ICAI Disciplinary Committee Acquits CA of Misconduct Allegations in Audit of Coaching Institute

The proceedings originated from a complaint filed by CA Rajesh Sharma alleging that CA Manoj Kumar Chadha, as statutory auditor of NBS Gurukul Institute of Competition Pvt. Ltd. for FY 2014-15, had connived with its directors to evade service tax by recording tuition-fee income as zero and showing the entire Rs. 35.03 lakh turnover under sale of printed study modules. The complaint stated that the institute used this turnover figure to qualify for a government tender requiring a minimum turnover of Rs. 25 lakh, while later admitting before tendering authorities that coaching services were indeed provided.

After inquiry, a Prima Facie Opinion held the Respondent guilty of several items under the First and Second Schedules to the Chartered Accountants Act.

Main Issue: Whether the Respondent, as statutory auditor, failed to exercise due diligence or abetted misstatement of tuition income, thereby aiding service-tax evasion and attracting misconduct under Item (2) of Part IV of the First Schedule and Items (5), (6), (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

Committee Decided: The Committee noted that there was no documentary material establishing that the Respondent had advised the company to misclassify tuition income or participated in any service-tax-related decisions. The Committee recorded that the Respondent relied on a Management Representation Letter dated 14 August 2015 in which the company explicitly stated that revenue for FY 2014-15 was solely from printed modules and notes, with no tuition income. It further took note of an affidavit from the Founder Director confirming that internal disputes between directors had led them to provide coaching individually and not through the company, which supported the Respondent’s position that tuition income was genuinely NIL.

The Committee held that there was no evidence that the Respondent failed to disclose any material fact, failed to report any known material misstatement, or acted without due diligence in performing the statutory audit. It further recorded that the Service Tax Department had initiated action against the Respondent or detected discrepancies in the audited financials for FY 2014-15. The Committee concluded that the Respondent’s conduct did not fall within Item (2) of Part IV of the First Schedule or Items (5), (6), (7) of Part I of the Second Schedule. Thus, it held him Not Guilty of all charges and directed closure of the case under Rule 19(2) of the 2007 Rules.

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