CA Amit, the auditor of KRT Pvt. Ltd, also undertakes statutory compliances related to Income Tax, GST and MCA for the client. For carrying out the…

As per Clause (10) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he fails to keep moneys of his client other than fees or remuneration or money meant to be expended in a separate banking account or to use such moneys for purposes for which they are intended within a reasonable time. In the course of his engagement as a professional accountant, a member may be entrusted with money belonging to his client. If he should receive such funds, it would be his duty to deposit them in a separate banking account, and to utilize such funds only in accordance with the instructions of the client or for the purposes intended by the client. In this connection the Council has considered some practical difficulties of the members and the following suggestions have been made to remove these difficulties: (i) An advance received by a Chartered Accountant against services to be rendered does not fall under Clause (10) of Part I of the Second Schedule. (ii) Moneys received for expenses to be incurred, for example, payment of prescribed statutory fees, purchase of stamp paper etc., which are intended to be spent within a reasonably short time need not be put in a separate bank account. For this purpose, the expression; "reasonably short time”, would depend upon the circumstances of each case. (iii) Moneys received for expenses to be incurred which are not intended to be spent within a reasonably short time as aforesaid, should be put in a separate bank account immediately. In the given situation, CA Amit receives - 3,00,000 from KRT Pvt. Ltd. in his regular savings account. An analysis of CA Amit's actions with reference to the above provisions are as under: 1,20,000 received as advance towards professional fees is correctly kept in savings account by CA Amit. 70,000 which was not paid within one month for MCA filings and DIN renewals should have been transferred to a separate bank account as the payment was delayed for more than a reasonably short time. 40,000 which was utilized for payment of office rent of CA Amit and later on replaced, is against the instructions of the client. In view of above, CA Amit is guilty of professional misconduct under Clause (10) of Part I of the Second Schedule to the Chartered Accountants Act for not keeping the amount of 70,000 in a separate bank account and for utilizing an amount of 40,000 which was not in accordance with the instructions of the client.