The Institute of Chartered Accountants ( ICAI ) recently acquitted a Chartered Accountant ( CA ) of misconduct in a matter regarding “Off the Books” purchase of shares by a company facing allegations of illegitimate transfer of funds in lieu of share purchase receipts.
The factual matrix follows a search conducted by the Income Tax Department at a Maharashtra-based firm rendering Financial Services. The search revealed that the firm had received large amounts as share-capital from two Kolkata-based companies; it was uncovered that the investor companies lacked the financial capacity to purchase shares of such high amounts, paving way for suspicion of fraudulent appropriation of funds.
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Statements were given on oath by the arraigned CA under Section 132(4) of the Income Tax Act, 1961 wherein it was submitted by the CA that he was the one who introduced the investor companies to a business family that later invested in the Maharashtra-based firm.
However, the CA asserted that the initial owners of the investor companies were compensated by the business family “off the books” with an amount somewhere equivalent to the amount of reserves outstanding in books of the two investor companies. The CA further submitted that his role was limited to mere advisory, though he served as Director of the investigated Maharashtra-based firm during the conflicted period.
Assessment Orders for the Assessment Years (A.Y.) 2009-10 and 2010-11 were passed against the Maharashtra firm under Section 153A read with Section 143(3) of the Income Tax Act, 1961.
The same was contested before the Commissioner of Income Taxes (Appeals) ( CIT(A) ) wherein it was rendered that the funds utilized for purchase of share capital had been accrued by the investor company at a time earlier than the transfer of ownership to the business family.
The Present Appeal has been filed by the Income Tax Department against the order of the CIT(A) absolving the CA of collusion.
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The ICAI Board of Discipline comprising CA. Rajendra Kumar P, Presiding Officer, Dolly Chakrabarty, IAAS (Retd.), Government Nominee and CA. Priti Savla, Member appreciated the Respondent CA’s submission that the transfer of funds ascribed to purchase of share capital had occurred during his tenure as Director of the Maharashtra firm, but recognized the lack of proof to render the CA of being complicit.
In light of the observations, ICAI held the Respondent CA ‘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.
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