2016 (6) TMI 368 - HC - Income Tax

Scam of providing accommodation entries by Chartered Accountants - Violation of Code of Ethics of the Institute of Chartered Accountants of India (ICAI) - Held that - From the facts, noticed above, it is clear that respondent No. 1 grossly violated the code of ethics for Chartered Accountants. He admitted his guilt before the Income-tax authorities, which resulted in defrauding the revenue. Thereafter, he left the country. He did not avail of the opportunity afforded to him at different stages to defend the case against him. A professional, who behaves in this manner, deserves to be dealt with sternly. In our opinion, the conduct of respondent No. 1 is wholly unworthy of a Chartered Accountant, who is expected to maintain high standard of professional conduct. The punishment proposed by the Institute in these circumstances is quite lighter. Such a professional deserves to be debarred from practice for life time. Hence, in exercise of powers conferred under Section 21(6) of the Act, we deem it appropriate to direct that name of respondent No. 1 be removed from the register of members of the Institute of Chartered Accountants of India for life. Ordered accordingly.

Issues Involved:
1. Disciplinary action against a Chartered Accountant for professional and other misconduct.
2. Service of notice to the respondent.
3. Allegations of providing accommodation entries and operating benami bank accounts.
4. Findings of the Disciplinary Committee.
5. Recommendations of the Council.
6. Admissions by the respondent before Income-tax authorities.
7. Legal provisions under the Chartered Accountants Act, 1949.
8. Code of Ethics for Chartered Accountants.
9. Final judgment and penalty.

Issue-wise Detailed Analysis:

1. Disciplinary Action Against a Chartered Accountant:
The judgment addresses disciplinary action against a Chartered Accountant (respondent No. 1) initiated by the Institute of Chartered Accountants of India under Section 21(5) of the Chartered Accountants Act, 1949. The action was based on a complaint dated 1.2.2006 from the Commissioner of Income Tax-II, Amritsar, alleging that the respondent was involved in a scam providing accommodation entries to various concerns for a commission.

2. Service of Notice to the Respondent:
Multiple attempts were made to serve notice to the respondent, who had reportedly left the country. Notices were issued but returned undelivered with remarks such as "left country" and "house locked." Substituted service was eventually allowed, including affixation and publication in newspapers, but the respondent did not appear.

3. Allegations of Providing Accommodation Entries and Operating Benami Bank Accounts:
The allegations against the respondent included opening several bank accounts using fake names and photographs, operating these accounts to route accommodation entries, and creating forged partnership deeds. The respondent was accused of causing significant revenue loss to the state by facilitating tax evasion.

4. Findings of the Disciplinary Committee:
The Disciplinary Committee found the respondent guilty of professional and other misconduct. The Committee's report, submitted on 10.6.2010, detailed the respondent's involvement in opening and operating fake bank accounts, preparing fraudulent documents, and misleading clients. The Committee concluded that the respondent was grossly negligent in his professional duties.

5. Recommendations of the Council:
The Council accepted the Disciplinary Committee's report and found the respondent guilty of "Other Misconduct" under Section 22 read with Section 21 of the Act. The Council recommended to the High Court that the respondent's name be removed from the register of members for ten years.

6. Admissions by the Respondent Before Income-tax Authorities:
The respondent admitted his involvement in the scam before the Income-tax authorities and the Settlement Commission. He detailed his modus operandi, including opening bank accounts under fake names, issuing drafts, and providing accommodation entries for a commission. These admissions were crucial in establishing his guilt.

7. Legal Provisions Under the Chartered Accountants Act, 1949:
Section 21 of the Act outlines the procedure for inquiries related to misconduct by members of the Institute. The Council can take action against members, including reprimanding them or removing their names from the register, based on the severity of the misconduct. In cases requiring removal for more than five years, the matter is referred to the High Court.

8. Code of Ethics for Chartered Accountants:
The Code of Ethics emphasizes the importance of integrity, objectivity, and reliability in the profession. The respondent's actions grossly violated these principles, undermining public trust in the profession.

9. Final Judgment and Penalty:
The High Court found the respondent's conduct wholly unworthy of a Chartered Accountant. Given the severity of the misconduct and the respondent's failure to defend himself, the court deemed the Council's recommended punishment too lenient. Exercising its powers under Section 21(6) of the Act, the court ordered the respondent's name to be removed from the register of members for life. The references were disposed of accordingly.

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