Liabilities under Income Tax Act, 1961

In connection with proceedings under the Income Tax Act 1961, a CA often acts as the authorised representative of his clients & attends before an Income Tax
Authority or the appellate tribunal. His liabilities under the Income Tax Act of 1961 are as below:
If any CA/auditor who is disqualified u/s 288 from representing an assesses in IT Sec 288 (5) If any person
proceedings. (a) who is a legal practitioner or an accountant is found
guilty of professional misconduct by any authority entitled
Sec 288 (4) 4 types of Disqualification (Not qualified to represent an assessee) to institute disciplinary proceedings against him, an order
Person Period of Disqualification passed by that authority shall have effect in relation to his
a. Dismissed/removed from Govt. service after Permanent right to attend before an I.T authority as it has in relation to
Sec 288 the 1st day of April, 1938 his right to practice as a legal practitioner or account, as the
b. Convicted of an offence connected with any I.T Such time as determined by case may be;
proceeding or -CCIP/PCCIP (b) Who is not a legal practitioner or an accountant, is
on whom a penalty has been imposed under this -CIT/PCIT found guilty of misconduct in connection with any I.T
Act proceedings by the prescribed authority, the prescribed
c. Become an insolvent Till the time Insolvency continues authority (CCIT/CIT having requisite jurisdiction) may direct
d. Convicted by a court for an offence involving of 10 years from the date of that he shall thenceforth be disqualified to represent an
fraud conviction assessee under sub section(1).
If a CA abets or induces / motivated an assessee Penalty (Tax, Interest or Penalty-TIP)
-to evade /avoid IT / Penalty /Interest on Income, genuinely to be paid by assessee or TIP evasion Imprisonment Fine
Sec 278 -to make and deliver an account or a statement or declaration relating to any income [or > Rs. 25,000 6m-7Years And Fine
any fringe benefits] chargeable to tax which is false and which he either knows to be false Upto Rs. 25,000 3m-2Years And Fine
or does not believe to be true or
-to commit an offence under sec-276C(1)
Rule 12A If a CA has issued any Info. /Report/Accounts to IT authority Penalty:
-which is false & which the CA either knows or believes to be false or untrue, Imprisonment upto 7years & fine.
If an accountant or a merchant banker or a registered valuer, Penalty:
Sec 271J -furnishes incorrect info. in a report or certificate -The AO or the Commissioner (Appeals) may direct him to
pay
-Rs.10,000 for each report or certificate.
 Liabilities under Companies Act’2013
Sec-132 NFRA Sec-140(3) Sec-140(5) Sec-143(3) 143(12) Sec-147 Co. Audit
Do Self Fine for not filing during Removal by Tribunal Do Self Sec-143(15) Penalty for a. If Auditor violates sec-139, 143, 144,
resignation -NCLT to order co. to Non-Compliance with 145
remove auditor (<15days if sec-143(12): Penalty:
Min= CG appln) (25000 to 5lakh) or 4X of remuneration,
Rs. 50,000 or -on Suo moto/CG -listed co.: 5 Lakh whichever is lower.
Auditor’s remuneration, appln/concerned person -any other co.: 1 Lakh
Whichever is less Appln. b. If Auditor intentionally deceits/cheats
+ 500/day after 1st day. -Auditor acted in fraudulent Check from Rohit -Members/creditors/IT Dept./Co.
manner grover Penalty:
Max=Rs.2,00,000 -Auditor disqualified for (50,000 to 25lakh) or 4X of remuneration,
5years & liable u/s Sec-447 whichever is lower. or
Imprisonment upto 1 year or Both
Sec-34 Criminal Liability for misstatement in prospectus Sec-35 Civil Liability
-where a prospectus issued, circulated or distributed includes any Do Self
statement which is untrue or misleading in form or context in which it is
included or where any inclusion or omission of any matter is likely to
mislead,

-Every person (incl C.A) who authorises the issue of such prospectus
-shall be liable under section 447.

Escape from Criminal liability:

If person proves that
-such statement or omission was Immaterial or
-he had reasonable grounds to believe, & up to the time of issue of the
prospectus believe, the info. published was true or the inclusion / omission
was necessary.
 Liability for misfeasance (breach of trust or duty):
The auditor of a co. would be guilty of misfeasance if he has been guilty of any breach of trust or negligence in the performance of his duties which has resulted in
some loss or damage to the co. or its property.
In Re: Kingston It is not the duty of the auditor to take stock & that he is not guilty of negligence if the certificate of a responsible official is accepted in the
Cotton Mills Co. Ltd. absence of suspicious circumstances. It is the duty of an auditor to bring to bear on the work, he has to perform the skill, care and caution
(1896), held which a reasonably competent, careful & cautious auditor ordinarily would use. An auditor is not bound to act as a detective.‘He is a watch
dog, but not a blood hound’.
In Re: Westminster That when there is time lag between the incurring of a liability and receipt of bills and at the time of audit, sufficient time had not elapsed for
Road Construction the invoices relating to such a liability to have been received it was the duty of auditor to make specific enquiries as to the existence of such
and Engineering Co. liabilities. He also must check the valuation of WIP at which it is included in the B/S.
Ltd. (1932), held The Court held that the auditor was liable to refund to the company the amount of dividend wrongly declared, with interest and costs.
The Irish Woolen Co. Limited v. Tyson That an auditor is liable for any damages sustained by a co. by reasons of falsification of accounts which might have been
and others (1900) Act L.R. 23, held discovered by the exercise of reasonable care and skill in the performance of the audit.
In Re: The auditor who does not report, to the shareholders the facts of the case, when the B/S is not properly drawn up, is guilty of misfeasance.
The London The Court observed that auditor’s duty was to convey info. & not to arouse enquiry & held that the auditor, by way of damages, was liable to refund
& General amount w.r.t 2nd dividend (declared in 1892) as he was aware of the critical position of the affairs & thus had acted negligently in not reporting the
Bank,(1895), facts to the shareholders although he had reported them to directors & w.rt 1st dividend (declared in 1891): auditor was not held liable, as he was
held of opinion that evidence was not sufficiently strong to establish a case of misfeasance against him, though he was guilty of an error of judgement.
Misconduct of Auditor under Chartered Accountants Act, 1949.
The code of conduct for an auditor should be taken into consideration & the different circumstances under which disciplinary action can be taken against a member; the decisions in a no. of cases
can be referred to. It being important, however, for students to understand what constitutes ‘gross negligence’ in terms of Clauses 5 to 8 of Part I of the Second Schedule to the Chartered
Accountants Act, 2 decisions by Indian Courts which have become legal classics, are considered below.
Case of Deputy Secretary of the GOI, Ministry of Finance v. S. N. Dass Gupta:
In this case, action was brought against Shri S.N. Dass Gupta, a member of the Institute, in respect of alleged negligence in the audit of accounts of Aryan Bank Limited, for the years 1942 to 1944. It
was alleged that the bank had resorted to manipulation of accounts on an extensive scale. One of the charges was that in 1944 the bank has shown in its Fixed Deposit Ledger certain large sums as
having been received on fixed deposit from certain concerns in which the Managing Director was interested but the Cash Book of the bank did not show any corresponding entries on the relevant
dates. Another charge was that though the auditor had certain doubts as regard loans advanced against fixed deposits, he had not stated the position clearly. It was also alleged that on a certain
date in 1944 the Cash Book showed a cash balance of ` 5,00,000 although the actual balance on the date was a little over ` 1,000. The auditor in defence submitted that he had not verified the cash
balance in hand and had mentioned this fact in his Special Report. It was held that the respondent has committed a grave wrong and in consequence he was suspended from the membership of the
institute for 2 years;
Case of Controller of Insurance vs H. C. Das:
In this case, action was brought against Messers H.C. Dass & Co. by the CG in the matter of audit of accounts of Bhagya Laxmi Insurance Limited. The auditors had audited the accounts of the
company from 1936 until 1951 and had issued the certificate required under Regulations 7(c) and 7(d) of Part I of the First Schedule to the Insurance Act, 1938. On the appointment of the
administrator subsequently under Section 52A of the Insurance Act, a number of irregularities were discovered. The principal defence of the auditor in respect of the charges was that he had relied
on statements of the Mgt. in regard to matters included in the statements certified by him. The auditor was held guilty of gross negligence