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TMI Blog2024 (1) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... additional employees whose EPS contribution was paid by the Government; (c) whether there was increase in the total number of employees; (d) whether additional employee cost was paid by account payee cheque/draft/electronic means; and (e) whether total emoluments of additional employee was not more than Rs 25000 per month. In addition to the above charges, there are many other conditionalities under section 80JJAA, which are required to be checked by the CA who certifies eligibility of the amount of Income Tax deduction to be claimed by the assessee company. These relate to ascertaining whether the new employees participated in a recognized Provident fund, whether there was no rehiring of old employees, and whether additional employees were employed for not less than 240 days. Besides these, there were deficiencies in sample testing done by the CA. The CA was charged with non-verification of the same. While denying all of these charges, the CA claimed that he had looked into these matters. As stated earlier, none of these are evidenced in the working file and therefore, we are unable to accept his defense. Findings on the Articles of Charges of Professional Misconduct - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduct, monetary penalty of Rs fifty (50) lakhs only imposed upon CA Pawan Jain. - Dr. Ajay Bhushan Prasad Pandey Chairperson, Dr. Praveen Kumar Tiwari Full Time Member And Smita Jhingran Full Time Member ORDER In the matter of CA Pawan Jain u/s 132 (4) (c) of the Companies Act, 2013. 1. This order disposes of the Show Cause Notice ('SCN' hereafter) no. NF- 23/23/2022 dated 21.06.2023 issued to Mis Kumar Jain Associates (ICAI [The Institute of Chartered Accountants of India] Firm Registration No: 016717S) and CA Pawan Jain (ICAI membership No: 228026), who is a member of ICAI and issued reports u/s 80 JJAA of the Income Tax Act for the financial years 2018-19, 2019-20, and 2020-21 in the matter of Quess Corp Ltd. ('Quess' hereafter). CA Pawan Jain is hereafter referred to as 'the CA' in this order. 2. This Order is divided into the following sections: A. Executive Summary B. Introduction Background C. Lapses in issue of reports D. Finding on the Articles of Charges of Professional Misconduct by the Firm and CA K E. Penalty Sanctions EXECUTIVE SUMMARY 3. In August 2022 the Director General of Income Tax (Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues reports/certificates are bound by the duties and responsibilities prescribed in the standards on quality control and the Code of Ethics, the violation of which may constitutes professional misconduct, and is punishable with penalty prescribed under Section 132 (4) of the Act. 8. In August 2022 the Director General of Income Tax (Investigation), Bengaluru (Income Tax department) shared information about irregularities in deduction of Rs.1135.41 crores claimed by Quess under section 80 JJAA of the Income Tax Act, based on form 10 DA issued by two chartered accountants for Financial Years 2016-17, 2017-18, 2018-19, 2019-20 2020-21. The irregularities were reinforced by the special audit commissioned by the Income Tax Department. Quess Corp Limited being a listed company falls within the jurisdiction of NFRA in terms of Rule 3 of NFRA Rules 2018. It is engaged in the business of providing services in Workforce Management, Operating Asset Management and Global Technology Solutions. CA Pawan Jain, partner of Mis Kumar Jain Associates, has signed the reports in form 1ODA, which formed the basis of Quess claiming deduction under section 80JJAA of the Income Tax Act for FY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year [Previous year is corresponding financial year] , for three assessment years including the assessment year relevant to the previous year in which such employment is provided. Rule 19 AB of the Income Tax Rules provides that the report of an accountant, which is required to be furnished by the assessee along with the return of income under clause (c) of sub-section (2) of section 80JJAA, shall be in Form No. 10DA- notified and amended from time to time. Form 10 DA is a report to be issued by a practicing chartered accountant based on which the deductions are claimed from taxable income by the company reported upon. The report should give details of the: a) number of employees as on the last day of the immediately preceding year, b) number of employees as on the last day of the previous year, c) number of employees employed during the previous year, d) number of additional employees, the emoluments of whom is eligible for deduction under section 80JJAA, e). total amount of emoluments paid or payable to additional employee entitled for deduction u/s 80JJAA, f). the amount of deduction eligible u/s 80JJAA in respect of payments for the emoluments paid or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e report in Form 10 DA. The working file for 2019-20 shows that the CA did not obtain such information from Quess. Accordingly, the CA was charged with failure to obtain sufficient appropriate evidence and failure to exercise due diligence professional skepticism before issuing the report in Form 10 DA in 2019-20. 14. While denying the charge, CA Pawan Jain replied that he had verified these transactions (mergers/acquisitions/amalgamations/acquisitions), and Quess had not claimed any deduction in respect of additional employees of these entities, though employees of Aravon and MSSPL were part of the closing head count. This is contradictory to the working paper where MSSPL is not included in the head count. The Audit File does not contain any evidence in support of CA Pawan Jain's statement that Quess had not claimed any deduction in respect of Aravon MSSPL even though they were included in the head count. On the contrary, Table 3 shows that deduction had been claimed for the employees of Aravon MSSPL. Table 3 shows that of the 66,470 additional employees in FY 2019-20, benefit under section 80 JJAA was claimed for 42,447 employees, excluding 24,023 employees who had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitted to this incorrect claim in its Management Representation Letter (MRL) issued for FY 2020-21, intimating the CA that they had wrongly claimed deduction during FY 2018-19 FY 2019-20. Accordingly, while claiming benefit in the Form 10 DA for FY 2020-21, the employee cost of such employees was reduced by Rs 128.35 crores for FY 2018-19 Rs 8.09 crores for FY 2019-20. The CA was charged with failure to obtain necessary information about such payments by the government failure to perform any procedure in FY 2018-19 FY 2019-20 to verify whether GOI was paying EPS contribution in respect of employees, whose employee cost was included while calculating and certifying the eligible employee costs for deduction. 19. The CA stated that he was aware that certain 'additional employees' employed during the respective FY 2018-19 and FY 2019-20 were covered under the Scheme notified by the Govt. under the Employees Provident Fund and Miscellaneous Provisions Act 1952.......... The samples selected for FY 2018-19 included those employees covered under the PMRPY Scheme but were qualifying as 'additional employees' as the contribution had not been paid by the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PMRPY in respect of additional employees. This, coupled with the admission by Quess of the mistake in the claim and its subsequent discontinuance and revision of the Form 10 DA by the CA himself proves that the CA was not diligent in issuing the said report dated 05.11.2019 for FY 2018- 19 and report dated 23.10.2020 for FY 2019-20, which was revised on 30.03.2021. This proves the charge against the CA. III. Lapses in reporting additional employees during FY 2020-21 22. As per explanation to section 80 JJAA, additional employee cost shall be nil if there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year. Further, a proviso was inserted to explanation (ii) of sub section 2 of the section 80 JJAA by the Finance Act 2018 which reads as follows: Provided further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gibility will have to be evaluated in terms of all the provisions of section 80 JJAA of the Income Tax Act. 26. It is evident from the above analysis that there was an increase of only 4,827 number of employees during FY 2020-21 whereas the CA had certified deduction for 24,023 employees. Further, there is no analysis in the Working File about the increase in the number of employees on 31.03.2021 after considering spill over employees of the preceding year. In view of the explicit provision regarding the increase in the actual number of employees cited above, we find that the reply of the CA is not satisfactory. IV. Failure to verify payment of additional employee cost by account payee cheque/draft/electronic means 27. As per explanation to section 80JJAA, additional employee cost shall be nil if emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account. The CA was charged with failure to verify whether additional employee cost was paid through prescribed mode of payment during FY 2018-19, FY 2019-20 2020-21. The CA simply relied on MRL from Quess intimating that the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lary below Rs 25,000 per month, in order to avail the deduction during FY 2018-19, FY 2019-20 2020-21. 31. The CA has replied that he relied on the salary data extracted from the Salary Master of the company having detailed breakup of various components of the salary. He further contended that there are several checks, controls balances in place to ensure that there is no breach in the salary master software with very less manual intervention; that he had relied on the Internal Financial Controls (IFC) framework in Quess and statutory auditor's report on IFC; that samples verified by him had no adverse findings, therefore, he had no reason to believe that there was manipulation in emoluments paid to employees. The CA further added that the impugned condition of Rs. 25,000 per month given under section 80JJAA should be read as a figure derived from an annualized condition and therefore if payment of emoluments in a particular month of the year breaches the limit of Rs. 25,000, it does not disentitle the concerned employee/s from definition of additional employees, if the emoluments paid to those employees does not exceed the annualized upper limit of Rs. 3,00,000. To subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered while verifying this limit of Rs 25,000/-, which was not done. This point is corroborated from the analysis done by the Income Tax Department that Quess maintains the data of payments made to employees in two registers. The first register is 'SALARY PAY REGISTER' that includes the heads 'gross salary', all allowances, reimbursements etc., and second register is 'OTHER INCOME REGISTER' maintained as excel sheet that includes the remittances, incentives etc., paid to employees. The amount in other income register was not included by the company in total emoluments paid to employees for the purpose of claiming deduction u/s 80JJAA of Income Tax Act 1961. However, there was no mention of 'OTHER INCOME REGISTER' in the Working Files submitted by CA. This shows a lack of due diligence on the part of CA. Therefore, we do not find the reply of the CA satisfactory. 33. From the paras I to V above, it has been established that CA Pawan Jain failed to obtain sufficient appropriate evidence and failed to exercise due diligence professional skepticism before issuing report in Form 10 DA. He did not verify the basic conditions i.e., (a) excluding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132 (4) of the Companies Act, 2013: a) Failure to exercise due diligence in the conduct of professional duties ( clause 7 of part-I of second schedule of The Chartered Accountants Act 1949) , This charge is proved that the CA Pawan Jain failed to exercise due diligence in the conduct of professional duties as explained in Section - C- I to V above. b) Failure to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion. (clause 8 of part-I of second schedule of The Chartered Accountants Act 1949) . This charge is proved as CA Pawan Jain failed to obtain sufficient information which was necessary to ensure that the report issued by him in Form 10 DA is true and correct as explained in Section - C - I to V above. E. PENALTY SANCTIONS 36. Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law. 37. The reports issued in form 10 DA under section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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