The judgment establishes that chartered accountants have a duty to exercise reasonable care and obtain sufficient information for audit reports, and failure to do so constitutes professional misconduct.

Manoj Kumar Gupta, J.:--

1. This is a reference by the Council of the Institute of the Chartered Accountants of India to this Court u/S. 21(5) of the Chartered Accountants Act, 1946 (hereinafter referred to as ‘the Act’). The respondent who is a chartered accountant had audited the accounts of M/s. Tyagi Gur Khandsari Udyog for the assessment year 1998-1999. The said firm along with its income-tax returns also submitted the audited balance sheet and profit and loss accounts for the year ending 31 March, 1998. The Income Tax Officer, Roorkee noticed various discrepancies in the balance sheet and profits and loss accounts of the said firm. The case of the firm was taken up for scrutiny by Income Tax department but the said firm did not produce any book of accounts, manufacturing and other records even after issuance of notice u/S. 142(1) and summons u/S. 131 of the Income-tax Act. Consequently, penalty was imposed on the said firm for non-compliance of terms of the notices u/S. 142(1). When the assessee firm did not produce the books of accounts for verification even after being penalised, the Income Tax department decided to inspect the records of the firm maintained by the Trade Tax Officer. Thereupon it transpired that Trade Tax officer, Sector-I, Roorkee had conducted number of surveys during the relevant period but no books of accounts were found though manufacturing was going on. The Trade Tax officer has categorically mentioned in his assessment order that no books of accounts were produced before him in the course of assessment proceedings even after several opportunities.

2. The Income Tax officer after noticing serious discrepancies in the audited balance sheet and profit and loss accounts of the assessee firm which were prepared by respondent in his capacity as a chartered accountant vide its letter dated 18-6-2001 brought these facts to the knowledge of the Council. On receipt of the letter from Income Tax Officer, the Council called for a clarification from the respondent vide its letter dated 11-10-2002. In response to it, the respondent submitted his clarification vide letter dated 22-10-2002. The clarifications received from respondent were not found to be satisfactory and therefore, the information sent by Income Tax officer was treated as information u/S. 21 of the Act and on basis thereof, following charges were framed against the respondent

1. The respondent has shown closing stock of sugarcane and Gur as Rs. 40,20,005/- in the balance sheet while the closing stock of Gur was Rs. 44,10,000/- and of sugarcane Rs. m 32,550/- aggregating to Rs. 44,42,550/- has been shown in the Manufacturing, Trading and Profit and Loss account. The balance sheet tallies on a figure of Rs. 40.99,728.51 while the value of closing stock was only Rs. 44,42,550/-.

2. The closing stock of 468 quintals of sugarcane is shown as per col. 12 of form No. 3CD while the closing stock of 465 quintals of sugarcane is shown in the Manufacturing, Trading and Profit & Loss Account.

3. The Audit Report, Balance Sheet, Manufacturing, Trading and Profit & Loss Account has been prepared on computer but all the documents bear date in ink, the question arises as to what was the need of keeping the date blank while print outs were taken.

4. Thus, the respondent failed to point out discrepancies in the audit report and books of accounts of M/s. Tyagi Gur Khandsari Udyog for the assessment year 1998-1999 relating to financial year 1997-98.

5. Further, the Income Tax department issued notice u/S. 142(1) and summons u/S. 131 of the Income-tax Act, 1961 but the firm failed to produce any books of Accounts. Penalty was imposed for non-compliance of the terms of Notices u/S. 141(1).

6. The Trade Tax Officer, has in his assessment order categorically mentioned that no books of accounts were produced before him. The Trade Tax Officer had passed an ex parte order assessing total sales of Rs. 23360102/- as against sales declared by assessee firm of Rs. 15060101.48. An ex

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