paperbook with coverpage

4. Payment of interest on moneys borrowed to the extent of debit balance of partners 
 
Goswami & Co. is a partnership firm engaged in the business of trading of footwear. 
The firm had borrowed Rs. 50 Lakhs as unsecured loans from various parties during 
the  year.  On  the  said  loans  the  firm  had  claimed  deduction  of  interest  expense 
calculated at the rate of 18% p.a. However, in the books of the firm, the capital balance 
of the partners had a debit balance to the tune of Rs. 35 Lakhs. The Assessing officer 
during the course of assessment sought to restrict the interest expense on loan which 
is attributable to the debit balance of the partners. Whether the Assessing Officer’s 
contention is tenable in law? 
 
 
 
 
 
 
 

5. Speculation business in case of solitary transaction – Derivative trading for CA 

Mr. Rajni Khokhani, a Chartered Accountant in practice has started dealing in equity 
derivatives during the year under consideration. Whether such trading in derivatives 
should be shown by him as business income or income from other sources at the time 
of filing the return of income? If such derivative trading is shown as business income, 
whether  he  should  add  the  same  in  the  nature  of  business  column  in  the  return  of 
income?  

Also, if Mr. Khokhani deals in a transaction of intraday trading of only one scrip during 
the year and incurs loss of Rs. 5 Lakhs, whether the same will be taxed as speculative 
“business income”? 

 

 
 
 
 
 
6. Taxation of grants vis‐à‐vis overriding charge 
 
Start‐up  Limited  is  a  company  which  is  an  eligible  start  up  and  also  registered  with 
DPIIT.  The  company  received  a  grant  in  aid  of  Rs.  25  Lakhs  for  manufacturing  of  its 
product from Niti Aayog in the month of February 2021. The company was intending 
to  begin  the  manufacture  of  the  products  in  first  week  of  April  2021.  The  grant 
received  was  nonrefundable  but  subject  to  certain  conditions  which  were  to  be 

49th RRC at The Ananta - Udaipur 45

fulfilled by the company. In case the conditions were not fulfilled the same had to be 
refunded back.  
 
Whether the company is required to offer the said grant received during the year as 
income during the year? Does the company have any option to defer the taxability of 
grant to the year in which the manufacturing takes place? 
 
 
 
 
 
 
 
7. Dividend on shares held as stock in trade and set off of business loss against such 
dividend income 
 
Chotilal Toswal Limited is a company engaged in the business of trading of shares and 
securities. The company has a brought forward business loss of Rs. 35 Lakhs as at the 
start of the year. During the year the company had earned dividend income of Rs. 20 
Lakhs.  Since  the  dividend  income  is  taxable  in  the  current  year  and  considering  the 
fact  that  the  dividend  has  arisen  out  of  the  equity  shares  held  as  stock  in  trade, 
whether the company can set off the business loss against such dividend income? 
 
 
 
 
 
 
 
8. Deduction u/s. 43B – Payment in protest 
 
False Value Limited had paid service tax liability in F.Y. 2013‐14 on receipt of service 
tax  assessment  order.  The  same  was  paid  by  the  company  under  protest  and  the 
appeal  had  been  preferred  before  the  first  appellate  authority.  The  appeal  was 
decided against the assessee in the F.Y. 2015‐16. The assessee chose not to contest 
the  order  any  further  and  therefore  claimed  a  deduction  of  the  amount  paid  under 
protest  in  the  F.Y.  2015‐16  u/s.  43B.  The  AO  disallowed  the  deduction  u/s.  43B  by 
contending that the same should have been claimed in the F.Y. 2013‐14 itself i.e. in 
the year of payment. Whether the approach of AO is correct? 

 

 

 

49th RRC at The Ananta - Udaipur 46

9. Applicability of section 43CA to under construction flats 
 
Block chain Limited is in the business of construction of flats. It has started a project 
for  construction  of  a  residential  housing  society  and  Mr.  X  has  entered  into  an 
agreement  for  purchase  of  the  flat  upon  its  construction.  The  contract  for  sale  of 
ultimately constructed flat is being done at a value less than the circle rate. Whether 
the  provisions  of  Section  43CA  shall  be  applicable  to  such  an  agreement?  Also, 
whether the provisions of section 43CA shall become applicable at the time of actual 
allotment of possession? 

 

 

 

 

 

10. Prior Period items 
 
During the year under consideration, the company, M/s. Lethargic Limited had shown 
prior period income of Rs. 15 Lakhs in its books of accounts. Further the company had 
also debited prior period expense of Rs. 5 Lakhs. However the prior period expense 
debited by the company did not have any nexus with the prior period income of the 
assessee company. At the time of filing of the return of income, the company had only 
offered the net prior period income of Rs. 10 Lakhs to tax. At the time of assessment 
the assessing officer contended that while prior period income is taxable, prior period 
expense cannot be allowed. Whether the contention of the assessing officer is tenable 
in law?  

 

 

 

11. 40A(3) for foreign currency payment  
 
XYZ  Limited  had  sent  two  of  its  employees  on  a  foreign  trip  in  order  to  fix  technical 
issues faced by its customers outside India. As a part of its business transactions, Mr. 
A  the  employee  of  the  company  paid  200  US  Dollar  for  purchase  of  a  component 
required to fix the issue. The payment was made using the currency acquired by them 
from authorized money dealers in India. Whether the company can claim deduction 
of the said purchase transaction entered by its employees? 
 
 

49th RRC at The Ananta - Udaipur 47

CODE OF ETHICS

- SIGNIFICANT CHANGES

- Speaker - CA VIKASH JAIN, R

Prepared by – CA Nimisha Jain 49th RRC at The

RCM 48

Ananta - Udaipur

Code of Ethics – Overview

Effective till 30th June 2020

Code of Ethics, 2009 – Part A
Code of Ethics, 2009 – Part B

No such part

Detailed overview of the old and the revised

49th RRC at The

w

Effective from 1st July 2020

Code of Ethics, 2019 – Volume I

Code of Ethics, 2019 – Volume II

Code of Ethics, 2019 – Volume III
(Updated relevant Disciplinary

Case laws)

d edition is elucidated in subsequent slides

Ananta - Udaipur 49

Overview of the structure

Code of Ethics, 2009 – Part A
[Based on IFAC / IESBA Code of Ethics, 2005 edition]

 Chapter 1 – General application of the Code
 Chapter 2 - Professional Accountants in public practice
 Chapter 3 – Professional Accountants in service

Code of Ethics, 2009 – Part B
[Based on domestic Indian provisions ]

 Chapter 4 – Accounting and Auditing standards
 Chapter 5 – The Chartered Accountants Act, 1949
 Chapter 6 – Council Guidelines
 Chapter 7 – Self Regulatory Measures Recommended by
 Appendices A – F

49th RRC at The

e of Code of Ethics, 2009

e

y the Council 50

Ananta - Udaipur

Overview of the structure

Code of Ethics, 2019 – Volume I

 Part 1 (Applicable to all Professional Accountants) - Com
Conceptual Framework

 Part 2 - Professional Accountants in Service
 Part 3 - Professional Accountants in Public Practice
 International Independence Standards (Parts 4A & 4B) –

• Part 4A—Independence for Audits & Reviews (Secti
• Part 4B—Independence for Other Assurance Engage

Code of Ethics, 2019 – Volume II

 Chapter – 1 – Accounting and Auditing Standards
 Chapter – 2 – The Chartered Accountants Act, 1949 (Few
 Chapter – 3 – Council Guidelines for advertisement
 Chapter – 4 – Council Guidelines, 2020
 Chapter – 5 – Self-Regulatory Measures Recom4m9theRnRCdaet Tdheb

e of Code of Ethics, 2019

mplying with the Code, Fundamental Principles and

–
ions 400 to 899)
ements (Sections 900 to 999)

w selected sections along with Schedules) 51
bAnyanttah- eUdaCipouruncil

Overview of the structure

Code of Ethics, 2019 – Volume III –

All case laws appearing hitherto under commentary under C

 The Chartered Accountants Act, 1949 (Section 22, 24 an
 The First Schedule

• Part I - Professional Misconduct in relation to Char
• Part II - Professional Misconduct in Relation to Me
• Part III - Professional Misconduct in Relation to M
• Part IV - Other Misconduct of Members in General
 The Second Schedule
• Part I - Professional Misconduct in relation to Char
• Part II - Professional Misconduct in Relation to Me
• Part III - Other Misconduct in relation to Members

49th RRC at The

e of Code of Ethics, 2019

Code of Ethics, 2009 shifted to “Case Laws Referencer”

nd 27)

rtered Accountants in practice
embers of the Institute in Service
Members of the Institute generally
l

rtered Accountants in practice 52
embers of the Institute generally
s of the Institute generally

Ananta - Udaipur

Why First and Second Sch

The two schedules are distinguished on the basis of gravi
The misconduct listed in the Second Schedule is understo
punishment.

For First Schedule (by Reprimand
Board of Discipline) Suspension upto 3

months
Fine upto rupees one

lakh.

49th RRC at The

hedule?

ity of misconduct described therein.
ood to be grave and serious prescribing higher

Reprimand

For Second Schedule (by Suspension for any period
Disciplinary Committee) or permanently

Ananta - Udaipur Fine upto rupees five lakhs.

53

The First Schedule

Part I Professional misconduct in relation to Chartered

(1) allows any person to practice in his name as a CA u
in practice and is in partnership with or employed by him

(2) pays or allows or agrees to pay or allow, direc
commission or brokerage in the fees or profits of his p
person other than a member of the Institute or a partner o
representative of a deceased partner, or a member of any o
Case Law - D.S. Sadri vs. B.M Pithawala – A Chartered Acco
complainant, who was not a Chartered Accountant, un
arrangement continued for a number of years – held guilty
(3) accepts or agrees to accept any part of the profits
person who is not a member of the Institute

49th RRC at The

Accountants in practice

unless such person is also a CA

ctly or indirectly, any share,
professional business, to any
or a retired partner or the legal
other professional body
ountant gave 50% of the Audit Fees received by him to the
nder the nomenclature of office allowance and such an

of the professional work of a 54

Ananta - Udaipur

The First Schedule

Part I Professional misconduct in relation to Chartered

(4) enters into partnership, in or outside India, with an
practice
Case Law - Harish Kumar – Where a Chartered Accountan
and Managing Director in two Companies and was also ho
of the Institute – held guilty
(5) secures work, either through the services of a perso
such CA or who is not his partner or by means which are n
Case Law - Jethanand Sharda vs. Deepak Mehta - A Chartere
Army Canteens giving details about him and his experience
– held guilty
(6) solicits clients or professional work either directly or
advertisement, personal communication or interview o
Case Law - D.C. Pal – A Chartered Accountant wrote s
Societies, Government of West Bengal stating that though
allotted to the firm and requested them to look into the ma

49th RRC at The

Accountants in practice

ny person other than a CA in
nt had engaged himself as a partner in two business firms
olding Certificate of Practice without obtaining permission

on who is not an employee of
not open to a CA
red Accountant wrote various letters to officers of different
e, his partner & office and the norms for charging audit fees

r indirectly by circular,
or by any other means

several letters to the Assistant Registrar of Co-operative 55
h his firm was on the panel of auditors, no audit work was
atter – held guilty

Ananta - Udaipur

The First Schedule

Part I Professional misconduct in relation to Chartered

(7) advertises his professional attainments or service
expressions other than chartered accountant on profession
letter heads or sign boards
Case Law – Sirdar P.S. Sodhbans – A Chartered Accountan
alia, pointing out seniority of his firm, sending his life sket
the country as well as to the organisation of accountancy p
were clearly in the nature of advertising professional attain

(8) accepts a position as auditor previously held by an
a certified auditor who has been issued certificate under th
1932 without first communicating with him in writing
Case Law – S.N. Johri vs. N.K. Jain – A Chartered Accounta
letter to the previous Auditor – held guilty with a referenc
outgoing auditor does not respond within a reasonable tim

49th RRC at The

Accountants in practice

es, or uses any designation or
nal documents, visiting cards,
nt wrote several letters to Government Department, inter
tch and stating that he had a glorious record of service to
profession with a view to get the audit work. These letters
nments – held guilty

nother chartered accountant or
he Restricted Certificate Rules,

ant commenced the work of audit on the very day he sent 56
ce that the appointment could be accepted only when the
me – held guilty

Ananta - Udaipur

The First Schedule

(9) accepts an appointment as auditor of a company
from it whether the provisions of Companies Act, 2013 h
Case Law - M.K. Biswas – A Chartered Accountant accepte
the basis of resolution of Board of Directors. There was no
Companies Act, 1956 which in the present case required t
Company did not make appointment in the general meeti

(10) charges or offers to charge, accepts or offers to
professional employment, fees which are based on a perc
contingent upon the findings, or results of such employ
under any regulation made under this Act;
Case Law – R.B. Basu vs. P.K. Mukherji – Where a Chartere
expected relief.

49th RRC at The

y without first ascertaining
has been complied with
ed the appointment as Statutory Auditor of the Company on
o compliance with the requirement of Section 224 of the
the appointment by the Central Government as the
ing – held guilty

accept in respect of any
centage of profits or which are
yment, except as permitted

ed Accountant had charged fees at certain percentage of the

Ananta - Udaipur 57

The First Schedule

Part I Professional misconduct in relation to Chartered

(11) engages in any business or occupation other than
accountant unless permitted by the Council
Case Law – D.S. Sadri vs. B.M. Pithawalla – A Chartered Acc
as Shivaji Engineering Works – held guilty
(12) allows a person not being a member of the Insti
not being his partner to sign on his behalf or on behalf o
profit and loss account, report or financial statements

49th RRC at The

Accountants in practice

n the profession of chartered
countant engaged himself in carrying on a business known

itute in practice, or a member
of his firm, any balance-sheet,

Ananta - Udaipur 58

The First Schedule

Part II Professional misconduct in relation to Chartered

(1) pays or allows or agrees to pay directly or indirec
in the emoluments of the employment undertaken b
(2) accepts or agrees to accept any part of fees, prof
chartered accountant or broker engaged by such comp
or customer of such company, firm or person by way of c

49th RRC at The

Accountants in Service 59

ctly to any person any share
by him
fits or gains from a lawyer, a
pany, firm or person or agent
commission or gratification

Ananta - Udaipur

The First Schedule

Part III Professional misconduct in relation to members o

(1) not being a fellow of the Institute, acts as a fellow o

(2) does not supply the information called for, o
requirements asked for, by the ICAI , Quality Review Board
Case Law - S.M. Vohra - Where a Chartered Accountant had
was removed from the Membership of the Institute and he
send his explanation as to how he was training as his article
(3) while inviting professional work from another ch
responding to tenders or enquiries or while advertising th
as provided for in items (6) and (7) of Part I of this
knowing it to be false

49th RRC at The

of the Institute generally

of the Institute

or does not comply with the
or the Appellate Authority
d continued to train an articled clerk even though his name
e had failed to send any reply to the Institute asking him to
ed clerk when he was not a Member of the Institute.

hartered accountant or while 60
hrough a write up, or anything
Schedule, gives information

Ananta - Udaipur

The First Schedule

Part IV Other misconduct in relation to members of the I

(1) is held guilty by any civil or criminal court for an of
imprisonment for a term not exceeding six months

(2) in the opinion of the Council, brings disrepute to the
a result of his action whether or not related to his professio
Case Law - Rajiv Sharma - Where a Chartered Accountant
seemed that he was acting in nexus with the Chairman of
and creation of artificial market in the shares of the Compa
Case Law - K. Ravichandran, Deputy General Manager, I
Aggarwal & Associates - Where a Chartered Accountan
customers of the Bank in return of maintaining th49eth‘RSRtCaant Tdhea

Institute generally

ffence which is punishable with

e profession or the Institute as
onal work

t had not acted merely as an Auditor of a Company, but it
f the company and thus aiding and abetting in the rigging
any.

Indian Bank, New Delhi vs. Raj K. Aggarwal, M/s Raj K. 61
nt was demanding and taking bribe from the borrower
aArndantCa a- Utdeagipuor ry’ of the borrower accounts

The Second Schedule

Part I Professional misconduct in relation to Chartered

(1) discloses information acquired in the course of his
to any person other than his client so engaging him, withou
otherwise than as required by any law for the time being in
Case Law - Jamnadas Harakchand and Others vs. P.C. Parekh
Accountant disclosed to the Income-Tax Officer information
without the consent of his clients

(2) certifies or submits in his name, or in the name of his
examination of financial statements unless the examinati
the related records has been made by him or by a partner o
by another chartered accountant in practice
Case Law - P.N. Vittal Dass, Addl. Collector of Customs, Mum
false certificates to several parties for past exports for mon
records or documents

49th RRC at The

Accountants in practice

s professional engagement
ut the consent of his client or
n force
h - Disclosure of information where a Chartered
n acquired in the course of his professional engagement

s firm, a report of an
ion of such statements and
or an employee in his firm or
mbai vs. P.U. Patil - Where a Chartered Accountant issued
netary consideration without verifying any supporting

Ananta - Udaipur 62

The Second Schedule

Part I Professional misconduct in relation to Chartered

(3) permits his name or the name of his firm to be
estimate of earnings contingent upon future transact
lead to the belief that he vouches for the accuracy of the for
Case Law - The DGM (Inspection), Tamilnad Mercantile Ban
97 Projection Statements for certain Individuals without ve
Bank had extended the loan amount. Afterwards, the Ba
issued Financial Statements did not have any business/sou

(4) expresses his opinion on financial statements of
which he, his firm, or a partner in his firm has a substantia
Case Law - H.R. Shetty - Where a Chartered Accountant c
Mangalore besides working in the same college as Lecturer

49th RRC at The

Accountants in practice

used in connection with an
tions in a manner which may
recast
nk Ltd. vs. R. B. K. Samuel - A Chartered Accountant issued
erifying the basic documents and on the basis of which the
ank revealed that persons for whom the Respondent had
urce for repayment of loan.

any business or enterprise in
al interest

conducted the Audit of Accounts of an evening college in
r/Vice-Principal.

Ananta - Udaipur 63

The Second Schedule

Part I Professional misconduct in relation to Chartered

(5) fails to disclose a material fact known to him which
statement, but disclosure of which is necessary in making s
he is concerned with that financial statement in a professio
Case Law - V.C. Agarwal - Where a Chartered Accountan
entered into by the assessee in his audit report submitted
Act, 1961

(6) fails to report a material misstatement known to
statement with which he is concerned in a professional cap
Case Law - Ms. Vandita R. Agarwal, Company Secretary, M
MSP & Co., Mumbai - The Respondent had shown an amou
Current Liabilities & Provision in the Financial Statements
2009 and as nil in its Financial Statements for the next F.Y i

49th RRC at The

Accountants in practice

h is not disclosed in a financial
such financial statement where
onal capacity
nt failed to bring attention to the heavy cash transaction
d in Form 3CD in terms of section 44AB of the Income Tax

o him to appear in a financial
pacity

M/s Wall Street Finance Ltd, Mumbai vs. M.S. Parikh, M/s
unt of Rs. 19,20,690/- as deposit received under the head,
of M/s Patel Holdings Limited for the Financial Year 2008-
i.e. 2009-2010

Ananta - Udaipur 64

The Second Schedule

Part I Professional misconduct in relation to Chartered

(7) does not exercise due diligence, or is grossly neg
professional duties
Case Law - Ajit Singh Ahuja vs. Dinesh Kumar Goyal - Wher
Paid-up Share Capital of a Private Limited Company in the B
Case Law - Tamilnad Mercantile Bank Ltd. vs. V.U. Gangol
Auditor of a Bank did not comment on the fraudulent tran
amount of loan without any actual deposit.

(8) fails to obtain sufficient information which is ne
opinion or its exceptions are sufficiently material to negate
Case Law - Chiranjive Lall Khanna - Where the Respondent
financial year 2007-2008. However, the Respondent had g
fact that there was a non-compliance with the requiremen
AS 5, AS 9, AS 15, AS 17, AS 18 and AS 20.

49th RRC at The

Accountants in practice

gligent in the conduct of his
re a Chartered Accountant wrongly certified the increase in
Balance Sheet without proper evidence.
lli - Where a Chartered Accountant being the Concurrent
nsactions in his Audit Report where the Bank allowed huge

ecessary for expression of an
e the expression of an opinion

t had Audited the Financial Statements of the Company for
given unqualified opinion in his Audit Report despite the
nts of certain Accounting Standards notified viz, AS 1, AS 2,

Ananta - Udaipur 65

The Second Schedule

(9) fails to invite attention to any material departu
procedure of audit applicable to the circumstances
Case Law - M.S. Ramanathan vs. A. Umanath Rao - Where
the bank accounts in relation to the accounts of the Co
transactions reflected in the accounts of the Company
Accountant and experienced clerk who were entrusted w

(10) fails to keep moneys of his client other than f
meant to be expended in a separate banking accou
purposes for which they are intended within a reasonable
Case Law - S. Seshadri vs. R. Srinivasan - A Chartered Ac
for making investments and depositing Income Tax o
deposited the Income Tax or deposited the money in a sep

49th RRC at The

ure from the generally accepted

e a Chartered Accountant did not conduct sample checking of
ompany and did not carry out vouching with respect to the
y and depended upon his assistant who was a Chartered
with the auditing work

fees or remuneration or money
unt or to use such moneys for
e time

ccountant had received large sums of money from his client
on behalf of the client. He neither made investments nor
parate Bank Account.

Ananta - Udaipur 66

The Second Schedule

Part II Professional misconduct in relation to members o

(1) contravenes any of the provisions of this Act or th
or any guidelines issued by the Council
Case Law - Lawrence Tellis vs. Dr. S.G. Mandre - Wh
arrangement to permit his articled clerk to serve his arti
without disclosing those facts to the Institute and got th
Deed are false
(2) being an employee of any company, firm or p
information acquired in the course of his employmen
by any law for the time being in force or except as permitte

49th RRC at The

of the Institute generally

he regulations made thereunder
here a Chartered Accountant entered into an improper
icles under another Chartered Accountant in another place
he Articles registered knowing that the declaration and the

person, discloses confidential 67
nt except as and when required
ed by the employer

Ananta - Udaipur

The Second Schedule

Part II Professional misconduct in relation to members o

(3) includes in any information, statement, return or form
Quality Review Board or the Appellate Authority any parti
false
Case Law - J.R. Chatrath - Where a Chartered Accountant w
Accountants, applied for admission as Fellow of the Institu

(4) defalcates or embezzles moneys received in his prof
Case Law - Tara Pada Banerjee, Dy. General Manager, Bank
financial advisor misappropriated the funds of his client b
individual name to that of joint account with the client wit
client’s name.

Part III Other misconduct in relation to members of the In

(1) is held guilty by any civil or criminal court for an off

six months 49th RRC at The

of the Institute generally

m to be submitted to the ICAI,
iculars knowing them to be
who was employed as a manager of a firm of Registered
ute stating that he was a partner, while he was not.
fessional capacity
k of Baroda vs. B.K. Sarker - A Member while working as a
by way of converting a Savings Bank account in his
thout his consent and fraudulently discharged 3 FDRs in the

nstitute generally

fence which is punishable with imprisonment for a term exceeding

Ananta - Udaipur 68

Important Substantive Ch

Code of Ethics, 2009

No provision for NOCLAR

No prohibition on Taxation services to Audit
clients

No provision for Management
responsibilities

Recommendatory 40% restriction on Fees
from an audit client

No provision for unintentional breach of
independence standards

49th RRC at The

hanges

Code of Ethics, 2019

Responding to Non-Compliance of Laws and
Regulations (NOCLAR)

Restrictions on Taxation services to Audit
clients

Prohibition on Management Responsibilities
to the audit clients

15 % restriction on Fees from single client –
only if its is consecutively for 2 years – and

duty only to communicate TCWG

Ananta - Udaipur Duty of Accountant in case of unintentional
breach of Independence Standards

69

Important Structural Cha

Code of Ethics, 2009

Independence for Assurance
Engagements
No characterization as Standards
Use of “Should”

No such restructuring of Sections

Lack of clarity for each entity

49th RRC at The

anges

Code of Ethics, 2019

Independence requirements for Audit and Review
engagements and other Assurance engagements
differentiated
Independence sections re-characterized as
“International Independence Standards”

Change in the drafting conventions e.g. “should” to “shall”

New pattern of structuring of sections – Requirements
and Applications distinguished

Increased clarity of responsibility for compliance - Firms,
network firms, individuals within firms

Ananta - Udaipur 70

Professional Accountant (he

The term “Professional Accountant” is used in IESBA Code o
word has been adopted in Code of Ethics edition 2009 and
edition 2019 (Volume – I).

As defined in Code of Ethics, “Professional Accountant” is
who is a member of the Institute of Chartered Accountan

As stated in IESBA Code of Ethics professional accountan
imply members who are employees; where as such term
professional accountants in service in Code of Ethics in l
in Chartered Accountants Act, 1949.

49th RRC at The