11 April 2010
When a Chartered Accountant is performing a statutary audit, he is acting as an agency of the revenue department. Many times, we have seen that the dealers'/assessee's assessment has been made on the basis of the auditors' report.
It is very well settled doctrine of the law that in any given case, one person can not be the solicitar for both the parties.
Now, when a CA is performing the statutary audit (which is presumed as acting on govt's behalf); then how can he defend the assessee for his own cause and act?
There should be made provision so as to restrict the person who has conducted the audit, to represent the dealer/assessee in the assessment or other proceedings before the revenue department (it may be Income Tax Department or concerned VAT department).
That C.A should not be allowed to represent those dealers/assessees in the assessment proceedings of whose accounts he has done statutary audit under Income Tax Act or VAT Act. A different C.A or an advocate should be allowed to represent the assessee/dealer in such cases.
please provide your unbiased views for healthy discussion
11 April 2010
Hello, Its a good and valid question. But you cannot challenge any act or work of CA in India. Chartered Accountancy is a profession which has been created by the Act of Parliament. Indian financial system trust the act and auditors Report. CA does the Audit and also calculates the Tax for the assessee. Also the assesee has trusted him for this act and also had paid him. If in case assessment is there than its first duty of CA to prove that he and his work is genuine, and also the level of knowledge which he had applied is upto the marks. So he is given that opportunity. Also CA only understoods the Tax and accounts matter very well. So the case of Assesee cannot be given to any LAWYER. Moreover there are many CA who does LLB so that he can fight for the right of assesee and also for the work which he has done. So to give this work to Lawyer is out of question.
And there are many CA who just do audits and who are not that good in TAx. So when the assessment comes for his client than he ask that client to consult other CA who is good in taxation and to defend his assesee. But it cannot be made compulsory...
11 April 2010
Dear Shivang thanks for expressing your views
The question here is not whether the case be assigned to C.A or a lawyer. Nor there is any dispute regarding the qualification or ability of C.As or lawyers to handle cases.
The question i'm raising here is that should the C.A who has done statutary audit under Income tax act or vat act, be allowed to represent the same assessee of whose accounts he has audited before the authorities? since the C.A in such a case is persumed to be acting on behalf of the revenue.
Some other C.A should be allowed only in such case.
Advocates can represent the assessee/dealer in any case whether its taxation or other matters it all depends upon how well anyone study and interpret the law and has understanding of the law.
11 April 2010
Yes i agree to that. I think i answered in the same manner and not about the profession. Regarding the case of IT its difficult for Lawyer to defend. It has to be a person who has knowledge of Income Tax. So both profession are equally important. If you read my answer you can see that : Chartered Accountancy is a profession which has been created by the Act of Parliament. Indian financial system trust the act and auditors Report. CA does the Audit and also calculates the Tax for the assessee. Also the assesee has trusted him for this act and also had paid him. If in case assessment is there than its first duty of CA to prove that he and his work is genuine, and also the level of knowledge which he had applied is upto the marks. So he is given that opportunity.
So Ca knows in detail about the audit and books of assessee. And also he can prove the level of knowledge he uses is accurate.
This is my view. And i m sorry if it meant about any profession. I just explained about the role of CA. And also i know both Profession are equally Important.
"Regarding the case of IT its difficult for Lawyer to defend. It has to be a person who has knowledge of Income Tax"
I dont know how you have come to this conclusion that lawyers cant have the knowledge of Income Tax. If advocate cannot defend the Income Tax case then who else? The case laws of SC and HCs cited by the tax professionals during the assessment proceedings are all dealt by advocates and not by any C.A. We have example of Nani Palkhivala (The Great Lawyer)before us.
Dear as i said earlier it all depends upon how well one understands the law and has knowledge of the law he is practising in whether he is a C.A. or an Advocate or any other tax practitioner.
Anyways you have not concentrated on the question i raised. I think this question needs to be examined by higher judiciary. All views and comments on the question raised are welcomed here
12 April 2010
In my view, the presumption that the auditor while auditing the records of an assessee is acting on behalf of the revenue is misplaced.
Audit is an independent examination of the records and expression of opinion. The auditor is un-interested, ie. neither pro revenue nor pro assessee. So, it is in-correct to assume that the auditor represents the revenue.
Further, the auditor is neither appointed by nor reports to the revenue. Rather, the views, explanation etc. provided by the auditee is considered by the auditor.
For the above reason, the representation by the CA, who had audited the records, in assessment proceedings can not be faulted with.
So far, whether a CA or an Advocate is better in taxation matters is concerned, both do have the strength and weakness of their own. The sound knowledge of accountancy on the part of CAs and sound knoledge of the legal system and interpretation thereof on the part of the lawyers is beyond dobut. It if frutile to try to find, which profession is better.
12 April 2010
Dear Shyam Lal Naik Ji you have given a reasonable answer to the question raised. But the audit under Income Tax Act or VAT act is a statutory audit. Audit will always be an indipendent act since its related with the personal valuation and understanding of a person. But what about in those cases where addition is made on the basis of audit reports? Do in those cases the auditor acts as the representative of the revenue?
Suppose the auditor in his audit report states that a payment has been made in the books of accounts of the assessee which is in violation of section 269SS or 269T and suggest the addition in income.
Later on in the assessment proceedings can he defend the same assessee stating that there was a reasonable cause for violation u/s 273B and addition be not made. should he be allowed to do that? will not this amount to same solicitor for the revenue as well as the assessee?
13 April 2010
When I say the C.A is representing the revenue then I don’t mean that he is representing because there exist an agent principal relation between the revenue and the auditor C.A.. Nor it is because of any fees or commission is paid to the C.A. by revenue.
No doubt the C.A is appointed by the assessee on his own for the statutory mandate of audit. But the auditor is duty bound to the revenue to state and reflect the true profits arrived at by the assessee and to state that correct books of accounts have been maintained by the assessee.
If there is any violation of the provisions of Income Tax he is duty bound to the revenue to state the same in his report and on the basis of such report the authorities can take action against the assessee.
As I stated above in the example if there is violation of section 269SS or 269T of IT Act the auditor is duty bound to the revenue to state the same in the audit report. Later on in the assessment proceedings the same auditor if tries to justify the violation on behalf of the assessee it would amount to soliciting both for the revenue and the assessee.
The auditor certainly represents the revenue when he is doing statutory audit of the assessee since its not only a mandate for the aseessee to get his accounts audited but also at the same time imposes a duty on the auditor to reflect the true pictures of the books of accounts of the assessee for the revenue so that the assessee can be properly assessed.
Merely because the option is given to the assessee to choose his own auditor and making payment to the auditor does not result in making the auditor getting discharged from his duty which he has towards revenue while auditing the books of accounts of the assessee. on these grounds I Feel the C.A. doing audit represents the revenue
13 April 2010
This is an interesting issue for discussion.
At the beginning of the issue it is stated that -
"When a Chartered Accountant is performing a statutary audit, he is acting as an agency of the revenue department. Many times, we have seen that the dealers'/assessee's assessment has been made on the basis of the auditors' report."
First of all, in my opinion, the concept derived is not correct because a CA is not an agent of revenue department. He is an indepedent person to give his report in the form prescribed. He never reports to the Income-Tax Department. The report is required to be filed with the Return of Income. Now-a-days; after introduction of New ITR forms; it need not be enclosed with the Return of Income.
In further discussion it is stated that -
"Suppose the auditor in his audit report states that a payment has been made in the books of accounts of the assessee which is in violation of section 269SS or 269T and suggest the addition in income."
Here the auditor has to report the facts of the case. He never suggests the addition of income if above circumstances are there. It is upon the Revenue to issue notices on the assessee.
Now I come to the original point that whether a CA should be allowed to do tax audit when he is representing the case before the revenue.
Let us examine it with practical example.
An advocate is authorized to draft legal documents and get it registered with revenue authorities. If certain legal issues are raised by anyone whether he is debarred to represent the party for whom he has prepared the legal documents. The answer is No. Why ? Because he has well discussed the matter with his client and he is in better position to represent his client.
Similar is the case of tax audits. At the time of assessment proceedings; since the matter has been discussed in length with the assessee while finalising the audit; he is in better position than other to represent the case. Because now-a-days; full family drawings and sister concerns' details are asked by the department at the time of assessment proceedings.
Here CA is a person who has not only audited the books, but filed the Return of Income also. Accounting is now more and more complex. The statement is valid specially when International Financial Reporting Standards are going to be practically effective from the current financial year (due to requirement of previous year's figures).
If one assumes that CA is the agency of government; then how it would be possible for revenue to disregard Tax Audits at the time of assessment proceedings and heavy additions are made by them ?
The CA profession has changed its vision altogether ! It is said that they are partner in nation building.
Previously advocates were had that position because they made our country's independence possible. For that we have regards for them.
In public life; CAs are more trustworthy than advocates in general. Ask this question to a common businessmen and one may find the answer.
Why this situation is there ?
Because I have practically seen that an advocate runs a case for 15 years and charges fee for that. (Refer Lage Raho Munnabhai).
We are here to discuss the matter whether the work of audit and representation simultaneously should be given to a CA or not.
I ask the basic question - why government has more and more trust on CAs than advocates ?
The reason is that they have practical exposure in various fields and have developed their curriculum in such a way that they can make an entry in almost every business field.
They have high rate of legal compliance in shortest possible time.
They have made intensive research on various topics and they are problem solver.
An advocate's work start when two persons disagree on a certain issue.
Agreed or not ?
P.S. - At the time of regular assessment of Income-tax proceedings; it is never deemed that the assessee is required to submit details because he has concealed certain particulars of income. Hence the question is not of any dispute between the two i.e. department and the assessee. In my opinion; this is major difference between the work of CA and an advocate.
Note : Whatever I have discussed is of general nature. There is no intention of disregarding service of an advocate. Some advocates are my good friends.
14 April 2010
Dear Sir you have provided a detailed and good answer to the question I have in mind.I highly respect your views. But I still have a doubt if the audit report as you suggested is merely a statement of facts.
I think the audit report is an indipendent but a statutory report by the auditor to the revenue that the books of accounts of an assessee has been properly audited and it reflects the true profits and picture from the audited records of the assessee.
Whether such report is accepted or not by the revenue that is a seperate issue to be considered like on what grounds the audit report has been rejected whether for fault of the auditor or due to the non disclosure of true facts by the assessee to the auditor. But certainly the audit report is a reporting to and for the revenue to facilitate the assessment proceedings.
The statutory mandate of audit has been provided under the Income Tax Act only to fulfill the purpose of curbing the chances of tax evasion. Hence i feel since the audit report is a reporting to the revenue by the auditor C.A he is representative of the revenue therefore the auditor C.A. should be barred from representing the assessee in the assessment proceedings, rather a different C.A. or an advocate or any other tax professional should persue the matter in such case.
so far the comparison b/w an Advocate and C.A. is concerned I dont know wherefrom this topic has jumped into in the question raised above. Since I belong to the profession of advocacy i feel inclined to answer this.
I think Advocacy and C.A. are altogether different professions. There cannot be any comparison b/w the two. The area of practice of an advocate not only includes litigation but also the legal consultancy. C.As are the masters of accounting whereas the advocates are legal experts. Infact the area of practice of an advocate is much more wider than that of any other profession.
"why government has more and more trust on CAs than advocates ?"
wherefrom this question comes? who suggested that the govt has more trust on a C.A. than an advocate. I think both the profesions are equaly contributing towards the growth of the nation. no such question should arise.
14 April 2010
Hello, I completely agree with the points of Surendra Sir.. If you go through my points also, there is no dispute of the profession. Its just a short overview of your Question only..
Mr Bajaj, i observe that you are not ready to agree with the facts which we presented...I told earlier that CA is a Act of parliament and Government trust on the reports and certificates signed by CA. So even if the CA represents the assessee, than also Govn. knows that it wont be biased and the points and arguements will be clear and legal....
Of statutory audit, its compulsory and have to be made and signed by CA as per companies LAw....
ANd to your point regarding the Assessement Proceedings, i still stick to my points...
Its not the profession who decides the person to defend the assessee.. Its the level of knowledge. Client will first come to CA to defend himself. ALso as you mentioned that CA are the masters of accounting whereas the advocates are legal experts and have more wider area covered than that of any other profession, than my friend you forget that CA dont have only knowledge of Accounts. They are master of Finance, Income TAx, Various Laws and Acts. And they dont defend assesee in the legal or criminal case. They defend them in the case where they are experts. And lawyer dont have that much knowledge in the field of taxation and accounts which is required for the assessement proceedings.
Its not about which profession is better, Both are equally important, but in their own area..... So both are best at their own place... And noone can Barred CA from this...
I wait for your other arguement... Please think to the points as menioned by Surendra Sir also.....
14 April 2010
Dear Shivang I totaly respect the chartered accountants they are the most qualified persons in the taxation and finance field I have no personal grudge against the C.A. community. Infact many of C.A. friends are my professional partners.
I never said that all the C.As should be barred from representing the assessee my question was only related to the auditor C.A.
Its fuitile to discuss which profession is better.But you are still concentrated more on discussing on the professions again you make such comments: "And lawyer dont have that much knowledge in the field of taxation and accounts which is required for the assessement proceedings."
My dear your knowledge about the lawyers is very poor. As I stated earlier its only advocates who deal Income Tax cases at the Higher judiciary. Advocates are the legal experts it may be Taxlaws or any other law. Anyways I dont want to discuss it more.
Surinder Sir is very senior and much more experienced than me. I respect his views completely. I always respect my seniors and always wish to prosper in the profession under their guidance.
Its just that I had this question in my mind for long. I just put my own view forward for healthy discussion. Its better if we concentrate on the question raised only. Everyone has right to stick to his own views.
Advocates are truly restricting their statements to legal acceptance.
From your views expressed hereinabove –
“It is very well settled doctrine of the law that in any given case, one person can not be the solicitor for both the parties.”
From the above; firstly we have to test the definition of “solicitor”.
A solicitor means a lawyer who prepares legal documents and briefs, gives legal advice, and (in the lower courts only) speaks on behalf of his clients.
From the above definition it is clear that A CA is not a lawyer while performing his duties of audits. So he is not representing his client at the time of conduting audits.
While performing the statutory audits a CA is not presumed as acting on govt's behalf because he gives his opinion on the Books of Account. His report is referred “openly” by all the sections of society i.e. Shareholders, Creditors, Debtors, Employees and even third parties.
Since he is not solicitor at the time of giving his opinion while performing Tax Audits hence he is not covered under the term “solicitor.” While performing tax audits he never gives his legal advice. He reports the facts to the Revenue.
He is just preparing reports on the facts given hence at the time of conducting auditing he is not the advisor to the client nor he is acting like an agent of the government i.e. Revenue Department. He is an authorized person to give tax audit report only. So we can say that while representing the case of clients before income-tax at the time of assessment proceedings; he is not defending his own cause and act. The both the acts are the results of assessee’s activities.
Now your following question is redundant :
“There should be made provision so as to restrict the person who has conducted the audit, to represent the dealer/assessee in the assessment or other proceedings before the revenue department (it may be Income Tax Department or concerned VAT department).”
For your following views :-
“That C.A should not be allowed to represent those dealers/assessees in the assessment proceedings of whose accounts he has done statutary audit under Income Tax Act or VAT Act. A different C.A or an advocate should be allowed to represent the assessee/dealer in such cases.”
Many a times; an advocate prepares Gift Deed Agreement, Conveyance Deed, Wills etc.etc… If certain legal issues are raised against it; in my opinion the advocate who has prepared the agreement is in better way to represent the case than other advocate. Because he knows the full history of the case.
One of my fellow has narrated as below :
“Chartered Accountancy is a profession which has been created by the Act of Parliament. Indian financial system trust the act and auditors Report.”
CA does the Audit and also calculates the Tax for the assessee. Also the assesee has trusted him for this act and also had paid him. If in case assessment is there than its first duty of CA to prove that he and his work is genuine, and also the level of knowledge which he had applied is upto the marks. So he is given that opportunity.”
In my opinion; the source of question to debar the auditing CA to represent the case before Revenue has emerged because previously Advocates were having privilege to present the Income-Tax Cases of clients. One should rethink about the circumstances why the work was handed over or switched to CAs ? The answer can be found from my previous posting.
Further, circumstances have changed altogether. Now the accounting standards which throw (search) light right from accounting to valuation of assets, provisioning, contingent nature of liabilities etc. are such that they are everchanging. Not only frequent amendments are there in law but accounting also.
Previously CAs’ job was restricted to accounting and auditing only. With the sheer upgradation of the CA profession in various fields of the business; they proved their abilities.
The question raised is on the ability of the CA who conducts audit and representation simultaneously. We should not forget that a CA’s audit report is independent and unbiased. This has been recognized by the Government. Accordingly law has authorized them to represent the case. When law has recognized it; then definitely I hope that the same has been introduced into the legal system after a lot of discussion where advocates were also in penal.
While conducting tax audits; a CAs has to comply time frame. In another side; in shortest possible time frame; they conduct audits of Banks etc. where thousands of crores of money transactions are undertaken. And this report is prepared by CAs within certain days only.
One more point I wish to raise here. There is limitation of conducting audit per member – for statutory audits and tax audits. This restriction is not there in case of advocates and doctors. Why ?
Because it is left on the professional whether they are capable enough to serve their clients/patients or not. But still such limit is lodged on CAs despite they can conduct more audits.
In my opinion; if a CA is not efficiently representing the cases of his clients; then definitely he should not be allowed to represent the cases before Revenue. But datas show that in 90% of cases appealed against the Revenue Department; the appellant has won the case. It means CAs have represented their clients’ cases well.
I hope that interest of the client should be saved rather than to discuss whom should be allotted the job. If there is other way of betterment of service to the clients then definitely it should be adopted. Right now clients have switched their job from advocates to CAs at least in Taxation field because clients don’t wish that their business secrets should be shared with different persons.
FOR WHOSE BENEFITS WE ARE RAISING THE ISSUE - CLIENT, GOVERNMENT, ADVOCATE OR CA ?
CAs provide business solutions in legal frame but they also provide unbiased reports to the government on the business. This makes the profession as unique one.
If we focus our attention only on legal side then also it is in favour of CA which allows them to represent the case.
If interests of the client is saved then Government will also get revenue. Practically we see a lot of sick industries which could be saved with the proper and timely advice of professionals. So CA is serving not only to clients but also to the Government.
From the above discussion; it is clear the while conducting an audit; a CA is not representing his client. Nor he is representing the Revenue Department. Because if he is representing the Revenue Department; then surely he will try to enhance the Income as Revenue Department tries at the time of Assessment Proceedings.
If it is found that a CA is not performing his duties well, disciplinary actions are taken by the ICAI council against the member. Whatever actions have been taken by ICAI against its members; the same have been confirmed by various High Courts except few one. In those exceptional cases also; the High Courts have reduced the punishment to the member concerned which were decided by ICAI.
14 April 2010
Dear Sir thanks for ellaborating comprehensively. I think C.A or advocate or any other practitioner whoever does the hard work comes out as winner.See this profile of an advocate who is on the front page of this site currently.
CAclubindia
