Facts of the Case

The complainant, Shri Jagdish Kumar Jain, proprietor of M/s Sri Tulsi, Patna, filed a complaint against the respondent, CA Rahul Kumar, alleging fraudulent misuse of VAT/TIN credentials of his proprietorship firm. The complainant alleged that his firm had been closed on 31.05.2015, yet sales tax returns showing turnover of ₹12–14 crores were fraudulently filed for FY 2015–16, resulting in manipulation of tax liability and substantial loss to the Government exchequer.

It was alleged that the respondent, along with his partner CA Amit Kumar Agarwal, misused the complainant’s VAT/TIN User ID and password and forwarded the same to one Mr. Rajesh Sah of Kolkata through an intermediary, Mr. Mrityunjay Kumar @ Tinku Kumar, who was the complainant’s accountant. Three FIRs were registered in Patna in connection with the alleged fraudulent filing of returns and tax evasion.

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 negligently forwarding VAT/TIN credentials of a closed firm without due diligence, thereby facilitating fraudulent filing of sales tax returns and loss to Government revenue.

Petitioner’s Arguments

The complainant contended that the respondent knowingly forwarded VAT/TIN credentials of his closed firm to third parties, which were subsequently misused to file fraudulent returns showing bogus turnover exceeding ₹14 crores. It was alleged that the respondent admitted in letters addressed to tax authorities and police that he had obtained and forwarded the credentials and had also received ₹20,000 from Mr. Rajesh Sah. The complainant argued that the respondent’s conduct was deliberate, fraudulent, and motivated by wrongful gain, resulting in severe financial and reputational harm.

Respondent’s Arguments

The respondent denied involvement in sales tax work and submitted that his practice was limited to Income Tax and Company Law matters. He contended that Mr. Mrityunjay Kumar was an independent accountant known to him and that he merely forwarded an email containing VAT credentials at the request of Mr. Mrityunjay Kumar, without any intention to facilitate fraud. The respondent argued that FIRs are not substantive evidence and relied upon judicial precedents to submit that reliance solely on FIRs was misplaced. He further contended that no charge sheet had been filed and that he derived no illegal benefit from the alleged transactions.

Court Order / Findings

The Board of Discipline examined the FIRs, correspondence, submissions of both parties, and surrounding circumstances. The Board noted that the respondent admittedly forwarded an email dated 25.05.2016 containing VAT/TIN credentials of the complainant’s closed firm to Mr. Rajesh Sah, a person totally unknown to him, without conducting any enquiry or exercising professional scepticism.

The Board observed that the complainant’s firm had been closed prior to April 2015 and that filing of sales tax returns for FY 2015–16 using its credentials was inherently suspicious. The Board further noted that although the respondent claimed ignorance of sales tax matters, he nonetheless forwarded sensitive credentials, which were later misused to file returns with wrong figures, causing loss to the Government exchequer.

Relying on FIR No. 233/2017 lodged by the Assistant Commissioner, Commercial Taxes, Patna, and other FIRs on record, the Board held that the respondent’s negligence and lack of due diligence facilitated fraudulent acts. The Board concluded that even if direct intent was not conclusively established, the respondent’s conduct fell far below the standards expected of a Chartered Accountant.

Important Clarification

The Board clarified that Chartered Accountants are entrusted with high standards of trust and responsibility. Forwarding confidential tax credentials of a client or third party without verification, enquiry, or professional scepticism amounts to grave professional negligence. Even acts claimed to be informal or friendly can constitute Other Misconduct if they facilitate fraud or revenue loss.

Final Outcome

The Board of Discipline, ICAI, held that CA Rahul Kumar was GUILTY of Other Misconduct under Item (2) of Part IV of the First Schedule to the Chartered Accountants Act, 1949 read with Section 22. In exercise of powers under Section 21A(3), the Board reprimanded the respondent by order dated 27.08.2024, having regard to the respondent’s negligent conduct and the limited extent of his professional lapse.

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