No Corroborative Evidence of Formation of Paper/Shell Entities for Accommodation Entries: ICAI finds CA not guilty of Professional Misconduct

The Institute of Chartered Accountants of India ( ICAI ) observed that the allegation of the formation of paper/shell entities for providing pre-arranged accommodation entries without corroborative evidence is not acceptable and found the Chartered Accountant ( CA ) not guilty of professional misconduct. It was alleged that the Respondent had formed various paper/shell entities for the sole purpose providing of pre-arranged accommodation entries. The Respondent was involved in financial irregularities by providing pre-arranged accommodation entries of share capital, share premium and unsecured loans. The Respondent had facilitated the evasion of taxes by various beneficiaries of pre-arranged accommodation entries through the companies controlled and managed by him. The Respondent submitted that the constitution of two benches of the Board of Discipline was ultra vires the provisions of the Accountants Act and the Chartered Accountants (Procedure of investigations Professional and Other Misconduct and Conduct of Cases) Rules, 2007. The Board viewed that two Benches of the Board of Discipline were constituted with an avowed object to accelerate the disposal of disciplinary cases and the administrative Ministry i.e. Ministry of Corporate Affairs had also nominated members as required under Section 21A (l)(b) to the Board of Discipline. On a conjoint reading of the provisions of the General Clauses Act, 1897 (which explicitly states that the words in singular shall include the plural, and vice versa) with the provisions of the Section 2 IA (1) of the Chartered Accountants Act, 1949 (as amended). The Council is empowered to constitute more than one Board of Discipline. The Benches so constituted carried out their functions inter-alia by conducting hearings and awarding punishments in disciplinary cases falling within their respective jurisdictions during the relevant period. Besides, the Respondent failed to place any material to show that the constitution of the two benches caused any prejudice to him. As regards the objection of the Respondent regarding the opinion of the Council as stipulated in Item (2) of Part IV of the First Schedule, the Board relied on para 17 and 18 of the Order dated 18th October 2018 passed by the Appellate Authority Anil Kumar Aggarwal Vs. The Institute of Chartered Accountants of India and others and Radhey Shyam Bansal Vs. The Institute of Chartered Accountants of India and others. The Respondent that specific clause of the misconduct had been defined by the Complainant, the Board was of the view that it is trite that a Complainant is required as per law to state the allegations which are to form a factual foundation for an Adjudicating Authority to exercise jurisdiction and even if an incorrect provision of law/no clauses is mentioned by the Complainant in FORM l, that alone cannot be a ground to dismiss a complaint if otherwise, the Authority has the jurisdiction to entertain the complaint. Further, the provision of Rule 3 is couched in a "mandatory form" by the use of words such as "shall" and appears to be mandating a procedure that must be necessarily followed. However, the mere use of language that suggests or purports to "mandate" may not alone be sufficient to regard a procedural rule to be mandatory to the extent that its non-compliance could vitiate the entire proceeding. The Complainant Department could not bring on record any Assessment Order to show that either commission income had been added to the income of the Respondent on account of any accommodation entries provided by him, as alleged or addition had been there in the hands of any of the beneficiary companies. Further, despite opportunities given to the Complainant Department to substantiate the charges alleged against the Respondent, neither any representation of the Complainant Department was there during the hearing nor did the Complainant bring on record any corroborative/conclusive evidence to substantiate the charge alleged against the Respondent that he formed various shell companies to provide accommodation entries instead of commission. The Board comprises CA. Rajendra Kumar P, Presiding Officer, Ms Dolly Chakrabarty, Government Nominee and CA. Priti Savla, Member held the Respondent not guilty of Other Misconduct falling within the meaning of Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22 of the said Act Accordingly, the Board passed Order for closure of the case in terms of the provisions of Rule 15 (2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates