PROFESSIONAL ETTHICS ASSIGNMENT

INTRODUCTION

Tax disputes carry substantial ramifications, including financial penalties and the exhaustive
consumption of time and resources in resolving the matter. Mismanagement of such disputes can
escalate into legal proceedings, causing undue stress and uncertainty for individuals. Hence, the
imperative lies in either preventing such disputes or promptly addressing them.

A fundamental obligation for any business enterprise is the systematic maintenance of records
pertaining to daily transactions, aimed at accurately assessing its financial position and
performance. This process, commonly known as accounting, is equally pertinent in the legal
profession, where lawyers are mandated to maintain organized accounts relevant to their practice.

NEED FOR ACCOUNTING FOR ADVOCATES

The essence of accounting for advocates lies in furnishing a comprehensive financial portrayal of
their professional undertakings. This is primarily accomplished through two essential financial
statements: the Profit and Loss Account and the Balance Sheet, detailing assets and liabilities.
Accurate accounting serves as the bedrock for crucial calculations such as annual income, income
tax liabilities, professional tax obligations, and client-related financial transactions.

By adhering to meticulous accounting practices, advocates can ascertain their annual income,
fulfill income tax obligations, evaluate professional tax liabilities, and discern amounts receivable
or payable to clients. Such systematic record-keeping not only fosters transparency within the legal
profession but also facilitates efficient financial management.

Calculating Annual Income:

Accurate record-keeping of income generated is imperative for advocates to ascertain their annual
income from legal practice. This practice enables advocates to gauge their financial performance
and devise strategies to enhance their professional endeavors effectively.
Calculating Income Tax:

Advocates are bound by law to pay income tax on their professional earnings. To compute taxable
income accurately, advocates must maintain meticulous records of income and expenditures.
Deductible expenses such as rent, salaries, telephone bills, and administrative costs are essential
components in arriving at taxable income, necessitating diligent record-keeping.

Calculating Professional Tax:

The payment of professional tax by advocates to the government, bi-annually, is contingent upon
their income levels. Detailed accounts are indispensable in accurately determining professional tax
liabilities.

Determining Client Balances:

Thorough maintenance of accounts concerning funds received from clients or on their behalf
facilitates advocates in ascertaining amounts due to or from clients. This practice not only ensures
transparency in client dealings but also aids advocates in managing financial obligations
efficiently.

DUTY OF ADVOCATE WITH RESPECT TO MAINTAINING THEIR

Advocates bear the responsibility of maintaining and preserving accounting books and associated
documents at their principal office where legal practice is conducted. In cases of multiple office
operations, primary accounting records should be housed at the head office, while separate records
for each branch office may be maintained at their respective locations.

Failure to uphold proper accounting practices or retain records for prescribed durations (e.g., cash
book and ledger for 16 years, other books for 8 years) can attract penalties ranging from Rs. 2,000
to Rs. 1,00,000 under Section 271A of the law. This underscores the legal imperative for advocates
to adhere to meticulous accounting practices and uphold record retention requirements.
IMPORTANCE AND ROLE OF ACCOUNTANCY IN RESOLVING
DISPUTES

Expertise in Tax Law:

Accountants in India possess contemporary knowledge of tax laws and regulations, crucial for
addressing discrepancies or disputes with tax authorities such as the Income Tax Department
(ITD). Their proficiency allows for precise identification of issues and adept reference to relevant
legal frameworks.

Communication with Tax Authorities (ITD):

Accountants act as intermediaries between individuals or businesses and the ITD during tax
disputes. Their adeptness in employing precise language and legal tax terminology enhances the
likelihood of a favorable resolution based on their experience.

Accurate Record-Keeping and Evidence Gathering:

Accountants maintain meticulous and well-organized financial records. In the event of a tax
dispute, they swiftly gather requisite evidence such as receipts and bank statements, indispensable
for a successful resolution.

Minimizing Penalties and Charges:

Experienced accountants negotiate with the ITD to mitigate penalties or charges, particularly for
inadvertent discrepancies or misunderstandings. This proactive approach can lead to significant
savings and avert legal entanglements.

Advisory Role:

Accountants play a crucial advisory role in assisting individuals and businesses in India in avoiding
future disputes and ensuring compliance with Indian tax laws. They offer strategic advice on
effective record-keeping practices, tax planning strategies, and understanding new legislation.
Having a knowledgeable accountant provides invaluable support, particularly for those unfamiliar
with tax laws, leading to peace of mind and optimized financial management.
ACCOUNTING PRINCIPLES AIDING IN INTERPRETATION OF
DISPUTES:

Incorrect Tax Calculation:

If the Income Tax Department alleges underpayment of taxes due to miscalculation, accountants
can meticulously review tax returns, identify errors, and communicate accurate information to tax
authorities, such as the Central Board of Direct Taxes (CBDT) in India.

Misunderstanding of Tax Laws:

In instances where penalties or scrutiny arise due to practices believed to be within legal
boundaries under Indian tax laws, knowledgeable accountants can provide clarity. They can
potentially challenge penalties based on a thorough understanding of Indian tax regulations.

Dealing with Penalties:

When penalties are levied by Indian tax authorities (CBDT), accountants can facilitate negotiations
for feasible payment plans aligned with clients' financial situations and compliant with Indian tax
laws. Their expertise in the intricate Indian tax system is invaluable for ensuring compliance and
resolving issues efficiently.

CASE LAWS:

Case: Manilal Kher Ambalal And Co. vs A.G. Lulla, 1989 (Bombay) 176 ITR 253:

In this case, advocates, with over 50 years of enrollment, filed annual accounts following Bombay
High Court rules. When the Income Tax Officer requested details under new rules conflicting with
established practices, the advocates contested this. The Bombay High Court upheld the conformity
of High Court Rules with professional standards, ruling in favor of the petitioners and directing
the respondent (Income Tax Officer) to cover the petitioners’ costs.

Case: Associated Law Advisers Antriksh Bhawan v/s ITO Ward, I.T.A. No. 5336 & 5846/DEL of
2014:

Cross-appeals were filed by the assessee and the revenue against an order dated August 22, 2014,
passed under section 143(3) for the assessment year 2010-11. The judgment emphasized that once
a case is resolved, advocates may accept funds in their official judicial capacity, treating them
purely as advances rather than profits. The Revenue's appeal was dismissed, and the Assessee's
appeal was upheld.