Facts of the Case

A complaint was filed by Ms. Priyanka Dhar, Deputy Director of Income Tax (Investigation)-3, Kolkata, alleging professional misconduct against CA Raj Kumar Kothari. It was alleged that the Respondent acted as a director in several shell companies and functioned as an entry operator by providing accommodation entries in the form of bogus share capital, unsecured loans and sale of shares, thereby enabling beneficiaries to launder unaccounted income.

The allegations were based primarily on a statement recorded on oath from the Respondent by the Income Tax Department under Section 131 of the Income-tax Act, 1961 on 02 March 2016, wherein he was stated to have admitted involvement in providing accommodation entries through companies in which he or his wife were directors. Subsequently, the Respondent retracted the said statement by filing an affidavit within ten days, alleging coercion and mental pressure by tax officials.

Issues Involved

Whether the Respondent acted as an entry operator by providing bogus share capital and accommodation entries through shell companies, whether the retracted statement recorded under Section 131 could be relied upon without corroborative evidence, and whether such conduct constituted “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Complainant’s Allegations

The complainant department alleged that the Respondent controlled and operated several companies which were used to provide accommodation entries to beneficiaries. It was contended that the Respondent’s statement on oath clearly admitted such activities and that this admission was sufficient to establish professional misconduct.

Respondent’s Submissions

The Respondent denied all allegations and submitted that the statement dated 02 March 2016 was recorded under coercion and mental pressure during Income Tax proceedings and was lawfully retracted by sworn affidavit within ten days. He contended that the retracted statement could not be relied upon in absence of independent corroboration.

The Respondent produced documentary evidence including bank statements, assessment orders of the companies, valuation reports, book value certificates issued by independent auditors, and records showing that shares were issued at book value and not at inflated premiums. He further submitted that no addition of commission income or accommodation entry income was ever made in his hands by the Income Tax Department.

Court / Authority Order and Findings

The Board of Discipline examined the entire record including the retracted statement, affidavit of retraction, assessment orders of the companies, bank statements and valuation documents. The Board noted that after retraction, the earlier statement lost evidentiary value and could not be relied upon unless corroborated by independent material.

The Board observed that the complainant department failed to produce any assessment order showing addition of commission income in the hands of the Respondent or addition of bogus share capital in the hands of beneficiaries attributable to the Respondent. The assessment orders placed on record showed additions on account of disallowances or valuation differences, not on account of accommodation entry commission.

The Board further noted that merely being a director in companies is insufficient to establish that a Chartered Accountant acted as an entry operator, particularly when no evidence of commission income, bogus premium or falsification of accounts was brought on record. The Board concluded that the charge of professional misconduct was not proved.

Important Clarification

The Board clarified that a retracted statement recorded during tax proceedings, without corroborative documentary or assessment evidence, cannot by itself form the basis for disciplinary action. Allegations of accommodation entry operations must be supported by clear evidence of commission income or confirmed additions attributable to the Chartered Accountant.

Final Outcome

The ICAI Board of Discipline held CA Raj Kumar Kothari (M. No. 055208) Not Guilty of “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. By order dated 10 February 2023, the Board directed closure of the case under Rule 15(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007.

Source Link – https://www.mytaxexpert.co.in/uploads/1768898854_Ms.PriyankaDharvsCA.RajKumarKothariM.No.055208Kolkata.pdf

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