Facts of the Case

A complaint was filed by CA Mahesh Kumar Vasantlal Dave, Mumbai, against CA Shankar Choudhary, Navi Mumbai. The complainant’s firm was the immediate previous GST Auditor of M/s VEMB Lifestyle Private Limited and M/s ONO Uniforms Private Limited.

The Respondent was appointed as GST auditor of M/s VEMB Lifestyle Private Limited for FY 2018–19 and M/s ONO Uniforms Private Limited (now M/s ONO Lifestyle Limited) for FY 2019–20. It was alleged that the Respondent accepted these GST audit assignments without first communicating in writing with the complainant or the complainant’s firm, who were the retiring auditors.

It was further stated that substantial professional fees of the complainant were pending with the management of the companies at the time the Respondent accepted the audit assignments.

Issues Involved

Whether the Respondent accepted GST audit assignments previously held by another Chartered Accountant without prior written communication, and whether such conduct amounted to Professional Misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949.

Complainant’s Arguments

The complainant contended that the Respondent failed to comply with the mandatory requirement of prior written communication before accepting the GST audit. It was argued that such communication is essential to uphold professional discipline and collegiality, particularly when professional fees of the previous auditor remain unpaid.

Respondent’s Arguments

The Respondent submitted that he had sent letters dated 19 June 2020 and 07 January 2021 to the complainant seeking no-objection for accepting the GST audit assignments, but due to the COVID-19 lockdown he could not send the letters by registered post. He claimed that the letters were sent through courier but admitted that he could not produce any proof of delivery.

The Respondent further relied on relaxations granted by ICAI during the pandemic period regarding modes of communication with retiring auditors.

Court / Authority Order and Findings

The Board of Discipline examined the documents on record, submissions of the parties, and the provisions of Item (8) of Part I of the First Schedule along with the Code of Ethics, 2009 and 2020. The Board reiterated that there are two mandatory requirements under Item (8):
(i) communication must be prior to acceptance of the appointment, and
(ii) such communication must be in writing with positive evidence of delivery.

The Board noted that although pandemic-related relaxations permitted communication through email, the Respondent categorically admitted during the hearing that he did not send any email to the complainant prior to accepting the appointment. The Respondent also failed to produce any positive evidence of delivery of letters allegedly sent through courier.

The Board observed that the GST audit reports for the concerned companies were signed by the Respondent on 31 December 2020 and 31 March 2021, confirming that the acceptance of appointment had already taken place without compliance with the mandatory requirement. Accordingly, the Board held that the Respondent failed to establish compliance with Item (8) of Part I of the First Schedule.

Important Clarification

The Board clarified that mere dispatch of a letter without proof of delivery is insufficient. An incoming auditor must retain positive evidence that prior written communication was delivered to the retiring auditor before acceptance of the assignment. Pandemic relaxations do not dispense with the requirement of acknowledgment of communication.

Final Outcome

The ICAI Board of Discipline held CA Shankar Choudhary (M. No. 064045) guilty of Professional Misconduct under Item (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. In exercise of powers under Section 21A(3) of the Act, by order dated 11 December 2023, the Board imposed a monetary penalty of ₹25,000 (Rupees Twenty-Five Thousand only) on the Respondent.

Source Link- https://www.mytaxexpert.co.in/uploads/1768820299_CA.MaheshKumarVasantlalDaveM.No.038219MumbaivsCA.ShankarChoudharyM.No.064045NaviMumbai.pdf

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