Big Alert!: CAs don’t sign any Project Report; Calcutta High Court tightened its grip on CAs

The Calcutta High Court slammed the CAs for certifying fake loans and were deceiving lenders, resulting in massive NPAs.

“The matter is typical of how business is conducted in this country and why loans obtained from banks remain unpaid,” the High Court stated.

CA Dinesh Wadera has tweeted that, “Dear Chartered Accountants, don’t sign any Project Report or Estimates or Provisional Figures..! Now Calcutta High Court comes hammer & tongs at CAs..! In the latest judgement in Binod Kumar Agarwala vs. CIT, the Hon’ble Calcutta High Court has signaled a zero-tolerance policy towards the alleged nefarious practice of CAs.”

The assessee defrauded the bank and received credit by misrepresenting its financial status. To assist him in the unlawful crime, a chartered accounting business called ‘Roy Ghosh and Associates’ created a certified balance statement with fictitious values.

The accounting firm recklessly said that the statistics “have no relation to the actual figures.”

“We are providing information and explanations herewith purely on an estimate basis and have no relation with the actual figures and to obtain the bank loan,” it was noted.

The High Court was enraged by the Chartered Accountant‘s brazenness in approving the fake balance statement.

The essence of the appellant’s argument is that multiple financial images of a person or any organisation under his or her control may be produced to suit a person’s purposes before one authority or the other.

This is a subject of public policy, not just a legal one under the Income Tax Act. It is impossible that a person could approach a bank by inflating the value of his assets, only to decrease the value of the assets a few months later when queuing to pay tax.”

“It is hardly expected of a banker to question the veracity of any accounts certified by a firm of chartered accountants, or to look into the fine print and discern that utterly bogus figures had been furnished only for the purpose of availing of credit facilities from the bank,” it was observed.

The High Court slammed the practise of painting a rosy picture of the applicant’s financial position in the income-tax records while simultaneously slipping in another balance-sheet and P&L A/c indicating a less robust financial position of the constituent.

Roy Ghosh & Associates was regarded as a “willing accomplice” in this illegal and fraudulent practise.

It also ruled that the accounts could not be ‘tailor-made to fit a particular purpose or window-dressed to make it appealing for bankers to depend on them, and all the shine and sheen removed afterwards when it came time to pay tax’.

ITAT was hauled up for failing to notify the CA to the ICAI. The ITAT imposed strictures and found that a Chartered Accountant is bound by specific norms and must perform audits in compliance with the terms of the Chartered Accountants Act.

It was also said that Schedule II and Part 1 hold a chartered accountant liable for professional misconduct if he allows himself or his firm’s name to be used in conjunction with an estimate audit.

However, the High Court said that the ITAT could have gone farther and been more watchful about the CA’s complicity in the “commission of a colossal act of misrepresentation.”

“Indeed, the Appellate Tribunal may only be faulted for failing to report Roy Ghosh and Associates to the Institute of Chartered Accountants for apparently aiding and abetting the commission of a colossal act of misrepresentation which the appellant assessee undertook before his bankers for the purpose of obtaining credit facilities by indicating a financial position that was not warranted by the assessee’s books,” it said.

The ICAI has been instructed to investigate the matter.

Finally, the Hon’ble High Court directed that a copy of the judgement be forwarded to the ICAI so that necessary actions might be taken against Roy Ghosh and Associates in line with the law and after adequate notice to such company of CAs.