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TMI Blog2012 (12) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... Chartered Accountant of a multi-location unit i.e. M/s. Sumilon Industries Ltd, Surat. The assignment also included work of auditing the accounts of the said company. It appears from the record that on the basis of the certificate issued by the petitioner in his capacity as CA, the Excise Department had made certain assessments and liability of the said company towards excise duty under Excise Act were assessed. Thereafter, it came to the notice of the Excise Department that the accounts and audit report submitted by the petitioner was inaccurate and there were several serious and material discrepancies and anomalies. In this view of the matter, the office of Commissioner of Central Excise, Surat lodged complaint with the institute of the Chartered Account [hereinafter referred to as "the institute"] and vide letter dated 24.10.2008 brought to the notice of the institute the irregularities as well as the inaccuracies, anomalies and mistakes committed by the petitioner in the accounts and audit report. 2.1 After examining the said complaint by the Joint Commissioner (Audit) of Excide Department, the institute called for certain information and details from the petitioner vide inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter dated 15.9.2011. 2.5 Thereafter, the petitioner preferred appeal against the decision of the competent authority. The appeal was registered by the appellate authority as Appeal No.17/ICAI/ICSI of 2011. 2.6 On 28.1.2011, the appellate committee heard the petitioner and after considering the record including the report of the Disciplinary Committee and the decision of the competent authority, passed order dated 5.5.2012. The appellate committee concurred with the decision of the competent authority i.e. order dated 12.9.2011 and observed that, the appellant i.e. present petitioner is rightly held guilty of professional misconduct within meaning of clause (7) of Part-I of IInd Schedule to the Act. The appellate committee also held that the petitioner did not exercise due diligence and he had shown gross negligence and carelessness in certifying Tax Audit Report which did not reflect true and fair picture of the affairs of the company and he signed the Tax Audit Report without actually performing the audit as required. 2.7 Aggrieved by the said two concurrent orders, the petitioner has preferred present petition. 3. Mr. Shah, learned advocate, has appeared for the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parkar, learned Senior Counsel, with Mrs. Soparkar, learned advocate, has appeared for the respondent institute and submitted that the penalty imposed by the institute is minimum penalty which could be imposed in such type of cases. The learned Senior Counsel submitted that the institute is responsible for maintaining professional standards and standard of accuracy of the reports submitted by its members, more particularly when the report by the members of the institute are being relied on, almost blindly, by all private as well as Government organizations. Mr. Soparkar, learned Senior Counsel, also submitted that in his reply submitted to the committee, the petitioner accepted the inaccuracies and anomalies in his report/certificate. He also submitted that the details mentioned by the Disciplinary Committee in its report enumerates the inaccuracies and anomalies. Mr. Soparkar submitted that the mistakes from the tax audit report submitted by the petitioner demonstrate that the petitioner did not exercise due diligence and/or he was grossly negligent in performing his professional duties. Mr. Soparkar submitted that in view of the provision contained under clause (7) of Part-I of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion recorded in paragraph no.4 of the said order dated 12.9.2011, more particularly in light of the observation in paragraph no.3, the learned advocate submitted that vide his letter dated 26.7.2011 adjournment was requested for by the petitioner, however, the Committee/Competent Authority did not consider it proper to wait for some more time, but proceeded to pass order regarding penalty, which is unjustified and arbitrary. 5.3 While relying on the said observations in paragraph nos.3 and 4, the learned advocate for the petitioner has conveniently overlooked the fact that the report of the Disciplinary Committee was submitted on 10.2.2011 and thereafter, the petitioner was granted opportunity to submit written representation. Besides this, at his requests, under communications dated 30.5.2011 and 18.7.2011, opportunity/time was granted to the petitioner. These details and aspects are recorded in paragraph no.2 of the very same order i.e. order dated 12.9.2011, which reads thus:- "2. That an action under Section 21B(3) of the Chartered Accountants (amendment) Act, 2006 was contemplated against CA Rajesh Vasant Dudhwala and, therefore, communications dated 30.05.2011 and 18.07.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the proceedings ad-infinitum so as to honour and comply the requirement of granting opportunity of hearing on the issue about proposed penalty. 5.10 If the petitioner was too busy in his professional work to appear before the competent authority/institute, he could have submitted written reply/representation raising all available contentions on the point of proposed penalty. However, the petitioner, in present case, did not care to even take that trouble to submit even written reply/representation as regards proposed penalty. 5.11 The said aspects cumulatively establish that the petitioner was merely trying to delay the proceedings. Therefore, the said submission is not accepted. 5.12 In this context, reference may be made to the observations by the Hon'ble Apex Court in para-13 of the decision in the case between The Chairman, Board of Mining Examination and Chief Inspector of Mines, and Anr. v. Ramjee. [AIR 1977 SC 965], which reads thus:- "13......Natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vised figures as below:- Source Documents Figures As given in letter as per old figures New Figures As per corrected statement Raw material consumption Production Sales Raw material consumption Production Sales Annual Report 2005-06 3405.622 6870.380 5755.415 3815.198 6836.000 4565.858 Annual Report 2006-07 4359 479 5587.099 6520.461 4657.962 6778.051 4622.758 Tax Audit Report 2006-07 5093.540 5196.792 3799.446 6678.527 6778.047 4622.752 The said Tax Audit report is prepared by the auditor M/s. R.V. Dudhwala & Co. Chartered Accountants, 104, Dalal Chambers, Bhajiwali Pole, Bhagal, Surat. (M.No.38264) It seems that the Company's Auditor have not verified the accounts and certified report properly prior to issuing the same, as a result of which, lot of time of our officers have been wasted. Annual Report is an important financial document for many stake holders and it cannot be taken lightly. Therefore, it is brought to your notice for taking necessary action in this regard against aforesaid Auditor." (emphasis supplied) 6.4 In pursuance of the said complaint, the institute called for certain deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide copies of balance sheet and tax audit reports of the company for financial year 2005-2006 and 2006-2007. After considering the available material, the Director (Discipline) observed, in the said prima facie, opinion that, "I am of prima facie opinion that the respondent is guilty of professional and/or other misconduct falling within the meaning of clause (7) of Part-I of IInd Schedule to the Act". 6.6 Now, at this stage, it is pertinent to note that in his written statement/reply dated 27.5.2010, the petitioner himself mentioned that, "the mistakes found in the annual report and revised data are in the nature of typing error of a computer operator....". 7. Thus, actually, the petitioner had admitted and acknowledged that the report was infected with mistakes and that mistakes had been committed in preparing, signing and submitting the report. However, the petitioner has tried to underplay the mistake by claiming that the "mistakes" were merely typographical errors. It comes out that there is no dispute about the fact, rather the petitioner has admitted, that there were errors, inaccuracies and anomalies in the report prepared, signed and certified by the petitioner. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant in F.Y.2005-2006, the actual production quantity of metal quoted polyfilm taken as 3743.330 instead of 3708.950 MT. Hence, the discrepancy of MT in production. There was no mistake in other products. (vi) Under the heading tax audit report, the petitioner stated, inter alia, that, "the mistake in quantity data of metalized and lacured polyfilm is given below....." "8. Tax Audit report:- ** ** ** (i) The plain poly film transferred from Gandhidham unit of 1276.999 M.T. was recor 1366.994 M.T. in Metalilised and Lacquered poly film division of Gandhidham unit, the consumption of Metallised and Lacquered poly film in Gandhidham division was higher by 90 M.T. The actual consumption of Metallised and Lacquered poly film 1962815.760 was shown as 2052815.760 (Due to above mistake). (ii) In the quantity record of finished goods of Gandhidham unit there was totalling mistake in quantity manufactured. The actual quantity manufactured was 2099.265 M.T. was shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art-I of IInd Schedule of the Act is required to be taken into account, which makes lack of due diligence misconduct inasmuch as it is prescribed that when practicing Chartered Accountant does not "exercise due diligence" or when a practicing Chartered Accountant is grossly negligent in conduct of his professional duties then it would tantamount to professional misconduct. 9.3 In paragraph no.4 of the report dated 10.2.2011, the Committee has taken note of the prima facie opinion firmed by the Director (Discipline) and in paragraph no.5 the committee has considered the written statement submitted by the petitioner. The committee has also recorded that the time of hearing, the petitioner had remained present with his advocate. In paragraphs no.9 to 12, the details of the proceeding are recorded by the committee. The said observations are relevant and read thus:- "9. During the course of hearing, the Respondent has admitted the fact of mistakes in the quantitative details of raw-materials consumed, production and sales of the Company which were attributed to the mistakes on the part of accountant in cutting and pasting. With regard to the elimination of inter division transfers fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .099 6520.461 4657.962 6778.051 4622.758 Tax Audit Report 2006-07 5093.540 5196.792 3799.446 6678.527 6778.047 4622.752 15. The Committee noted that in the financial statements of the Company for the years 2005-06 and 2006-07, the sales of finished goods were disclosed inclusive of Inter Branch transfer where as per the Accounting Standard - 9, Revenue Recognition, the Inter Divisional Transfer can not be recognized as Sales/revenue as in case of inter-divisional transfers, risks and rewards remain within the enterprise and also there is no consideration from the point of view of the enterprise as a whole, the recognition criteria for revenue recognition are also not fulfilled in respect of inter-divisional transfers. However, in the present matter, the Company in its financial statements for the years 2005-06 and 2006-07 shown the Sales/Revenue inclusive of Inter Unit/Branch transfer in violation of the provisions of the Accounting Standard 9. 16. Further, by adding the amount/quantity of Branch Transfer in the financial statements, the accounts were misstated and did not give a true & fair view of the affairs of the Company. In those circumstances, the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further establishes that the petitioner was also informed that in event of his failure to appear or failure to submit written representation, the committee will be constrained to proceed further in the matter, and yet the petitioner failed to or avoided to appear before the committee (and also failed in submitting his reply/representation). In the said communication dated 18.7.2011, the Committee had offered two alternatives/options to the petitioner viz. to attend the hearing or to file written statement/representation. If the petitioner was not able to attend the hearing, as he has claimed, he could have submitted his written statement/representation. When both alternatives/options are made available and the petitioner does not avail either of them, then, the petitioner has no reason or justification to make allegation about denial of opportunity of hearing. The principle of natural justice does not always mean that oral/personal hearing may be given. The decision taken after taking into consideration the written objections would also be sufficient compliance of the doctrine of natural justice. In this context, reference may be made to the decision of this Court in case between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carpet claiming and describing them as negligible. The report/order also does not suffer from any jurisdictional error. 19. Besides this, the entire material including the evidence on record and the report/order by the Disciplinary Committee has been thoroughly reexamined and reappreciated by the appellate committee while entertaining and deciding the appeal preferred by the present petitioner. 19.1 Thus, reappreciation of the material and evidence on record has been undertaken by the appellate committee which is another reason for the Court to not enter into realm of reappreciation of evidence. 20. Under the circumstances and for the foregoing reasons, the Court does not find any basis or justification to hold that the findings and conclusions by the Disciplinary Committee, as confirmed by the appellate committee, suffer from any infirmity and/or that the decision deserves to be interfered with on any permissible ground. 21. In this background, the contention by learned counsel for the petitioner viz. that the mistakes cannot be said to be or construed as "gross negligence" is required to be considered. So as to support and justify its contention, the learned advocate for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of a case which must receive due weight." In the said case, the petitioner, an advocate, was suspended from practicing his profession for 3 years on the charge of having withdrawn a suit (as settled) without the instructions from his client. In the said decision the Hon'ble Apex Court framed below mentioned questions: "(1) Whether a charge apprising him specifically of the precise nature and character of the professional misconduct ascribed to him needs to be framed? (2) Whether in the absence of an allegation or finding of dishonesty or mens rea a finding of guilt and a punishment of this nature can be inflicted on him? (3) Whether the allegations and the finding of guilt require to be proved beyond reasonable doubt? (4) Whether the doctrine of benefit of doubt applies? (5) Whether an Advocate acting bona fide and in good faith on the basis of oral instructions given by someone purporting to act on behalf of his client, would be guilty of professional misconduct or of an unwise or imprudent act, or negligence simpliciter, or culpable negligence punishable as professional misconduct?" From the facts of the said case, it emerges that a profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in overemphasizing or concentrating only on the term "gross negligence" in clause (7) of Part-I of IInd Schedule to the Act and in ignoring the term "due diligence" in the said clause. 22.1 Therefore, "gross negligence" alone is not required to be taken into account while examining the conclusions by the disciplinary committee and the appellate committee. It is pertinent that exercise of due diligence is equally vital aspect which also is to be taken into account in examining a Chartered Accountant's conduct and decide whether his acts of omission and/or commission amounts to misconduct. 22.2 When the mistakes or errors or inaccuracies and anomalies in the report prepared and certified by the petitioner are taken into consideration, then, it emerges that the conclusions by the disciplinary committee and thereafter, by the appellate committee confirming disciplinary committee's conclusions that the petitioner did not exercise due diligence in preparing and certifying the report, cannot be faulted and the decisions relied on by the learned advocate for the petitioner would not, in light of facts of present case and in view of relevant provision, provide any assistance to the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the respondent is less and, therefore, though we do not propose to order removal of the respondent's name from the Register of members, in our opinion, the ends of justice would be served if the name of the respondent is removed from the Register of members for a period of six months. One very well knows that a certificate given by a Chartered Accountant is blindly relied upon and if a Chartered Accountant knowing fully well about the value of his certificate, issues a Certificate either negligently or in a fraudulent manner, he thereby not only performs his duties negligently, but he also helps someone in commission of a fraud. In a given case, someone can be easily defrauded by a dishonest and unscrupulous person with help of a certificate of a Chartered Accountant, which is given either negligently or in a fraudulent manner so as to see that the purpose of a dishonest and unscrupulous person is achieved. We feel that in a society where Chartered Accountants are highly respected as Professionals, a Chartered Accountant should take due care before issuing any Certificate and as in the instant case, the respondent had failed to do so, we feel that removal of his name from the Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act empowers the assessing officer to obtain a special audit report from a Chartered Accountant nominated by the Chief Commissioner or Commissioner. It is not necessary to refer to the various provisions in detail, suffice it to state that the revenue authorities rely upon the integrity of a Chartered Accountant to assist the tax authorities in finalizing assessment on the basis of the audit report submitted by such Chartered Accountant. The decision rendered by the Delhi High Court in the case of Additional Commissioner of Income Tax Vs. Jay Engineering Works Ltd.,(1978) 113 ITR 389 indicates the extent to which the income tax authorities can place reliance upon a report submitted by the auditor. "It is quite competent for the income-tax authorities not only to accept the auditors' report, but also to draw the proper inference from the same. The income-tax authorities can, therefore, come to the conclusion that, since the auditors were required by the statute to find out if the deductions claimed by the assesses in their balance-sheets and profit and loss accounts were supported by the relevant entries in their account books, the auditors must have done so and must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port duly certified by him as correct and authentic report. It has to be, and should be, dealt with seriousness which it would deserve. The professional or trained Chartered Accountant is equipped with knowledge, training and experience to catch a mistake and if such trained and experienced professional allows so many mistakes, errors, inaccuracies and anomalies pass-by without detecting them and if he signs and authenticates report containing such mistakes, etc. and also issues certificate, then, in such circumstances, any fault cannot be found with the conclusions by the Disciplinary Committee, also confirmed by the Appellate Committee, that the petitioner did not exercise due diligence. The petitioner has tried to wish-away his failure in detecting - catching and correcting the mistakes by attributing the blame to typist and computer operator. The institute, which is statutorily obliged to maintain high standards of the profession and, for that purpose, to take action in cases which are brought to its notice wherein member of the institute is found wanting exercising due diligence and in being careful and cautions, would fail in its duty and obligation if it does not take appr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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