Facts of the Case

A complaint was initiated by Shri Bhola Ram Dewasi, Deputy Director of Income Tax (Investigation), Unit-4(2), Kolkata, against CA Banwari Lal Mittal alleging that he was involved in providing accommodation entries through various paper and shell companies controlled and managed by him. It was alleged that the Respondent facilitated bogus share capital and share premium entries, helped beneficiaries evade taxes, and appointed dummy directors and relatives in such companies to carry out financial irregularities.

The allegations were primarily based on a statement recorded from the Respondent on 23 March 2015 under Section 131 of the Income Tax Act, 1961 during investigation proceedings. However, on the very next day, the Respondent retracted the said statement by filing a sworn affidavit before a Notary Public, alleging that the statement had been recorded under extreme pressure, ill health and coercion. Subsequent surveys and investigations were carried out by the Income Tax Department, and multiple hearings were conducted by the Board of Discipline between 2019 and 2023, during which repeated directions were issued to the Complainant Department to produce assessment orders, beneficiary details and corroborative evidence.

Issues Involved

Whether the Respondent was engaged in providing accommodation entries through paper companies, whether he facilitated tax evasion and financial irregularities as alleged, and whether such conduct amounted to “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949.

Petitioner’s Arguments

The Complainant Department alleged that the Respondent controlled and managed several paper companies which received huge share capital and share premium without commensurate business activity and that such companies were used to provide accommodation entries. It was contended that statements recorded during investigation and certain assessment records indicated involvement of the Respondent in arranging such entries for beneficiaries.

Respondent’s Arguments

The Respondent raised multiple objections including lack of jurisdiction, defects in Form-I, absence of proper authorisation, and violation of procedural requirements. On merits, the Respondent categorically denied the allegations and contended that the sole basis of the complaint was a disputed and subsequently retracted statement. He submitted that he was not a director, shareholder or beneficiary of several companies named in the complaint and that no assessment order or finding conclusively established his involvement in providing accommodation entries.

The Respondent emphasised that subsequent investigations, surveys and assessments conducted by the Income Tax Department did not result in any adverse findings against him. He also relied on the affidavit of retraction and pointed out that the Complainant failed to cross-examine key persons or produce final assessment orders linking him to alleged misconduct.

Court / Authority Order and Findings

The Board of Discipline examined the entire record, including the retracted statement, affidavits, investigation material, submissions of parties and the procedural history of the case. The Board noted that despite repeated opportunities and specific directions, the Complainant Department failed to place on record any final assessment orders, conclusive findings or corroborative material establishing that the Respondent had earned commission income or had actually provided accommodation entries.

The Board observed that the complaint was substantially founded on a statement which was retracted immediately and that the Revenue itself conducted multiple surveys and investigations thereafter without recording adverse findings against the Respondent. The Board held that disciplinary proceedings cannot be sustained merely on the basis of a disputed statement, particularly when the same stands retracted and is not supported by independent evidence.

The Board further held that proceedings under the Chartered Accountants Act are governed by principles of natural justice and preponderance of probabilities, but even on that standard, the allegations were not proved. The failure of the Complainant to substantiate charges with cogent evidence was fatal to the case.

Important Clarification

The Board clarified that allegations of serious professional misconduct such as providing accommodation entries must be supported by clear, cogent and corroborative evidence. Reliance solely on a retracted statement, without supporting assessment findings or proof of benefit derived by the member, is insufficient to sustain disciplinary action.

Final Outcome

The ICAI Board of Discipline held CA Banwari Lal Mittal (M. No. 055920) Not Guilty of “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949. By order dated 27 July 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/1768895176_ShriBholaRamDewasivsCA.BanwariLalMittalM.No.055920Kolkata.pdf

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