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BOD 452/2018Not guilty

A chartered accountant admitted to running shell companies. The admission alone did not prove misconduct.

6 min readJainam Shah

A Kolkata chartered accountant told tax investigators he ran companies that manufactured capital gains for others. That statement was the whole disciplinary case, and the Board found it insufficient.

Held
Not guiltyThe charge was not made out
Forum
Board of Discipline (First Schedule)
Clauses
Item (2) of Part IV of the First Schedule
Decided
File no.
PR/G/195/2017-DD/197/2017-BOD/452/2018
Source
Original order (PDF)

A Kolkata chartered accountant told income-tax investigators, under oath, that he had spent years arranging capital gains and loans for other people's books through a chain of companies with no real business of their own. That statement was later the whole case for whether he had also committed professional misconduct.1

What happened#

Income-tax investigators question a Kolkata chartered accountant under oath about his sources of income. In his answers, he describes running a business of arranging accommodation entries — manufacturing long-term capital gains, share capital and unsecured loans for other people's returns — through a chain of companies he controlled, staffed by dummy directors who sign papers without knowing what they are signing.
A tax official refers those statements to the Institute as a disciplinary complaint. The chartered accountant is called on to answer for what he told the investigators.
He never does. He files no written defence when the Institute first forms its opinion on the complaint, and none at the hearing either.
The case drags through eight hearings over five years. Each time, the department is expected to put something more before the Board than the statement it started with — company records, bank trails, anything showing the entries actually happened. Nothing more arrives, and the tax department's own assessment of the chartered accountant's income never added a rupee to it on the strength of what he had said.
At the final hearing, the Board is left with the statement alone, and closes the case.

Two things decided it, and neither is in the timeline. The first is what the accountant actually told investigators — not a denial, but a description of his own business:

he was engaged in the job of providing/facilitating/arranging accommodation entries to various beneficiaries in the form of share capital, unsecured loans and long-term capital gains through a cartel of companies, exclusively formed for the purpose of providing Long Term Capital Gain (LTCG) to various beneficiaries who are bereft of any actual business till 2010 (para 5)

The second is what never followed it. The tax department's own assessment order made no addition to his income on the back of that statement, and nobody brought any further evidence — company records, bank statements, proof that the entities described in the statement existed and did what he said — before the Board (para 6).

The charge#

The complaint was framed under Item (2) of Part IV of the First Schedule — the residual clause for Other Misconduct, used when what is alleged does not fit one of the specific duties in the earlier parts.2 Here it covered the broadest possible version of the allegation: that running an accommodation-entry business, on the strength of his own words to another authority, brought disrepute to the profession.

The Board found that charge not established, for want of anything beyond the statement itself.

What the respondent said#

Nothing. He did not respond when the Director (Discipline) called for a written statement before forming a prima facie opinion, and he did not appear or answer at the hearing that followed. Only counsel for the complainant department was present when the matter was finally heard.

What the Board held#

The Board read the same statement the complaint was built on — his answers under Section 131 of the Income Tax Act, recorded on 8 January 2014 and 24 July 2014, describing in detail how funds moved through the companies he said he controlled (paras 4-5). It also noted that the assessing officer had made no addition to his income after recording that statement, and that the department brought nothing else to substantiate the charge despite repeated opportunities to do so (para 6). On that record, it held:

the primary evidence which the complainant department has brought on record for the charges alleged against the Respondent is the copy of his own Statement... Beyond that, despite opportunities given to the complainant department to substantiate the charges alleged against the Respondent, the complainant department failed to bring on record any conclusive evidence... Under the facts and circumstances of the instant case besides in absence of any concrete and reliable evidence, the Board held the Respondent 'NOT GUILTY' in respect of the charges alleged (para 7)

A statement made to one authority, in other words, was not by itself proof before another.

The order#

the Respondent is 'NOT GUILTY' of Other Misconduct falling within the meaning of Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22 of the said Act (para 8)

No punishment stage follows a finding of not guilty. The Board ordered the complaint closed under Rule 15(2).3 The final hearing was held nearly five years after the first, and the findings were signed just over two months later.4

Why it matters#

This section is ours, not the Board's.

A sworn statement to one authority does not, by itself, prove misconduct before another. The Institute's case rested almost entirely on what the respondent had told income-tax investigators. The Board wanted independent evidence behind it — records, transactions, the companies themselves — and none was ever filed. If you refer a member to the Institute on the strength of another agency's record, bring the underlying evidence with it, not just the transcript.

An assessment that goes nowhere weakens everything built on it later. The tax department never added a rupee to the respondent's income over the very conduct it later put to the Institute as misconduct. A finding a regulator does not act on itself carries less weight wherever it is used next.

Filing no defence at all did not cost the respondent the case. He answered nothing, at any stage, and the complaint still failed on the complainant's own gap in evidence. The burden of proof never shifted to him merely because he stayed silent.

This summarises a public order and links the primary source. It is general information, not legal or professional advice.

Footnotes#

  1. The complainant was Shri Bhola Ram Dewasi, Deputy Director of Income Tax (Investigation), Kolkata, acting in his official capacity following an enquiry under Section 131 of the Income Tax Act, 1961. The respondent was CA. Sashi Kant Khetan (M. No. 052324) of M/s S K Khetan & Company, Chartered Accountants, Kolkata. ↩

  2. Item (2) of Part IV of the First Schedule is a residual clause, distinct from the specific duties in Parts I-III: a member is guilty of Other Misconduct if, in the opinion of the Council, his conduct — whether or not related to his professional work — brings disrepute to the profession of chartered accountancy or to the Institute. ↩

  3. Rule 15(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 — where the Board finds a member not guilty, it records that finding and orders the complaint closed. There is no punishment hearing. ↩

  4. The matter was heard on eight separate dates: 31 May 2019, 15 August 2019, 25 September 2019, 12 December 2022, 5 January 2023, 3 May 2023, 27 July 2023 and finally 20 March 2024, at ICAI Bhawan, Kasba, Kolkata. The findings were signed on 30 May 2024 by CA. Rajendra Kumar P (Presiding Officer), Smt. Dolly Chakrabarty, IAAS (Retd.) (Government Nominee) and CA. Priti Savla (Member). ↩

Written by Jainam Shah. Found guilty under Item (2) of Part IV of the First Schedule; the Board ordered a not guilty. General information, not legal or professional advice — read the order itself before relying on it.

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