ICAI Board of Discipline Holds 11 Ahmedabad Chartered Accountants Guilty in Bogus Donations Case
Ahmedabad: In a significant disciplinary action, the Board of Discipline of the Institute of Chartered Accountants of India (ICAI) has found 11 chartered accountants from Ahmedabad guilty of professional misconduct. This ruling is connected to an alleged bogus political donations racket that was initially flagged by the Income Tax Department during investigations into tax evasion practices.
Disciplinary Proceedings and Final Verdict
The board, in its recent orders, determined that the chartered accountants were guilty of 'Other Misconduct' as defined under the First Schedule to the Chartered Accountants Act of 1949. The board contemplated taking action under Section 21A(3) of the same Act, which deals with disciplinary measures against members found guilty of misconduct.
However, after carefully considering representations made by the accused professionals during hearings, the board ultimately decided to issue a reprimand as the final disciplinary action. The chartered accountants had appealed for a sympathetic view of their case and provided assurances that such conduct would not be repeated in the future.
Board's Reasoning and Observations
In its detailed order, the disciplinary board noted several crucial factors that influenced its decision. "Upon consideration of the facts of the case where neither any re-assessment was done by the income tax department, nor any action was initiated against the Political Parties involved in the instant matter, along with the consequent misconduct of CAs and keeping in view his/her representation before it, the board decided to REPRIMAND him/her," the official orders stated.
The board made an important observation regarding the timing of the chartered accountants' retractions. These professionals had initially provided statements in 2021 during the Income Tax Department's investigation but only retracted those statements in 2023 through affidavits—nearly two years later. The board noted that they had maintained their original statements for a considerable period and only sought to withdraw them when faced with potential disciplinary proceedings from the ICAI.
Origins of the Case: 2021 Search and Seizure Operation
The entire case stems from a comprehensive search and seizure operation conducted by the Income Tax Department in February 2021 under the provisions of the Income Tax Act of 1961. This operation targeted three political parties and two charitable institutions based in Ahmedabad, with the department alleging widespread tax evasion practices.
According to the Income Tax Department's findings, approximately 28 chartered accountants were identified as having solicited clients in what authorities described as a 'bogus donations scheme.' During the investigation, these professionals had allegedly admitted their involvement in recorded statements made under oath, specifically under Sections 132(4) and 131(1A) of the Income Tax Act.
Mechanics of the Alleged Scheme
The department's investigation revealed a sophisticated mechanism for facilitating tax evasion through what appeared to be political donations. The allegations suggest that these chartered accountants colluded with key individuals associated with certain political parties to enable what authorities termed 'fraudulent electoral funding.'
The scheme reportedly operated in the following manner:
- Clients seeking to reduce their taxable income were persuaded to route what appeared to be 'donations' to designated bank accounts of specific political parties.
- Following the fund transfers, detailed donor information—including names, PAN numbers, addresses, bank account details, and transaction references—was shared with party functionaries through WhatsApp messaging platforms.
- The political party representatives would then generate official donation receipts for these transactions.
- Subsequently, the funds were allegedly returned in cash to the original donors after deducting commissions for various intermediaries, including the respondent chartered accountants.
This case highlights ongoing concerns about professional ethics within financial services and the mechanisms of political funding in India. The ICAI's disciplinary action, while stopping short of more severe penalties, establishes an important precedent for accountability among chartered accountants involved in questionable financial practices.
