Supreme Court Upholds ICAI Rule Limiting Tax Audit Assignments for Chartered Accountants

Supreme Court Upholds ICAI Rule Limiting Tax Audit Assignments for Chartered Accountants

In a landmark decision on Friday, the Supreme Court upheld a rule issued by the Institute of Chartered Accountants Of India (ICAI) that restricts Chartered Accountants from accepting more than a specified number of tax audit assignments in a financial year. The current upper limit is set at 60 assignments.

A bench comprising Justices BV Nagarathna and Augustine George Masih ruled that the rule, outlined in para 6.0 of Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 dt. 08/08/2008 and subsequent amendments, does not violate the fundamental right to practice a profession guaranteed under Article 19(1)(g) of the Constitution.

The Court also declared that the rule will be effective from 01.04.2024 and dismissed disciplinary proceedings initiated against members for violating the clause, citing legal uncertainty as the basis for their decision.

Furthermore, the Court granted the ICAI the authority to increase the number of audits that a Chartered Accountant can undertake.

In their judgment, the bench praised the ICAI for maintaining high standards and emphasized the importance of enforcing these standards to uphold the credibility of the CA course and examination. They urged the ICAI to align accounting and ethical standards with international norms.

The conclusions of the judgment are as follows:
1. The rule is not violative of Article 19(1)(g) and is a reasonable restriction.
2. The rule will be effective from 1.04.2024, and all related proceedings are quashed.
3. The ICAI has the liberty to enhance the number of audits a CA can undertake.

The compulsory tax audit regime was introduced in 1984 to combat tax evasion and fraudulent practices. Section 44AB of the Income-tax Act, 1961 mandates that businesses exceeding a certain threshold must have their accounts audited by a Chartered Accountant.

The ICAI’s rule limiting tax audit assignments was challenged in various High Courts, leading to conflicting judgments. The Supreme Court took up the matter in 2020 to provide a final resolution.

Senior Advocate Paramjit Singh Patwalia represented the petitioners, arguing that the rule violated fundamental rights. Senior Advocate Arvind P. Datar represented the ICAI, providing historical context on compulsory audits under the Income-tax Act.

The case title is Shaji Paulose versus Institute of Chartered Accountants of India Transfer Case (Civil) No. 20/2021.

Stay tuned for updates after the judgment is uploaded.