Facts of the Case

The disciplinary proceedings arose from a complaint filed by Shri Arvind Kumar, Additional Commissioner of Income Tax, Jodhpur. The case originated from detection of non-deposit of TDS and fraudulent income tax refunds in the name of one Shri Ashish Goyal during 2015. Subsequent investigation revealed a large-scale refund fraud involving creation of fictitious identities, bogus PANs and TANs, forged documents and operation of multiple bank accounts for the purpose of claiming and siphoning off income tax refunds.

Investigation by the Income Tax Department and CBI revealed that several bank accounts were opened using falsified credentials, many of which were directly linked to the Respondent, CA Kapil Kansal (M. No. 540411). Handwriting analysis, KYC documents, photographs, email trails and IP addresses used for e-filing established his direct involvement. Refund amounts credited to these fictitious accounts were subsequently transferred to accounts belonging to the Respondent, his firm and family members. The fraud was estimated to have caused a loss of approximately ₹4.83 crore to the Government exchequer. The Respondent was arrested on 09.02.2016 and, during criminal proceedings, agreed before the Chief Metropolitan Magistrate, Delhi, to repay ₹1.30 crore in instalments, out of which ₹20.35 lakh was deposited by November 2016.

Issues Involved

Whether the Respondent’s involvement in orchestrating a large-scale income tax refund fraud constituted “other misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949, and whether disciplinary action under Section 21A(3) was warranted notwithstanding pendency of criminal proceedings.

Petitioner’s Arguments

The Respondent contended that disciplinary proceedings were not legally sustainable merely on the basis of arrest and that the FIRs registered against him were false and pending adjudication. He argued that the alleged acts occurred prior to his enrolment as a Chartered Accountant and therefore fell outside the jurisdiction of ICAI. He also relied on a forensic report to contend that signatures on certain bank documents were not his and submitted that any monetary settlement with the Income Tax Department was made under coercion while he was in custody.

Respondent’s Arguments

The Complainant Department relied upon extensive documentary evidence including investigation reports, bank records, KYC documents, photographs, digital trails, statements of witnesses and the Respondent’s own statement before the criminal court agreeing to repay the defrauded amount. It was contended that the fraudulent activities continued after the Respondent became a member of ICAI and that professional misconduct proceedings are independent of criminal trials.

Court Order / Findings

The Board of Discipline examined the entire material on record and noted that the Respondent became a member of the Institute on 18.01.2016 and was arrested thereafter on 09.02.2016. The Board observed that the forensic report relied upon by the Respondent was inconclusive and did not exonerate him, and that photographs of the Respondent appeared on KYC documents of fictitious bank accounts used for routing fraudulent refunds. The Board further noted the Respondent’s voluntary statement before the criminal court agreeing to repay ₹1.30 crore to the Income Tax Department.

The Board held that pendency of criminal proceedings does not bar disciplinary action and that involvement in financial fraud, creation of fake identities and misuse of tax refund mechanisms gravely undermines the integrity and reputation of the profession. On cumulative evaluation of facts, documents and conduct of the Respondent, the Board concluded that the Respondent was guilty of “other misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22.

Important Clarification

The Board clarified that Chartered Accountants are expected to maintain the highest standards of integrity and probity. Any involvement in, association with, or facilitation of financial fraud is incompatible with the dignity of the profession, and disciplinary jurisdiction of ICAI is independent of and not contingent upon the outcome of criminal proceedings.

Final Outcome

The Board of Discipline, in exercise of powers under Section 21A(3) of the Chartered Accountants Act, 1949, ordered removal of the name of CA Kapil Kansal (M. No. 540411) from the Register of Members for a period of three (3) months.

 Source Link- https://www.mytaxexpert.co.in/uploads/1768891065_ShriArvindKumarJodhpurvsCA.Kapil.pdf

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