Young CA Found guilty for not disclosing Accounting lapses in Audit Report: Fined Rs.1 Lakh by ICAI

The Institute of Chartered Accountants of India(ICAI) has found Young CA Guilty for not disclosing Accounting lapses in Audit Report and Fined Rs.1 Lakh.

Disciplinary Committee was, inter-alia, of the opinion that CA. Dolly Mittal (M. No.410931), Agra (hereinafter referred to as the Respondent”) was GUILTY of professional misconduct falling within the meaning of Items (6) and (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

FINDINGS:

The Committee noted the Respondent’s counsel while explaining the charges, relied upon his written submissions dated 05th August 2021 whereby the Respondent inter-alia had submitted as under:

i. The Respondent had mentioned in the CARO report regarding improper accounting followed by the Company regarding investments.

ii. As regards the tax audit, there was no specific requirement to report on book profits in Form 3CD.

iii. Since the matter was already covered in the CARO report, it was felt that there was no need to bring up the fact in the main report also.

iv. This was a matter of professional judgement.

v. That Hon’ble ITAT in its order had mentioned that “even the auditor has objected to the maintenance of records and has mentioned that the accounts have not been maintained in accordance with the Companies Act (D-26 and D-27 of prima-facie opinion).

The Committee noted that the assessee Company M/s Shri Radhey Govind Ice & Cold Storage Pvt Ltd. was engaged in the business of trading of edible products. The Company during the financial year sold certain shares held by it as investments. The method of accounting with respect to the sale of investments adopted by the Company was that the Company, instead of crediting profit and loss earned on account of the sale of shares to profit and loss account, revalued the shares and set off the profit/loss against the revaluation reserve of the shares. The revaluation of shares by the Company was mere a book entry as the profit/loss was never routed through its Profit and Loss Account.

Committee noted that the Respondent in her audit report under para 14 of CARO reporting (page C-15 of Prima-facie opinion) had mentioned as under:

“14. In our opinion and according to the information given to us the Company has maintained proper records of the dealing or trading in shares/ securities, debentures and other investments. The investments are held in the Company’s name. It has been observed during the year the investment in quoted shares held by the Company have been revalued at the calculation based on market value and are shown as such in investment and corresponding amount in revaluation reserve. During the year the Quoted Shares have been sold and excess or shortage has been adjusted against Revaluation Reserve.”

The Respondent further had disclosed in Notes on Accounts forming part of the Balance Sheet for the Financial Year 2009-10:

“(6) The investment in quoted shared held by the Company have been revalued at the valuation based on market value and are shown as such in investments and corresponding amount in revaluation reserve. During the year the Quoted Shares have been sold and excess or shortage has been adjusted against Revaluation Reserve.”

On perusal of reporting by the Respondent in her audit report the committee noted that the Respondent never objected on improper method of accounting adopted by the Company and has never mentioned that the accounts have not been maintained in accordance with the Companies Act. The Committee noted that the practice of revaluation of shares (without routing the same through Profit and loss account) was done by the Company with a view to avoid the taxes to revenue in accordance with the provisions of Section 115JB of The Income Tax Act, 1961.

It is further also noted that the amount of Long Term Capital Gain from such shares was Rs. 11,35,75, 186.00 and the same was 86.06% of the total size of the Balance Sheet (Rs. 13,19,68,966.74). Thus, from the above, the Committee observed that the amount involved was highly material and was required to be reported properly.

Committee also noted that ITAT vide its order dated 19th August, 2019 (D-5 to D-33) has dismissed the appeal of M/s Shri Radhey Govind Ice & Cold Storage Pvt Ltd. and had stated that income by way of long term capital gain is required to be taken into account while computing the book profit. Therefore, \TAT was of the opinion that once the record of the assessee (Company) has not been maintained in accordance with the provisions of law, then it is clear violation u/s 211(1) of the Companies Act, where it is the duty of the Company to report the profit and loss of the company and give true and correct picture of affairs of the company. The Committee noted that the Respondent as an auditor not only failed to disclose in her audit report about such known material lapse/ misstatement in Financial Statements but also is grossly negligent in the conduct of her professional duties while issuance of her audit report for the Company for Financial Year 2009-2010.

Also notice by the Committee that the name of the Respondent was also included in Report No. 32 of 2014 (Performance Audit) of the Comptroller and Auditor General of India commenting on the quality of the audit conducted by the specified Chartered Accountants.

Therefore, in view of the above, the· Committee · finds no merits in the arguments of the Respondent w,it’i1 regard to reporting title transactions in CARO rather not qualifying the Audit Report. The Committee further noted that the Regulatory Authorities like ITAT and CAG categorically point out the failure in reporting on the part of the Respondent which resulted in a short levy of tax to the tune of Rs.2.64 crores. The Respondent’s defence was based · on her professional judgement and her young age at the time of attestation was not tenable as she failed to exercise basic diligence and was grossly negligent while performing her duties, which caused loss to the Government exchequer.

CONCLUSION:

In view of the above findings stated above and the ITAT Order, CAG report as well as oral and written submissions vis-a-vis facts of the case, the Committee decided to hold the Respondent- CA. Dolly Mittal (M. No.410931), Agra, Guilty of Professional Misconduct falling within the meaning of Items (6) and (7) of Part I of the Second Schedule to the Chartered Accountant Act, 1949.

For Official Order Download PDF Given Below: