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May 24, 2023

Do not sign any Project Reports, Estimates, or Provisional Figures, Dear CAs

Do not sign any Project Reports, Estimates, or Provisional Figures, Dear CAs

Now, the Calcutta High Court is attacking CAs with a vengeance

The Hon’ble Calcutta High Court has indicated a zero-tolerance approach towards the alleged dishonest practise of CAs in its most recent ruling in Binod Kumar Agarwala v. CIT

The High Court criticised the CAs for endorsing fraudulent loans and deceiving lenders, which contributed to the enormous NPAs

The High Court stated that the situation “is typical of how business is conducted in this country and why loans obtained from banks remain unpaid

The assessee misrepresented its financial situation to the bank in order to secure credit facilities

A certified balance statement with false numbers was produced by Roy Ghosh and Associates, a chartered accounting firm, to assist him in his illicit activity

The CA business brazenly stated that the figures “have no relation with the actual figures” in a disclaimer

It was said, “We are providing the information and explanations herewith strictly on an estimate basis and have no reference to the actual data and to obtain the bank loan

The Chartered Accountant’s egregious arrogance in certifying the false balance sheet infuriated the High Court, which was visibly furious

The main thrust of the appellant’s argument is that different financial scenarios about a person or any organisation they control may be presented before one authority or another in order to suit their purposes

This is a more important policy topic than any legal one related to the Income Tax Act

It is unthinkable that someone might approach a bank by inflating the worth of his assets and then, after a few months, deflate that value while standing in queue to pay taxes

It was noted that a banker is not typically expected to question the validity of any accounts certified by a firm of chartered accountants or to read the fine print and deduce that completely false figures had been provided solely for the purpose of obtaining credit facilities from the bank

The practise of presenting a positive financial picture of the applicant seeking credit facilities while secretly including a different balance-sheet and P&L A/c in the income-tax records indicating a less stable financial position of the constituent received harsh criticism from the High Court

Roy Ghosh and Associates were referred to as a “willing accomplice” to this illegal and dishonest activity

The accounts cannot be “tailored to suit a particular purpose or window-dressed to make it attractive for bankers to rely thereon and all the gloss and sheen removed thereafter when it was time to pay tax,” the court further stated

ITAT was called out for failing to inform the ICAI of the CA

A Chartered Accountant must conduct audits in compliance with the norms and guidelines of the Chartered Accountants Act, according to strictures passed by the ITAT

A chartered accountant commits professional misconduct, according to Schedule II and Part 1, if he enables the use of his name or the name of his business in conjunction with the audit based on estimation

The High Court did make a suggestion that the ITAT should have taken more steps and exercised greater caution in light of the CA’s complicity in the “commission of a colossal act of misrepresentation

“In fact, the Appellate Tribunal may only be faulted for failing to report Roy Ghosh and Associates to the Institute of Chartered Accountants for having apparently assisted in the to 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 was stated

ICAI was told to investigate the situation

In the end, the Hon’ble High Court ordered that a copy of the judgement be forwarded to the ICAI so that appropriate steps might be taken against Roy Ghosh and Associates in accordance with the law and after giving the firm of CAs due notice, if deemed necessary

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