An auditor is under no duty to investigate whether the accounts produced by the assessees are correct or not.

VENKATARAMA AYYAR, J.

This is a reference under Section 21 of the Chartered Accountants Act (Act XXXVIII of 1949). The respondent is a partner in a firm of chartered accountants. Messrs. A. Mohamed and Co., are a firm of merchants carrying on business in hardware in the city of Madras and they entrusted the work of auditing their accounts and preparing income-tax returns to the respondent's firm. The complaint against the respondent is that he performed this work negligently

It appears from the assessment order dated 31st October, 1944, that Messrs. A. Mohamed & Company had considerable business in black market and maintained two sets of accounts-regular day books and ledgers for the pen market transactions and a separate book for the black market transactions. While the former accounts contained entries, showing daily transactions the latter contained only consolidated entries made at the end of each week, of all the transactions of that week. At the end of the financial year all the weekly entries in the separate accountant were totalled up and these totals were entered in the regular accounts. For the year in question, 1943-44, the entries thus carried into regular accounts books show purchases of the value of Rs. 97, 403-7-6 and sales of the value of Rs. 1, 69, 766-7-6

The respondent examined only the regular account books of the assessees and prepared the statements and income-tax return on the basis of these accounts. All the statements were signed by him and there was also an endorsement at the foot of the balance-sheet that it was "verified and found to be correct." The profit and loss statement as drawn up by the respondent contained under the heading "stocks" the following entry :-

"Recorded in separate book Rs. 97, 407-3-6" and under the heading "Sales" the following entry : "Recorded in separate book Rs. 1, 69, 766-7-6". The income-tax return was signed by the assessees and the respondent forwarded the same and the statements prepared by him to the Income-tax Officer, with a converting letter dated 11th July, 1944. Therein he stated as follows :-"To

The Income Tax Officer

Special (Central) Circle

Madras

Sir

Re :- G.I. No. 510 Income Tax and E.P.T. Assessment 1944-45, Messrs. A. Mohamed & Co

We have examined the books of accountants of Messrs. A. Mohamed & Co. Hardware Merchants, Madras, for Samvat Year 1999 ended 29th October, 1943, and beg to report as under :-

Books examined :- 1. Rokad-cash and day book

2. Khatavahi-ledger

3. Jimna Nondth-purchase journal

4. Udhar nondth-sales journal and account books pertaining to property income, purchases and sales vouchers, invoices, bank pass books."

and again

"The books of accounts are kept in the Gujarathi style in the usual course of business and the statement and schedule prepared therefore represent in out opinion correct income of the firm." *

On receipt of the return and the statements mentioned above, the Income-tax Officer called upon the assessees to produce their accounts and on examining them he found several discrepancies the most important of which was the difference between the sales as entered in the regular accounts and the sales as shown in the statements. On 23rd August, 1944, he wrote to the respondent for an explanation of this difference. On 2nd October, 1944, the respondent replied that the difference was to be accounted for by the sales entered in the separate book and it was added that there were "unfortunately no details" for these sales in the account book. The Income-tax Officer held that the separate accounts were inaccurate and unreliable. He accordingly proceeded to assess the profits made by the assessees in the black market transactions on estimate and computed the same at Rs. 3, 50, 000 and determined the tax payable on the basis of that figure. This assessment was finally confirmed on 30th July, 1947On these facts the Income-tax Department took up the matter against the respondent, and filed a complaint against him on 6th January, 1951, chang