Can CA's help curb black money?

As a student of Chartered Accountancy, you will always take great pride in who you want to be in the future. All you learn from books is what a chartered accountant is supposed to do and all the ethics that he/ she has to abide by. In the course of your work as an articled assistant you get familiarized with how wisely one can invest their money in order to protect their income from paying excessive taxes. All seems orderly until you start to learn of the very many global organisatiozs and their magnitude of operations and not to ignore, the disguised form of black money.

What is ‘black money’?

Often used in various contexts, we are quite familiar with the usage of these words. But, what does black money actually mean? It includes in its ambit the following:

• Money earned through illegal means such as criminal or fraudulent activities
• Money earned through legal route on which tax is evaded by not disclosing true income.

Generation of black money

As illicit as it seems, the generation of black money should not be mistaken to be a planned act alone or a planned evasion of tax. People, many times knowingly and unknowingly contribute to the mass of black money. It is just that people are unaware about the fact that their unknown support to the volume of black money has a disastrous effect on the society.

A basic understanding of audit assists us in gaining the knowledge about the importance of the true and fair presentation of the affairs of a company. We also know that the Income tax act and the amendments made to its various provisions on a continual basis provide insight into income not disclosed properly.

Sceptic mind identifies

A CA should first be aware of the ways that open doors to the generation of black money. Now that we know transactions involving black money are not the genuine ones, they are however either totally omitted or made to look like ordinary transactions. This is when a CA has to have his / her sceptic attitude on. Any tainted transaction should be investigated further. Here are few instances that might be a source of black money:

1. Non-disclosure of all income or income from all sources at the time of filing ITR.
2. One of the most common sources of black money are property related transactions. Cash received in excess of what is legally recorded is all tainted money.
3. Purchase and sale of goods without giving or receiving any bill is a means to try & avoid tax.
4. All the false deductions claimed result in the building up of black money.

Shell companies

This is a widely prevalent form of diverting black money especially on a large scale and across borders. A company, trust or an NGO is registered which on books is shown to be conducting affairs with adherence to principles of charity. However, a deep study into the affairs of these companies shall reveal that black money is being converted to white by donating the money in the name of charity to self-formed and self-owned organizations that off the paper do no charity.

Loan transactions

A lot of black money in the form of cash is circulated in order to keep it non-traceable. Certain transactions should be looked beyond their mere form into their substance to reveal their true nature. As we are familiar with the provision of income tax that requires payments exceeding rupees twenty thousand to be made in modes other than cash. This is taken advantage of without evidently overriding the intention of the provision. A lot of repayments are recorded for amounts just below the twenty thousand. It is forgotten that the income tax department has all of these under its purview.

How can CA’s help

Why are CA’s approached?

CA's are usually approached for assistance in complying with the tax laws. However, we all know with what requirement clients approach CA’s. All they want is to lessen their tax burden to the maximum extent possible. Lessening it by wisely managing expenses is not what they seek for. Instead they seek to avoid tax. Guidance regarding this process is what they seek for from a CA. Though there is a separate audit named tax audit, not much success has be achieved in keeping a check on tax evasion and avoidance.

CA’s have to be honest and ethical in their approach. They should  be aware of the dire consequences they could face for unprofessional conduct.

How assuring are audits?

Audits of late seem to assure nothing but help many culprits getaway with all the misdeeds done. We see many reputed organisations that have regular audits conducted suddenly boil down to one huge scam or just another shell company. Thanks to all the exclusions and disclaimers an audit report gives space to.

A change is required  in the way an auditor peruses his / her own work. After few scandals that shook the corporate world, several new disclosure and accounting requirements have been put in place by regulators. The necessity to report on interim financial controls is an example. However, there hardly is any instance of report of a weakness post the introduction of this provision. So, can we actually consider that, the interim financial controls of all the organisations have been perfectly designed and implemented? Well, that can only happen in another world.

The attitude a CA employs to the work  and the honesty with which an opinion is expressed determines the economic health of a nation and ensures that every rupee earned is accounted for.

The duty of a CA

As there are two sides to a coin, a CA who is given such great powers, should dutifully fulfill the responsibilities  instead of trying to plaster the loopholes and take advantage of them. CAs  should spread awareness among clients about the consequences of the wrong deeds. He / She should also persuade them and encourage them to be true in disclosing their income.

CAs should look at themselves as the ones working for a higher authority than being a mere representative of the client. This attitude is the key to solve deep rooted problem.

As a difference as small as one rupee can leave the balance sheet mismatched, even an ordinary tax payer can unknowingly add to the mound of black money. The auditor has to take the responsibility to educate his/ her client about how he can disclose his/her income correctly and what would result in unaccounted income. The client should be guided through the path of integrity and be warned about the consequences of non-disclosure of income and concealment of income.

Ultimately, a CA should bear in mind the importance attached to his/her one signature and how much is presumed about what it certifies.

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