Supreme Court Validates ICAI Rule Restricting Chartered Accountants' Tax Audits, Enforcing From April 1, 2024
In the case of Shaji Paulose v. Institute of Chartered Accountants of India, the Supreme Court upheld a rule set by the Institute of Chartered Accountants Of India (ICAI) restricting Chartered Accountants from taking on more than a specified number of tax audit assignments in a financial year (currently set at 60). Justices BV Nagarathna and Augustine George Masih determined that the rule (para 6.0 of Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 dt. 08/08/2008 and subsequent amendments) did not violate the fundamental right to practice a profession guaranteed under Article 19(1)(g) of the Constitution.
The Court also ruled that the clause would be effective from 01.04.2024 and dismissed disciplinary proceedings initiated against members for violating the clause, citing legal uncertainty as the reason.
Furthermore, the Court granted ICAI the liberty to increase the number of audits a CA can undertake.
In its judgment, the bench highlighted the significance of ICAI in maintaining high standards and promoting the dynamism and credibility of the CA course and examinations. However, it stressed the importance of enforcing these standards effectively.
The conclusions of the judgment were as follows:
i. Clause 6 of Chapter 6 and subsequent amendments do not violate Article 19 (1)(g) and are reasonable restrictions.
ii. This clause is deemed effective from 1.04.2024. Accordingly, all proceedings initiated stand quashed.
iii. ICAI is granted liberty to increase the number of audits a CA can undertake.
Background:
The compulsory tax audit regime was introduced in 1984 to counter tax evasion and fraudulent practices. Section 44AB of the Income-tax Act, 1961, made it mandatory for certain businesses and professions to have their accounts audited by a Chartered Accountant.
In 1988, the ICAI issued a notification restricting members from accepting more than a specified number of tax audit assignments in a financial year, with non-compliance deemed 'professional misconduct'. This was later superseded by guidelines issued in 2008.
The guidelines were challenged in various High Courts, leading to conflicting judgments. In 2020, the Supreme Court accepted an application from the ICAI to transfer all petitions for a final determination.