ICAI Reprimands CA for Neglecting LLP's Service Tax and Wife's LLP return Filing Fees in Audit Report

The Institute of Chartered Accountants of India ( ICAI ) has reprimanded the Chartered Accountant ( CA ) with a fine of Rs. 25,000/- for neglecting the service tax payment of the Limited Liability Partnership ( LLP ) and professional fees given to his wife for filing LLP tax return in the audit report.

The Respondent-CA was the auditor of M/s. Biscoot Records LLP (Earlier known as M/s. Bombay Track LLP) ( “LLP”) and the Complainant is a partner in the LLP. According to the Respondent, he signed financial statements for financial year 2013-14 and 2014-15 of the said LLP.

The Committee noted that the first charge against the Respondent was he failed to find factual errors and wrong entries in the balance sheet and helped in subverting service tax and TDS payments by LLP thus, causing a huge loss to the revenue / Government.

Another change noted by the Disciplinary committee that he was involved in money laundering and was receiving illegal gratification.

With respect to the first charge, the Disciplinary Committee noted that the respondent, serving as the statutory auditor of the LLP for the financial years 2013-14 and 2014-15, signed the financial statements on 04.09.2014 and 04.09.2015 respectively.

Despite issuing a qualified report for both years only regarding balance confirmations from debtors and creditors, the respondent did not inquire about service tax payments during the audit finalisation. Additionally, the respondent did not qualify the report despite seeking clarification from LLP partners about service tax payments, which resulted in significant revenue loss for the government.

Further investigation revealed a show cause notice from the Director General of GST Intelligence, dated 27.04.2018, for non-payment of service tax by the LLP. The notice covered the entire value of taxable services rendered by the LLP from July 2012 to March 2017. The respondent's claim of withdrawing reports for both financial years due to ongoing disputes among LLP partners was deemed untenable.

With regards to the Second charge, the ICAI Committee noted that the Complainant’s contention was that the amount was paid to the Respondent’s wife in the name of professional fees. In this regard, the Respondent stated that the amount of Rs.25,000/- was paid to his wife for filing tax returns of the LLP.

The Respondent also provided a copy of Income Tax returns of his wife for the Assessment Years 2016-17 to 2018-19. However, he could not bring on record documentary evidence such as a copy of bills raised by her wife on LLP for filing of tax returns or the documents to show that the services were actually provided by her wife to the LLP.

Accordingly, the Respondent was required to report the transaction relating to payment of professional fees to his wife in his audit report but it appears that he failed to do so. Except this failure on the part of the Respondent, no evidence has been found against the Respondent to show that he was involved in money laundering or receiving.

Consequently, the Respondent is held Guilty of professional misconduct falling within the meaning of Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949 for the both allegations.

Thus, the ICAI disciplinary Committee ordered that CA be reprimanded and also a Fine of Rs. 25,000/- be imposed upon him payable within a period of 60 days from the date of receipt of the Order.

To Read the full text of the Order CLICK HERE

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