ICAI Board Reprimands 11 Ahmedabad CAs in Alleged Bogus Political Donations Scheme

The Board of Discipline of the Institute of Chartered Accountants of India (ICAI) has found 11 Ahmedabad-based chartered accountants guilty of professional misconduct in connection with an alleged bogus political donations scheme unearthed by the Income Tax Department. However, after considering their submissions, the Board opted to issue a reprimand rather than impose harsher penalties.

Guilty of ‘Other Misconduct’ Under CA Act

In a series of recent orders, the Board held the chartered accountants guilty of “Other Misconduct” under the First Schedule to the Chartered Accountants Act, 1949. The Board had initially contemplated action under Section 21A(3) of the Act, which empowers it to impose penalties including reprimand, removal of name from the register for a specified period, or imposition of fines.

After hearing the representations made by the respondents, however, the Board decided to take a lenient view and confined the punishment to a formal reprimand.

In its reasoning, the Board noted that no reassessment proceedings were undertaken by the Income Tax Department against the political parties allegedly involved in the transactions. It also observed that no direct action was initiated against those political entities. Taking this into account, along with the assurances furnished by the CAs that such conduct would not be repeated, the Board concluded that a reprimand would suffice.

The orders record that, considering the absence of reassessment or action against the political parties and the representations made by the professionals, the Board decided to “REPRIMAND” the members concerned.

Delay in Retraction of Statements

The Board also took note of the conduct of the CAs during the proceedings. It observed that statements recorded in 2021 were retracted only in 2023 by way of affidavits—nearly two years later. The disciplinary authority remarked that the respondents had stood by their original statements for a considerable period and sought to withdraw them only when disciplinary action appeared imminent.

This delayed retraction weighed against the CAs in the determination of misconduct.

Background: Search and Seizure Operation

The matter traces back to a search and seizure operation conducted in February 2021 under the Income Tax Act, 1961. The operation targeted three political parties and two charitable institutions based in Ahmedabad amid allegations of large-scale tax evasion.

According to the Income Tax Department, approximately 28 chartered accountants were allegedly involved in soliciting clients for what was described as a “bogus donations scheme.” Statements were recorded from the professionals under Sections 132(4) and 131(1A) of the Act. The department claimed that in these statements, several CAs admitted to participating in the arrangement.

Alleged Modus Operandi

The department alleged that certain professionals colluded with individuals associated with political parties to facilitate tax evasion through fraudulent electoral funding mechanisms.

Clients seeking to reduce their taxable income were allegedly persuaded to route donations to specified bank accounts of political parties. Once the funds were transferred, donor information—including name, Permanent Account Number (PAN), address, bank account details, and transaction references—was allegedly shared with party functionaries through WhatsApp.

Donation receipts were then generated in the names of the donors. The funds, according to the department, were subsequently returned in cash to the original contributors after deducting commissions for intermediaries, including the respondent chartered accountants.

Limited Disciplinary Consequences

Despite the seriousness of the allegations, the Board ultimately restricted the punishment to reprimand, noting both the absence of reassessment proceedings against the political parties and the representations made by the CAs.

The development underscores the regulatory scrutiny faced by professionals in cases involving political funding and tax compliance, even as the final disciplinary outcome in this instance stops short of suspension or removal from practice.