SCHOOL OF LAW

SESSION 2020-21

SUBJECT: Accountancy V (Auditing I)

TOPIC: Case laws

SUBMITTED TO: SUBMITTED BY:

Dr. Anjali Sharma Divya Rao
Assistant professor B.Com LLB (III)
SOL MUST 190297
Case No.1

CHIRLAMCHERLA CHINNA VENKATA SUBBAIAH

VS
VASAVI KANYAKA PARAMESWARI ARTS, SCIENCE AND

COMMERCE COLLEGE COMMITTEE, MARKAPUR

JUDGEMENT

(1.) The 1st Respondent-society was registered way back in the year 1966. It appears that
Respondent No. 2 and his brother, by name Balaratnam, gave a considerable amount of
Rs. 25,000/- to the society. As a measure of gratitude, the members have resolved to
appoint the 2ndRespondent and his brother as Presidents in alternative terms of three
years with hereditary rights. The election of the other office bearers was being held from
time to time. The affairs of the society were being administered with that arrangement.

(2.)
The Petitioner filed S.R.O.P. No. 2 of 2006 in the Court of I Additional District Judge,
Ongole against the Respondents under Section 23 of the A.P. Societies Registration Act,
2011 (for short 'the new Act') with a prayer to declare bye-law 9(b) of the society as
illegal, void and contrary to Section 14 of the new Act, for mandatory injunction directing
Respondents 2 to 4 to conduct elections to all the posts in the executive committee and
to direct the society to amend the bye-laws suitably. He pleaded that whatever may have
been the justification or legality of bye-law 9(b) before the new Act came to be enacted,
once Section 14 of the new Act mandates that election shall be held to the committee
periodically, it becomes impermissible for Respondents 2 and 3 to act as Presidents on
nomination basis.
(3.) The application was opposed by the Respondents. It was urged that the arrangement
was in existence almost for half a century and that the same cannot be altered at this
length of time. They further pleaded that Section 14 of the new Act does not prohibit the
nomination of any office bearers and on the other hand, Section 5(v) permits of such an
arrangement. It was also pleaded that the new Act does not have effect on the bye-laws,
that were framed by the society registered under the A.P. Public Societies Registration
Act. The trial Court dismissed the O.P, through judgment, dated 28.09.2010. Hence, this
revision under Article 227 of the Constitution of India.;
Case No. 2

National Bank of Lahore Ltd. Vs. Sohan Lal Saigal and Others

Facts :
● Three appeals were filed by the appellant bank in regards to the three suits
filed by Sohan Lal Saigal and others, Shrimati Ram Piari and Shrimati
Durga Devi.
● The appellant-Bank used to maintain a safe deposit vault in the Bank
premises at Jullundur City where it kept locker cabinets for the safe
custody of the jewellery and other valuables of its customers who might
wish to hire the lockers.
● The vault was to remain under the joint control of the cashier and the
custodian. If no separate custodian was appointed, it had to remain under
the joint control of the manager and the cashier. The Master-key and keys
of unleased lockers overnight were always to remain under the joint
control of the cashier and the Manager like the Bank’s cash and other
articles. Lockers had to be operated in the presence of two representatives
of the Bank. As and when the lockers fell vacant, the licks had to be
replaced new keys were to be obtained from the company which were to be
received duly sealed and the seals had to be broken in the presence of the
client only. If there were more than two keys belonging to a safe and the
door of the strong room, one key in each case was to be given to the
Accountant.
● Notwithstanding all this the Bank authorities entrusted the task of being
the custodian of the deposit vault in the Jullunder Branch of the Bank to its
Manager, Baldev Chand, alone.
● In all the three suits certain lockers were taken by the plaintiffs on
different dates for depositing their jewellery and valuables but those
articles kept by the plaintiff in their respective lockers were ultimately
found missing.
● Manager Baldev Chand was in possession of all the keys of the lockers of
the plaintiffs and the key for the strong room of the bank. The plaintiffs
contend that the manager had filed off the levers of the lockers and that
they had no knowledge of this prior to renting the lockers and the manaThe
claim by the appellant bank that the bank was not responsible for the
fraudulent acts of the manager is dismissed.
● The claim that the term “the company shall not be liable for any loss etc.”
in the contract between the respondents and the bank ensures that the
bank was not responsible for the loss of the valuables of the respondents id
dismissed.
 ● The claim that article 36 of the Limitations Act should be applied instead of
Article 95 is dismissed.
● All the three appeals fail and they are dismissed with costs.
● also resided on the upper portion of the bank’s premises

Case No.3

Commissioner of income tax Vs Prestige Fabricators pvt L.t.d

JUDGMENT

The CIT, Bhopal has filed this application under s. 256(2) of the IT Act, 1961 (for short
the Act) seeking direction to the Tribunal to state the case and refer the proposed
questions, as noted below, for our opinion arising out of the order dt. 12th April, 1993
passed by the Tribunal in ITA No. 1059/Ind/93 after rejection of the application
submitted under s. 256(1) of the Act and registered as RA No. 79/Ind/93 on 26th April,
1994 for asst. yr. 1989-90 :

"(1) Whether, on the facts and in the circumstances of the case, Tribunal was justified
in Law in deleting the addition of Rs. 8,14,832 inspite of the fact that provisions of s.
41(1) of the IT Act are clearly applicable to the case ?

(2) Whether, on the facts and in the circumstances of the case, Tribunal was justified in
Law in deleting the addition of Rs. 23,260 added by the Assessing Officer under
provisions of s. 40A(3) of the IT Act, 1961 ?"

2. Briefly stated, the facts of the case are that the assessee had a liability of Rs. 5,21,352-
00 in respect of penal interest payable to A. P. Ayudogik Vikas Nigam for earlier years
which was provided in those years. However, in the year 1989-90, the assessee wrote
back the said liability on expectation that it would not be claimed by the aforesaid
Nigam. There was also the liability of the interest amounting to Rs. 2,93,480-00 payable
to the aforesaid Nigam which the assessee did not provide in its books of accounts. A
note of the auditors showed that the liability accrued against the assessee was not
provided for. The assessee claimed adjustments of these two items i.e. Rs. 5,21,352-00
and Rs. 2,93,480-00, totalling Rs. 8,14,832-00 and deducted the same from the book
profits. The Assessing Officer (AO) did not approve of such deductions for computation
of profit under s. 28 and under s. 115-J of the Act and negatived the assertion of the
assessee. The CIT(A), on appeal, however, allowed the deductions of Rs. 8,14,832-00 for
computation of profit under s. 28 of the Act but declined to allow such deductions for
computation of book profit under s. 115J of the Act. The Tribunal following the
decision of the Apex Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363
(SC) concluded that the assessee following mercantile system of accounting is entitled to
claim any liability which so accrued and thus allowed deduction and directed that the
aforesaid amount shall be reduced from the profit and loss account prepared by the
assessee-company and only balance shall be taken as book profit. Aggrieved, the
Department filed an application under s. 256(1) of the Act. The application was
dismissed. Thereafter this application under s. 256(2) of the Act is filed.

3. We have heard Shri D. D. Vyas, learned counsel for the applicant/Department and
Shri Nazir Singh, learned counsel for the non-applicant/assessee.

4. The counsel for the applicant submitted that Question No. 2 may not be taken as
referable since the deletion of addition is based on proper appreciation of facts and
conclusion based on appreciation of facts does not give rise to any referable question of
law but forcefully submitted that Question No. 1 needs to be referred in terms of s.
41(1) of the Act.

5. The learned counsel for the non-applicant opposes the contention with regard to
Question No. 1 as well and submitted that the Department did not choose to make any
submission before the Tribunal on the basis of s. 41(1) of the Act. He submitted that the
aforesaid amount was shown by the assessee in the subsequent year and was offered for
tax. He further submitted that the tax is already levied on the aforesaid amount and as
such no basis survives for the direction as claimed even otherwise.

6. We have considered the submissions.

7. We find that the Tribunal declined to state the case and refer the questions as under :

"On a consideration of the submissions advanced by the parties, we are of the opinion
that the question, as framed by the Department, is misconceived. From the facts
already narrated above, it is evident that the CIT(A) had held that the deduction to the
extent of Rs. 8,14,832-00 is to be allowed from the book profits. It appears that the
Department came in appeal against that finding. It was never argued before the
Tribunal that the addition for the said amount is to be made under s. 41(1) of the IT
Act. The finding that the deduction for the said amount is allowable is a finding of fact
based on consideration of the evidence available on record. In the given circumstances,
we are of the opinion that the question proposed by the Revenue is not a referable
question of law. We, therefore, refuse to grant the reference."

8. In view of the aforesaid position, we are satisfied that even Question No. 1 is not a
referable question. This view is further fortified by the fact that in subsequent year this
amount was shown and offered for tax and the Department has already levied tax on
the same. The order of the Tribunal is based on appreciation of facts as placed on
record and did not disclose any infirmity or perversity.

9. In the result, we decline the prayer and reject the application with no order as to
costs.

10. Counsels fee for each side is, however, fixed at Rs. 750-00, if certified.

Case No.4

NEWTON Vs BIRMINGHAM SMALL ARMS COMPANY

the English court made it clear to the rights of an auditor cannot be

abridged nor restricted by any regulations of company. This is to ensure
that an auditor’s rights are secured. The rights are unqualified and this will
enable auditors to discharge their role and duties effectively. Auditors can
play their role effectively only if they are independent. Therefore, auditors
are given comprehensive powers to make possible for them to uncover
misconducts by management. They are expected to be independent of the
company and report of the company. The company lost £1,200,000 in
failure of investments and the large scale fraud of the chairman, Gerard
Lee Bevan, ‘a daring and unprincipled scoundrel’. The liquidator sued the
other directors for negligence. The auditors were sued too, but the Court of
Appeal held they were honest and exonerated by provisions in the
company’s articles. Romer J held that some of the directors did breach
their duty of care. But they were not liable to reimburse, because an
exclusion clause for negligence was valid. And even in absence of exclusion
clauses, in his view, ‘for a director acting honestly himself to be held legally
liable for negligence, in trusting the officers under him not to conceal from
him what they ought to report to him appears to us to be laying too heavy a
burden on honest businessmen.’ Though he felt ‘some difficulty’ with the
distinction, negligence would need to be ‘gross’ to visit liability