Bombay HC directs ICAI to Investigate CAs without COP Engaged in Illegal Activities for Professional Misconduct [Read Order]

In a recent judgment, the Bombay High Court directed the Institute of Chartered Accountants of India (ICAI) to investigate Chartered Accountants (CAs) operating without a Certificate of Practice (COP) who are allegedly engaged in illegal activities and possible professional misconduct.

The case arose in connection with Buniyad Chemicals Ltd., where the company’s director, Mukesh Choksi, admitted to providing accommodation entries. The Income Tax Department had flagged unexplained cash credits in the company’s bank accounts which were not backed by any disclosed source or beneficiary details. The department argued that the company failed to maintain transparency and should be taxed under Section 68 of the Income Tax Act, 1961.

During the proceedings, the bench comprising  Justice M. S. Sonak and Justice Jitendra Jain, J. was surprised to learn that a Chartered Accountant, despite not holding a COP, was allegedly involved in financial misconduct.

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The bench questioned whether ICAI had taken or could take disciplinary action against such individuals under the Chartered Accountants Act, 1949. Finding no clear precedent on the matter, the court directed ICAI to initiate an inquiry into the professional conduct of CAs without COP who engage in such activities.

The respondent argued that the deposits in question did not belong to the company but to its clients, and only the commission earned from such transactions should be taxable. The court found this argument insufficient, observing that the company failed to disclose the identities of these alleged clients, making the full amount taxable as unexplained income.

The Income Tax Appellate Tribunal (ITAT) had previously reduced the taxable amount to 0.15% of total deposits, but the High Court ruled this unjustified and upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)], which taxed the entire unexplained sum unless beneficiaries were identified.

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The court also took note of potential violations of other laws, including the Prevention of Money Laundering Act (PMLA) and the Indian Penal Code (IPC). It directed the Economic Offenses Wing (EOW), Enforcement Directorate (ED), and the Chief Commissioner of Income Tax (Mumbai) to investigate the broader implications of such financial misconduct.

The court also directed ICAI to examine whether CAs operating without a COP could be held accountable under the CA Act, 1949, and to report on any action taken against such individuals.

To Read the full text of the Order CLICK HERE

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