Facts of the Case

The complainant, Shri Bhola Ram Dewasi, Deputy Director of Income Tax (Investigation), Kolkata, filed a complaint against the respondent, CA Sashi Kant Khetan, alleging involvement in financial irregularities relating to formation, control and management of bogus shell companies for providing pre-arranged accommodation entries in the form of share capital, share premium, unsecured loans, Long Term Capital Gains and Short Term Capital Losses. The allegations were primarily based on statements recorded from the respondent on oath on 08.01.2014 and 24.07.2014 by the Income Tax Department under Section 131 of the Income-tax Act during investigation proceedings.

It was alleged that the respondent admitted to earning commission income from facilitating accommodation entries prior to 2010 and described a detailed modus operandi involving a chain of companies and brokers connected with Calcutta Stock Exchange. Disciplinary proceedings were initiated under Section 21A of the Chartered Accountants Act, 1949.

Issues Involved

Whether the respondent Chartered Accountant was guilty of “Other Misconduct” under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 for allegedly forming and controlling shell companies and facilitating pre-arranged accommodation entries, when the allegations were based mainly on statements recorded under Section 131 without corroborative evidence.

Petitioner’s Arguments

The complainant relied on the statements of the respondent recorded on oath in January and July 2014, wherein he allegedly admitted that companies controlled by him were formed exclusively for providing accommodation entries and explained the flow of funds used for generating LTCG through brokers. It was contended that these admissions established involvement in large-scale tax evasion and financial irregularities warranting disciplinary action for Other Misconduct.

Respondent’s Arguments

The respondent did not file a written statement nor advance substantive oral submissions during the disciplinary proceedings. However, the record showed that no adverse assessment findings or additions were ultimately made in the respondent’s own income by the Assessing Officer, and no independent documentary or corroborative evidence was produced by the complainant department beyond the recorded statements.

Court Order / Findings

The Board of Discipline examined the material on record, including the statements recorded under Section 131, the chronology of proceedings and the assessment position of the respondent. The Board noted that despite multiple opportunities, the complainant department failed to bring on record any concrete or reliable evidence to substantiate the allegations that the respondent had formed shell companies, provided accommodation entries, or facilitated tax evasion for beneficiaries. The Board also took note of the fact that no additions were made in the respondent’s income in assessment proceedings and that no subsequent evidence of undisclosed income was produced.

The Board held that the primary and sole basis of the complaint was the respondent’s own statements recorded during investigation, which, in the absence of corroborative material, were insufficient to establish professional or other misconduct under the Chartered Accountants Act. Accordingly, the charges were held to be not proved.

Important Clarification

The Board clarified that allegations of serious professional misconduct such as facilitation of accommodation entries and operation of shell companies must be supported by cogent, corroborative and reliable evidence. Mere reliance on statements recorded during investigation, without supporting material or adverse assessment findings, is insufficient to sustain disciplinary action under the Chartered Accountants Act, 1949.

Final Outcome

The Board of Discipline, ICAI, held that CA Sashi Kant Khetan was 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. The complaint was ordered to be closed under Rule 15(2) of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, by order dated 30.05.2024.

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