Tobacco Diversification and Investments Private Limited vs. Assistant Commissioner of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 2ND DAY OF MARCH 2022 / 11TH PHALGUNA, 1943 CMR NO. 2 OF 2010 PETITIONER/S:

INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, INDRAPRASTHA MARG, NEW DELHI

BY ADVS. SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI SHRI.P.VIJAYAKUMAR, ASG OF INDIA MANU S., ASG OF INDIA ADV. PAULOSE C ABRAHAM

RESPONDENT/S:

SRI.P.SUBRAMANIAN, CHARTERED ACCOUNTANT

BY ADV SRI.A.KRISHNAN

THIS CIVIL MISC. REFERENCE HAVING COME UP FOR ADMISSION ON 02.03.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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O R D E R S.V.Bhatti, J.

At the instance of the Institute of Chartered Accountants of India (for short, ‘the Institute’), the instant reference has been made under Section 21(5) of the Chartered Accountants Act, 1949 (for short, ‘the Act’). The reference proposes by way of punishment for alleged misconduct removal of the respondent from the Register of Members of the Institute for five years. The circumstances preceding the reference are briefly stated thus: 2. On 10.10.2002, the Agricultural Income Tax and Sales Tax Officer, Vythiri, Kalpetta, filed a complaint against the respondent. The gist of the complaint is that the respondent produced a few orders before the complainant stating stay orders received from the Appellate Assistant Commissioner and the Appellate Tribunal, Kozhikode against the orders of assessment made by the Assessing Authority. The Department basing upon the orders placed by the respondent, did not initiate steps to

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demand or recover tax from those assessees who obtained orders of stay against the assessment orders. The accusation against the respondent is that on scrutiny of records, it revealed that the stay orders produced by the respondent are bogus. ‘In order to avoid the payment of tax due to the Government respondent himself approached the Revenue Authorities and produced the forged stay orders’. The sequence is that the respondent himself approached the Revenue authorities and produced the forged stay orders. The stay orders relied on by the respondent are bogus. The respondent claimed to have appeared for hearing, conducted the appeals before the Appellate Authority. The reliance on these stay orders it is treated as an offence punishable under the Indian Penal Code and an FIR was registered against the respondent. The Agricultural Income Tax and Sales Tax Officer, Kalpetta, requested the Institute to initiate action against the respondent under the Act for the alleged misconduct. 2.1 On 12.06.2003, the respondent filed his first reply to

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the complaint dated 10.10.2002. The complainant filed rejoinder dtd 28.07.2003, to which the respondent filed additional reply dtd 03.10.2003. The respondent, in his reply dated 12.06.2003, stated that, as a matter of fact, the respondent informed the District Collector and Revenue Authorities that the bogus stay orders are relied on and placed on record without his knowledge in the files dealing with assessment orders. The respondent produced only original orders in all cases conducted by him, but in matters referred to by the complainant, xerox copies are received by the office. He, further categorically, stated that one of the staff members of his office would have played the mischief by inserting the xerox copies of orders. The responsible employee had given a statement before the District Collector. The tax due, from all the cases in which the complaint is made, has already been paid on the instructions of the respondent. The criminal case registered against the respondent was pending in file, and the outcome would inform in due course. For convenience, it is noted at this juncture of our narration that later on after trial the

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criminal case entered in acquittal. In the rejoinder filed by the complainant, it is further reiterated that the respondent personally appeared and handed over the bogus stay orders. In the words, the source of alleged bogus xerox copies of orders is attributed to the respondent and was brought on record through the personal appearance of the respondent. The respondent elaborated his reply that the respondent himself is a victim of the circumstances, as his signature has been forged and xerox copies are generated. 2.2 The complaint was referred to the disciplinary committee for enquiry under Section 21(1) of the Act. The disciplinary committee submitted the report dated 03.02.2008. From the record, it appears that the disciplinary committee in its meeting dated 08.08.2003 held at Bangalore, noted that both the complainant and respondent were not present. The committee also noted that ‘the case is already adjourned five times, thus, the committee decided to proceed with the case ex-parte both the

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complainant and the respondent. Thereafter, the Committee perused the documents which were on record and hearing was then concluded’. (Emphasis added) 2.3 The conclusion of the enquiry resulted in the report dated 03.02.2008. The findings are that the stay orders were bogus, and the respondent denied this fact. The Committee notes that it is surprised when the staff member put the respondent’s signature on the photocopies of the bogus stay orders, and the respondent did not bother to verify the same before submitting the same to the complainant as to whether these orders were genuine or not. The statement of the respondent’s staff member, ie. K.P Suresh Kumar cannot be accepted. The committee noted that there is no evidence to prove that the respondent was not aware of the said acts of submitting bogus refunds by his office staff. The reliance on the statement of the staff member has no legal validity. The respondent did not appear before the Committee for examination.

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Therefore, the Committee found that the respondent is guilty of ‘other misconduct’ as being aware of the fact that the stay orders are bogus. He submitted the same to the complainant for taking undue advantage. The Council, in the meeting held between the 17th and 19th April 2009, accepted the report and resolved thus: The Council considered the Report of the Disciplinary Committee alongwith the written representation dated 2nd April, 2009 received from the Complainant and written representation dated 13th April, 2009 received from the Respondent before it.

Decision: On consideration of the Report of the Disciplinary Committee alongwith the written representation dated 2nd April, 2009 received from the Complainant and the written representation dated 13th April, 2009 received from the Respondent, the Council decided to accept the Report of the Disciplinary Committee and accordingly held that the Respondent was guilty of "Other Misconduct" under Section 22 read with Section 21 of the Chartered Accountants Act, 1949. The Council also decided to recommend to the High Court that the name of the Respondent be removed from the Register of Members for a period of five years.

Hence, the Reference under Section 21(5) of the Act.

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admission of the respondent, the findings of the Disciplinary Committee, and the objective manner in which the Council is stated to have accepted the report and contends that a case is made out, the punishment proposed by the Institute is accepted, and the respondent is removed from the Register of Members for five years.

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in all the matters have been paid, the criminal case filed against the respondent after full-fledged trial entered in acquittal. The Disciplinary Committee fell in grave error while recording guilt of misconduct against the respondent. The committee called upon the respondent to prove the allegations set out in the complaint. The entire sequence could be attributed to the respondent only if the complaint against the respondent is proved either by oral or documentary evidence. The complainant is not examined, and there is no documentary evidence on the allegation that the respondent was physically present and handed over the bogus stay orders; which precluded the Department from realising the taxes due from the assessees. It is argued, that the misconduct in such circumstances is accepted by this Court in its statutory, supervisory jurisdiction under Section 21 of the Act and the respondent is found guilty on the complaint but not on the evidence placed in support of alleged misconduct. The question is not whether the bogus stay orders are available in the record or not, but the crux of the accusation is that the

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respondent personally handed over the bogus orders. So the Disciplinary Committee enquires into this side of the accusation before embarking on other allegations. He prays for dismissing the complaint as false and motivated.

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(C)Chartered Accountants Act (38 of 1949), S.21- Finding of guilty by Council - Order must contain reasons. In fairness and justice, the member is entitled to know why he has been found guilty. The case can be so serious that it can attract the harsh penalties provided by the Act. Moreover, the member has been given a right of appeal to the High Court under S. 22-A of the Act. To exercise his right of appeal effectively he must know the basis on which the Council has found him guilty. A finding by the Council is the first determinative finding on the guilt of the member. It is a finding by a Tribunal of first instance. The conclusion of the Disciplinary Committee dose not enjoy the status of a "finding". Moreover, the reasons contained in the report by the Disciplinary Committee for its conclusion may of may not constitute the basis of the finding rendered by the Council. The Council must, therefore. state the reasons for its finding.

C) In the matter of Council of Institute of Chartered Accountants of India v. Somnath Basu (MANU/WB/0365/2006) 58. On examination of the records including the report of the disciplinary committee and scanning the charges levelled against the respondent auditor we find that the basic allegations against the respondent auditor are failure to report the transfer of securities from Broker's account to Bank's SGL account and also not to report the wrong credit of investment to broker's account and furthermore, failure to report several irregularities in the transactions relating to investments of the bank. However, it was never alleged that the respondent auditor was willfully and deliberately negligent in the conduct of his professional duties. 59. Failure to rise to the expected level of efficiency in discharging professional duties cannot be regarded as misconduct treating such failure as negligent act In the conduct of the professional duties. In the Division Bench

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judgment of this Court in the case of S. Ganesan v. A.K. Joscelyne reported in MANU/WB/0013/1957: AIR1957Cal33, Chief Justice Chakravartti observed as hereunder: 33.... Professional misconduct on the part of the person exercising one of the technical professions cannot fairly or reasonably be found, merely on a finding of a bare non-performance of a duty or some default in performing it. The charge is not one of Inefficiency, but of misconduct and in an allegation. of misconduct an imputation of a certain mental condition is always involved. I think, it would be impossible for any professional man to exercise his profession if he was to be held guilty of misconduct simply because he had not, in a given case, been able to do all that was required in the circumstances or that had misconceived his duty or failed to perform a part of it. I think the test must always be whether in addition to the failure to do the duty, partial or entire, which had happened, there had also been a failure to act honestly and reasonably. 60. In the present case, admittedly, it has not been alleged that the respondent auditor failed to act honestly and therefore, it is difficult to hold that the said auditor is guilty of any misconduct. It is difficult to hold that lack of efficiency or attainment of expected standards while discharging professional duty would automatically. constitute misconduct. 61. Misconduct arises from ill-motive and mere acts of negligence, innocent mistake or errors of judgment do not constitute the misconduct. Even if there is any negligence in performance of duties or errors of judgment in discharging of such duties, the same cannot constitute misconduct unless ill-motive in the aforesaid acts are established.

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** * *** *** 8. The High Court is, therefore, invested with wide jurisdiction empowering it either to direct the proceedings to be filed or dismiss the complaint, reprimand the member, remove him from membership of the Institute either permanently or for such period as the High Court thinks fit or refer the case to the Council for further inquiry and report. There is no restriction placed upon the power of the High Court relating to only questions of law or procedure or jurisdiction. The High Court, therefore, is competent and has jurisdiction to examine the entire material-oral and documentary on record and arrive at its own conclusions on all material questions of fact and law. The High Court can interfere with the findings of fact arrived at by the Disciplinary Committee and the Council. The findings of the members of the Disciplinary Committee and the Council are no doubt entitled to great weight in view of the fact that they are the experts with regard to the matters pertaining to the profession of a Chartered Accountant and they are deemed to know the intricacies of the profession on account of their personal experience and their object being only to maintain a high standard of conduct and discipline amongst the members of the Institute. The High Court has to examine the entire record and the correctness of the findings recorded by the Disciplinary Committee and the Council and come to its own conclusions and findings on all material points at issue and pass an appropriate order depending upon the facts and circumstances of each case. Where the material on record is not sufficient to express its opinion one way or the other, this Court can refer the case to the Council for further inquiry and report or transfer the case to another High Court in its opinion such transfers would promote the ends of justice or tend to the general convenience of the parties. The powers of the High Court while hearing references under section 21 of the Act are not fettered or limited in any way. It is not bound in every case to deal with the merits of the finding recorded by the statutory bodies and express its opinion either to accept or to reject

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it. The powers of the High Court are undoubtedly wide enough to enable it to adopt any course, which, in its opinion, will enable it to do real, complete and substantial justice between the member concerned, the Council and the Central Government, vide Council of the Institute of Chartered Accountants and another v. B. Mukherjea. 9. In Chief Controller of Exports, New Delhi v. G. P. Acharya, the learn ed Judge Mukharji J. (as he then was), speaking for the Court, observed at page 181 thus: "Wide are the powers, therefore, of this Court in dealing with References under section 21 of the Chartered Accountants Act. Nevertheless, it appears that some well- settled principles should guide this Court in exercising this ample power. It is essential to remember that this Court in such jurisdiction as under section 21 of the Chartered Accountants Act is dealing with not so much as private dispute or a private litigation but is dealing with the findings of a professional body of people who are intended to be the best judges of what their own standard of professional conduct should be. Unless, therefore, there is a gross violation or disregard of the provisions of the Chartered Accountants Act or the Regulations made thereunder or a gross and utter disregard of certain well- known principles of natural justice and fairness or obvious disregard or essential considerations of law or fact, this High Court should not be too eager to interfere with the findings of professional bodies like the Council of the Chartered Accountants of India and its Disciplinary Committee." Much reliance has been placed by Shri Kolhi on this passage in support of his contention that the findings of the Disciplinary Committee and the Council in the present case should not be interfered with as the members thereof are best Judges of their own standard of professional conduct and they are disinterested bodies. True, as pointed out earlier, the findings of the statutory bodies consisting of eminent and experienced members of that profession

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are entitled to great weight, but however, no limitation or restriction on the power and jurisdiction. of this Court while hearing References under section 21 of the Act can be imposed when they are not found in the Act. We are conscious of the fact that the powers of this Court are not circumscribed in the Statute. They are of very wide character, nor can it be said that the jurisdiction of this Court under section 21 (6) of the Act is analogous to that of an appellate Court. Where the Sovereign Parliament thought fit and proper in its wisdom to entrust such wide powers and jurisdiction to this Court while dealing with References under section 21 of the Act, it is not permissible for this Court: to limit its jurisdiction in this regard by any general principles. Each case has to be judged and decided by the Court by applying its mind to all the facts and circumstances without any preconceived notions of its own. It is nowhere stated in the Act or the Regulations made thereunder that the findings of the statutory bodies under the Act in disciplinary proceedings are either binding or they cannot be interfered with unless there is a gross failure or disregard of the provisions of the Act or Regulations of law or principles of natural Justice”. *** *** *** 13. ……………………. “In the course of the argument, a number of decisions arising under the Legal Practitioners Act have been cited and it was conceded that the test applied to the legal practitioner would be applicable to the cases of Chartered Accountant.”

5.1 We have perused the record and noted the contentions urged by the learned counsel appearing for parties. We keep in our perspective the approach and views expressed in the

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reported judgments about the special jurisdiction of this Court under Section 21 of the Act. The following question arises for consideration: “On the facts and in the circumstances of the case, whether the respondent is guilty of professional misconduct within the meaning of guilty of ‘other misconduct’ on the ground that he personally appeared and presented the bogus stay orders before the complainant?”. The answer to the question is arrived at from the examination of the evidence on record. The complaint categorically refers that the respondent, in order to avoid the tax payment due to the Government, (a) himself approached the Revenue authorities; (b) produced forged stay orders; and (c) because of the bogus stay orders recovery was stopped. The rejoinder filed by the complainant reiterates that the stay orders which precluded the Department from enforcing the tax due is on account of bogus stay orders personally presented by the complainant. In this context, we take note of the respondent’s reply. The respondent

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stated that the bogus stay orders are used to prevent the authorities from realising the tax arrears from respective assessees. The explanation or reply is that the orders referred to by the complainant are photostat copies on which the respondent’s signature is forged. It was on the information given by the respondent the District Collector has moved in the matter and remedial measures were taken. In the cases in which the respondent was appearing, original orders of stay, or final orders alone were produced. Important reply or denial is that the respondent never physically presented any of the orders. The complaint is not made against the respondent for what is there on record, but on the alleged personal appearance by the respondent and giving the bogus stay (xerox) orders. Some evidence on the stating of alleged misconduct, even for our limited purpose of deciding on the recommendation of the council, is necessary. The contemporaneous record relied on by both parties is not of much relevance. Appreciated, the sequence of steps alleged against the respondent on the misconduct is that

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the respondent personally appeared and submitted the bogus stay orders. The essence of the complaint is that the respondent personally presents himself and places the bogus stay orders on record. It may be in this context whether, even for the limited purpose of finding the respondent guilty of ‘other misconduct’, any material is available. 6. It is no doubt true that the members registered under the Act, like any other professional, are expected to maintain probity, integrity, and a high standard of professional integrity. The accusation of misconduct is a converse to the above qualities expected of a professional. The complainant establishes the accusation atleast with reasonable probability with reference to the theory of some evidence, including oral evidence on this crucial aspect of the allegation. Except for making a statement that the respondent personally attended and submitted that the bogus photostat copies of the stay orders, the basis constituting misconduct viz. that the respondent personally appeared is accepted without there being any evidence. It is also fairly

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conceded by the counsel appearing for the Institute that the Disciplinary Committee was compelled to proceed ex-parte, and the report has been submitted basing on the material placed before it. The ex-parte conclusion by the Disciplinary Committee is that no justification to accept that evidence is on record. As already noticed, the Disciplinary Committee has assumed many circumstances against the respondent and has not enquired into the crucial circumstances which led to the presence of bogus orders and the person responsible for it. The Disciplinary Committee based its findings on the reasoning that, before submitting the orders to the complainant, the respondent did not bother to verify whether the bogus orders were genuine or not. The said observation is prejudicial and unavailable, for it assumes that the presence of the respondent is established to the extent required in an enquiry under the Act. 7. We keep in our perspective that the principles enunciated by the judgments referred to above, and without

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much deliberation, are of the view that the material on record does not warrant the finding of guilty of ‘other misconduct’ under Section 21 of the Act. The conclusions as accepted by the Council are findings accepted by this Court in exercise of statutory, supervisory jurisdiction under Section 21 of the Act, the same would amount to accepting the guilt on mere complaint against the respondent. For the above reasons, on the reference made under Section 21 (5) we hold that no case is made out against the respondent, and the complaint be dismissed. The C.M. Reference is disposed of accordingly. No order as to costs.

Sd/- S.V.BHATTI JUDGE

Sd/- BASANT BALAJI JUDGE