Form 3 CD is a related with legal opinion on tax laws than how can be debarred Advocates from given legal opinion. Which is a core of Advocates and well covered under ” Practice of law” ?

  12. MANDEEP SINGH says:

    I am fully agree with Mr. Sanjay. Audit reports are unnecessary financial burden and wastes of time of assessees. If government want to continue these reports than government should to pay for these reports and why assessees are paying for it. As per RTI information received from various income tax offices that in scrutiny cases, in which department made additions more than 2 lack, 99% cases are covered under audit u/s 44AB and hardly 1% cases are Non-Audited. Please reply me than what is need of tax audit u/s 44AB by putting unnecessary financial burden of assessees.

  13. CA. Subhash Chandra Podder says:

    I am in the CA profession since 1971 ( i.e . more than four decades ) , and still in active profession ,from my experience in the recent past ( say last 15 years ) CAs are not doing proper audit, after passing CAs they are very mush interested about money ,just like ATM , Most of them do not consult books, and the guidelines issued by the ICAI, never go through web- sites etc. I have the opportunity to verify the reports certified by CAs are not at all satisfactory . Even date of signing are not mentioned . Our Institute’s heads ( may it be President and council members and regional council members ) audit reports need to be verified first . the status of the firms need proper verification. We are being guiding by the clients .
    ICAI Body members are busy for opening branches and fling from here and there. and advertised as they are the Second biggest accounting body and several lacks students . Lecturing through out India and aboard .
    Peer review mechanism is also lacking.
    Bank audit are not properly done .so on and so forth.
    They should sacrifices, deferred gratification , discipline etc.
    They need proper education ( professional ),
    CA. Subhash Chandra Podder, FCA

  14. CA Priya says:

    It is not clear what are the facts of the case. Just because some CAs are not up to the mark the entire fraternity cannot be blamed. And other professionals want to use this opportunity to their advantage. My question to those people. How many advocates are truful?? Don’t they find the loopholes in law and help their client to escape?? And how many Companies scerataries issue compliance report after verifying the board minutes, statutory registers etc???
    Just because the CA profession is criticised it doesn’t give you people a free hand to comment as you like.

  15. Sudipta Majumdar says:

    It is already proved that The Institute of Chartered Accountants of India 1949, stated to be the only Act passed by Parliament does not have any social responsibility instead it is troubling Assesses, Government and Public at large.

  16. Ray says:

    Itat order does not talk about MOST audit reports but it refers to 4 reports before them one of which compared budgeted results of assessee with actual profits of the comparables. The itat allowed the appeal, rejected revenue’s claim but had to send the matter back ad reports werte unreliable. You are reading too much into this. It also talks about’brilliant work’ by many CAs. Vijay Meghani case was very different. Thhat was generally againt the CAs. Still, this is a cause of worry

  17. CA Nimesh says:

    The author has rightly started the article with, “It seems CAs are under attack from all parts of the world for good or not so good reasons.”,.

    The recent constant allegations on the “once” esteemed profession, – “The Chartered Accountants”, has shaken the faith of entrepreneurs in the quality of work performed by us.

    It is also quite frustrating, but interesting too, that the Institute of Chartered Accountants of India does not comes with a strong resistance and answers to such allegations (at least not via popular media or platform). People have criticised, individually and in groups, the competence of profession but there has been no reply given to them by the Institute.

    It is also intriguing that the whole professional body is being targeted for wrong done by certain few individuals.

    Hoping and PRAYING to see some strong actions by the Institute in near future.

  18. Umesh Kene says:

    In order to maintain the quality in Audit Reports – whether it is the case of Statutory Audit, Tax Audit, Vat Audit, Excise Audit, Service Tax Audit, Internal Audit, Cost Audit, TP Audit, Secretarial Audit & So on, The Ministry Of Finance in Consultation with MCA should delegate these works to all the major Professional Bodies -Company Secretary/Cost Accountant/ Chartered Accountant.
    Also One Firm should be barred from carrying out such audits for a particular client for more than continuous 2 Years. But after 5 Years it should be permitted to audit that client againt again subject to 2 years criteria as stated above.

  19. CA. M. Lakshmanan says:

    Since because there are certain errors/mistakes in the reports by few CAs the entire profession should not be blamed. It is always open for anybody to approach our Institute for disciplinary action against the erring CAs and courts are no exception. Likewise appropriate action will be taken by our Institute against the CAs who have signed reports more than the prescribed limit basing on report by CAG. Again it is not clear whether number of audit reports relate to 44AB or other reports which are not covered in the ceiling fixed. Whether it will be appropriate to include Company Secretaries and Cost Accountants in the definition of ‘Accountant’ mainly basing on the number of reports signed by CAs is a highly debatable issue because the exposure one CA gets in the field of taxation by a full time course, with articleship of three years can not be equated with part time courses. Moreover the course content of taxation is more in CA course than in others.

  20. Sanjay says:

    I am in induarty since 17 yrs heading the financial fundtion can say that Tax Audit report as well as Financil Statutory audit under company Law have the same pathetic condition. These audits don’t add any value to management as well as government.
    They are hardly find out major anomalies during audit which we know what we have done. It is waste of time and monry of nation for these audits.

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