New Delhi, May 5, 2017

The provision of Rs 10,000 penalty against chartered accountants (CAs) for each wrong certification or report, introduced in Finance Act 2017, has been challenged in Madras High Court.

The court has accepted the objection and has asked the Central Board of Direct Taxes (CBDT) and the government to explain their view within three weeks.

The constitutional validity of the provision under section 271J of the Income Tax Act has been challenged by a Chennai-based CA Venkatasiva Kumar before the first bench of the high court.

From April 1, 2017, under section 271J, if any accountant or merchant banker or registered valuer provides incorrect information in a report or certificate under any provisions of the Act or the rules, the tax officer or the Commissioner (Appeals) may direct him to pay a sum of Rs 10,000 for each such report or certificate as penalty.

The Chief Justice of High Court directed that the matter is to be referred to Attorney Journal when the petition is taken up for hearing in June.

In Budget 2017, the government has instituted an action against CAs if they knowingly falsify or provide incorrect information while rendering their professional service.

The section 271J of penalty provision has been challenged on the basis of its 'sweeping and uncontrolled power' to tax officers. As per the provision, it is the tax officials who decide the accuracy of the reports and certificates given by a chartered accountant and make him responsible for incorrect statements, which, in many cases, will be based on the guidelines issued by the ICAI (Institute of Chartered Accountants of India) and as per the accounting and auditing standards of international accounting bodies.

V Venkatasiva Kumar, told DNA Money, "Government should think ICAI is formed as per the act of the legislature. It's a limb of the government to achieve an important economic function. That's why Abdul Kalam ji had called it a partner in nation building. But the government is sidelining CAs as if they are responsible for black money when the whole system is corruption ridden."

ICAI is the regulatory body of the Chartered Accountants, the second-largest professional body of Chartered Accountants in the world, with a membership of around 2,50,000+ CAs and one million students on rolls, widely acknowledged by the eminent personalities and institutions of repute as having robust and independent adjudicating mechanism comprising of eminent people nominated by the government from Comptroller and Auditor General of India (CAG), CBDT and Company Law Board (CLB).

Earlier to this penalty provision, if the tax officer believed that a chartered accountant had submitted any incorrect report or certificate, tax official could make a complaint to the ICAI, the regulating body for chartered accountants, where government nominees in the council of ICAI from CBDT, CAG and CLB.

Former president of ICAI Amarjit Chopra told DNA Money, "Penalty provision against CAs is not a fair practice because our institute has a strong disciplinary mechanism and there is no need for such provision."

[Daily News & Analysis]