The National Financial Reporting Authority (NFRA) has imposed a substantial penalty of Rs 50 lakhs, on a chartered accountant for professional misconduct.
This misconduct facilitated business services provider Quess Corp in wrongfully claiming an income tax deduction of nearly Rs 971 crore over three fiscal years.
According to the order released on Thursday, the audit regulator revealed that the report and certification by a chartered accountant (CA) partner at a firm played a pivotal role in Quess Corp securing income tax deductions of Rs 113.86 crore in FY19, Rs 428.80 crore in FY20, and Rs 428.16 crore in FY21.
The NFRA emphasized the significant impact of the CA’s actions on government revenue. The claimed deductions were made under Section 80 JJAA of the Income Tax Act, 1961, allowing eligible enterprises a 30% deduction on increased employee expenses for three consecutive assessment years.
In its order, the regulator expressed dissatisfaction with the CA’s lack of due diligence in performing professional duties while certifying information in form 10 DA based on an examination of relevant records.
The NFRA Panel observed that, “The reports issued in form 10 DA under section 80 JJAA of the Income Tax Act have significant implication for Government Revenue. The Income Tax Act has trusted chartered accountants by giving them authority to certify certain claims of taxpayers. The chartered accountants have the responsibility to ensure that the amount of deduction certified in these reports are correct. They are required to exercise due diligence while performing such work so that the trust of the Government remains in the profession.”
The NFRA order disclosed that the Director General of Income Tax (Investigation) in Bengaluru, in August 2022, shared information about income tax deduction claims totaling Rs 1135.41 crore by Quess. These claims were based on certifications by two chartered accountants over five years through FY21.
Subsequently, NFRA investigated the professional conduct of the chartered accountants and their firms involved in the certifications that formed the basis of the income tax deduction claims.
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