SC tells govt to set up panel to probe FDI violations, tax evasion

By: | Published: February 24, 2018 6:11 AM

Panel to also consider measures for effective enforcement of the FDI policy and FEMA regulations

FDI violations, tax evasion, supreme court, FEMA Regulations, ICAF, Karnataka High Court, CBDT, PwC Group The PIL filed by the Centre for Public Interest Litigation (CPIL), an NGO, had sought a direction to the government to lay down guidelines and bring systematic changes in order to check these kinds of accounting scams. (PTI)

The Supreme Court on Friday asked the government to constitute an expert committee to look into the allegations of FDI violations, malpractices and massive tax evasion by multinational accounting firms (MAFs) including PricewaterhouseCoopers (PwC) and its network audit firms. A bench led by Justice AK Goel also asked the three-member expert panel to file its report within three months on the issue including whether the statutory code of conduct for the chartered accountants requires any change or an appropriate legislation “so as to appropriately discipline and regulate these MAFs. Besides, the panel will also consider measures for effective enforcement of the FDI policy and the FEMA Regulations and also identify remedial measures to check such violations. While it asked the Enforcement Directorate to complete ongoing investigations within three months for any FDI and FEMA violations by MAFs, the ICAI has also been given there months to examine the issue.

The directions came on two petitions. The PIL filed by the Centre for Public Interest Litigation (CPIL), an NGO, had sought a direction to the government to lay down guidelines and bring systematic changes in order to check these kinds of accounting scams. It had alleged massive bungling by UK-based multinational accounting firm PricewaterhouseCoopers (PwC) and its network audit firms in India and has demanded a probe against them for allegedly indulging in financial irregularities, fudging of accounts, massive tax evasion, violation of Foreign Direct Investment rules and RBI guidelines and the Foreign Exchange Management Act, among others.

Counsel Prashant Bhushan, appearing for CPIL, argued that payments worth hundreds of crore of rupees, by way of subsidies, export incentives, grants, etc, are done based on certification of the auditors and, “it is, therefore, imperative their certification is absolutely correct and sacrosanct as otherwise it would cause humongous loss to public exchequer.” Another appeal against the Karnataka High Court order had also sought investigation against MAFs for illegally operating in India with the help of Indian Chartered Accountancy Firms (ICAFs) and providing accounting, auditing, book keeping and taxation services. It had also sought cancellation of permission to ICAFs by ICAI for breach of code of professional conduct under the CA Act.

However, the PwC Network had argued that “merely because the PwC audit firms are part of global PwC Network does not by itself violate any applicable law. As regards the grants received in financial years 2008-09, 2009-10 and 2010-11, amounting to Rs 142.9 crore, tax has been paid as per assessment and proceedings are pending.

The Network has furnished all the information to the ICAI… since all the partners are Indians and are registered with ICAI, they are personally accountable to the ICAI for any professional misconduct. Services BV does not have any stake in the partnership or profits of the firms. Thus, there is no violation of Section 25 of the CA Act,” it said. The Central Board of Direct Taxes (CBDT) had told the apex court that its investigation found that 11 entities belonging to the PwC Group are operating in India. Four entities have received grants of Rs 477.64 crore from PwC Services during 2009 to 2013 and the tax proceedings are pending.

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