Facts of the Case

A complaint was filed by Shri Bhogendra Prasad, Additional Director of Income Tax (Investigation), Unit–3(4), Kolkata, against CA Rajesh Kumar Agrawal, alleging that he formed and managed various paper/shell entities for the purpose of providing accommodation entries of unsecured loans, share capital and share premium.

The allegations were primarily founded on statements recorded by the Income Tax Department under Section 131 of the Income-tax Act, 1961 on 22 January 2014 and 11 June 2014, wherein the Respondent allegedly admitted involvement in providing accommodation entries through “jamakharchi/shell companies”. The Respondent subsequently retracted the statements by filing notarised affidavits dated 27 January 2014 and 13 June 2016.

The disciplinary proceedings involved examination of assessment records of alleged beneficiary companies including M/s Mahabir Jewellers Pvt. Ltd. and M/s Mahabir Danwar Jewellers Pvt. Ltd., and related additions made under Section 68 of the Income-tax Act, 1961.

Issues Involved

Whether the Respondent was engaged in providing accommodation entries through shell companies, whether such activities constituted “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949, and whether disciplinary action could be sustained in absence of corroborative evidence beyond retracted statements.

Complainant’s Arguments

The Complainant Department alleged that the Respondent earned commission income from accommodation entry operations and controlled various shell companies. Reliance was placed on the statements recorded by the Income Tax Department and assessment orders of beneficiary companies wherein additions were made under Section 68 treating share capital and unsecured loans as unexplained credits.

Respondent’s Arguments

The Respondent denied all allegations and submitted that the statements relied upon by the Complainant were recorded under pressure and were duly retracted. He contended that neither he nor his family members were directors or shareholders of the alleged shell companies and that no evidence existed to show flow of commission income to him.

The Respondent further submitted that the assessment orders relied upon by the Complainant were passed in the cases of third parties and did not establish his involvement. He emphasised that no assessment order in his own case held that he earned commission income or carried on accommodation entry business.

Court / Authority Order and Findings

The Board of Discipline examined the entire record including statements, retraction affidavits, assessment orders of beneficiary companies, Form 2 (Return of Allotment), Form 18, and other documentary evidence. The Board noted that the Respondent had categorically retracted the statements and that the Complainant Department failed to produce independent corroborative evidence establishing that the Respondent provided accommodation entries.

The Board observed that no broker, entry operator or beneficiary had confirmed that accommodation entries were provided by the Respondent. The Board further noted that additions made in beneficiary cases under Section 68 could not automatically be used to establish misconduct of the Respondent without proving his role.

The Board also observed that in the Respondent’s own assessment proceedings, no commission income was assessed, and no conclusive finding existed to establish that the Respondent derived any benefit from alleged transactions. The Board held that suspicion, conjecture and retracted statements are insufficient to sustain disciplinary action.

Important Clarification

The Board clarified that disciplinary proceedings under the Chartered Accountants Act require cogent, independent and corroborative evidence. Allegations of accommodation entry operations cannot be sustained solely on the basis of retracted statements or assessment findings in third-party cases without establishing direct involvement of the member.

Final Outcome

The ICAI Board of Discipline held CA Rajesh Kumar Agrawal (M. No. 060077) 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 06 December 2023, the Board directed closure of the proceedings 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/1768821053_ShriBhogendraPrasadvsCA.RajeshKumarAgrawalM.No.060077Kolkata.pdf

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