Supreme Court Upholds ICAI Rule on Tax Audit for Chartered Accountants
On May 17, the Supreme Court upheld a rule by the Institute of Chartered Accountants of India (ICAI) limiting Chartered Accountants (CAs) to accepting a maximum of 60 tax audit assignments per financial year.
The Court, comprising Justices BV Nagarathna and Augustine George Masih, ruled that this rule, outlined in para 6.0 of Chapter VI of the Council Guidelines, does not infringe upon the fundamental right to practice a profession under Article 19(1)(g) of the Constitution.
Furthermore, the Court decreed that the clause would be effective from April 1, 2024, and dismissed disciplinary proceedings initiated against members for violating this clause, citing legal uncertainty as grounds for dismissal. The judgment also granted ICAI the liberty to increase the number of audits a CA can undertake.
In its observations, the Court commended ICAI for maintaining high standards and urged the institute to ensure the enforcement of these standards, particularly in aligning accounting and ethical norms with international standards.
The key conclusions of the judgment are:
- Clause 6 of Chapter 6 and subsequent amendments are reasonable restrictions and not violative of Article 19(1)(g).
- The clause will be effective from April 1, 2024, with all related proceedings being quashed.
- ICAI is permitted to enhance the number of audits a CA can undertake.
Background:
The mandatory tax audit system was introduced in 1984 under Section 44AB of the Income-tax Act, 1961, to counter tax evasion and fraudulent practices. In 1988, ICAI issued a notification restricting members from accepting more than a specified number of tax audit assignments per financial year, which was later superseded by guidelines issued in 2008. These guidelines were challenged in various High Courts, leading to conflicting judgments. To resolve these issues conclusively, the Supreme Court accepted an application in 2020 to transfer all related petitions for final determination.
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