NFRA imposes penalty of Rs. 50L on CA for Incorrect certification of Income Tax Form 10DA [Read Order]:

NFRA imposes penalty of Rs. 50L on CA for Incorrect certification of Income Tax Form 10DA [Read Order] The National Financial Reporting Authority (NFRA) in the matter of CA Pawan Jain has imposed the penalty of Rs.50L on CA for Incorrect certification of Income Tax Form 10DA. In August 2022 the Director General of Income Tax (Investigation), Bengaluru (Income Tax department) shared information about irregularities in the 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 and 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 10DA, which formed the basis of Quess claiming deduction under section 80JJAA of the Income Tax Act for FY 2018-19, 2019-20 and 2020-21. NFRA Suo motu initiated proceedings under section 132(4) of the Act and on 23.09.2022 the CA was advised to submit the working files relating to the deduction claimed by Quess. The CA submitted the Files on 29.09.2022 and 11.10.2022. Based on their examination, NFRA, after observing prima facie professional misconduct, issued a Show Cause Notice ('SCN' hereafter) dated 21.06.2023 under section 132(4) of the Act, for (a) failure to exercise due diligence and being grossly negligent in the conduct of professional duties, and (b) failure to obtain an appropriate information necessary for expression of an opinion or its exceptions to negate the expression of an opinion. All of these constituted professional misconduct. The CA sought an extension of 7 days for replying, which was allowed. Vide email dated 28.07.2023 he submitted the reply to SCN. A personal hearing was also scheduled for 21.08.2023, but CA Pawan Jain sought an extension of four weeks' time. On 18.08.2023, NFRA rescheduled the personal hearing for 04.09.2023. Vide mail dated 30.08.2023, CA Pawan Jain intimated that due to ongoing health challenges, he was not able to secure the services of a legal representative and requested to consider his reply dated 28.07.2023 as a final submission. He stated that he had done certification of Form 10DA based on a detailed review of documents, management discussion, process controls in place, understanding of the entity's business and to the best of his professional judgment. He further stated that he might have erred in his professional judgement as highlighted in the SCN but it was not due to negligence in his professional duty, but possibly due to interpretation of the relevant regulations and guidance note. He requested that a lenient view be taken, considering the small size of his Firm and the impact on his professional career. This Order is based on examination of the facts of the case, charges in the SCN and written replies of CA Pawan Jain. The Income Tax Act requires the accountant (in this case CA Pawan Jain) to provide a report/ certificate in form 10 DA, to "certify" certain numbers based on which Quess would claim specific tax benefits. The certification requires the utmost professional skepticism, due diligence and sufficient & appropriate evidence to ensure that the certificate is true and correct. However, as explained in the above paras, CA Pawan Jain has failed to exercise due diligence in ensuring the presence of the basic qualifying criteria to qualify for the tax benefit and obtaining sufficient appropriate evidence to support his certification. Thus, he was negligent in the conduct of his professional duties by not adhering to the scope of the work undertaken by him. As per section 132(4) of the Companies Act, "Professional or other misconduct" shall have the same meaning assigned to it under section 22 of The Chartered Accountants Act 1949. Thus, the failure of CA Pawan Jain to exercise due diligence and failure to obtain sufficient appropriate evidence resulted in the following professional misconducts within the meaning of Section 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 the second schedule of The Chartered Accountants Act 1949), This charge is proved that 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 the expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion. (clause 8 of part-I of the 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.

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. The reports issued in Form 10 DA under section 80 JJAA of the Income Tax Act have significant implications for Government Revenue. The Income Tax Act has trusted chartered accountants by giving them authority to certify certain claims of taxpayers. The chartered accountants have the responsibility to ensure that the amount of deduction certified in these reports are correct. They are required to exercise due diligence while performing such work so that the trust of the Government remains in the profession. This Order has detailed the lapses by the CA in the issuance of report/certificate in form 10 DA based on which Quess claimed deduction u/s 80 JJAA of the Income Tax Act, 1961 of Rs. 113.86 crore, Rs.428.80 crore and Rs.428.16 crore during FY 2018-19, 2019-20 and 2020-21 respectively. Thus, the work of the CA has major implications for revenue. We find that CA Pawan Jain failed to exercise due diligence in the conduct of professional duties while certifying the information in form 10 DA based on examination of the relevant records. It has been proved that before issuing the reports, the CA did not obtain sufficient appropriate evidence with regard to compliance of conditions stipulated in section 80 JJAA for claiming deduction in respect of new employees. Section 132(4)(c) of the Companies Act 2013 provides that National Financial Reporting Authority shall, where professional or other misconduct is proved, have the power to make order for-

(A) imposing a penalty of - (I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and (II) not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms;

(B) debarring the member or the firm from - (I) being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate; or (II) performing any valuation as provided under section 247, for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial Reporting Authority.

Considering the proved professional misconduct and keeping in mind the nature of violations, their impact on revenue and deterrence against future professional misconduct, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby impose a monetary penalty of Rs. fifty (50) lakhs only upon CA Pawan Jain. For Official Order Download PDF Given Below: