Supreme Court Upholds ICAI Rule Limiting Chartered Accountants to 60 Tax Audit Assignments: Key Takeaways and Implications

Supreme Court Upholds ICAI Rule Limiting Chartered Accountants to 60 Tax Audit Assignments

In a landmark decision on Friday, May 17, the Supreme Court upheld a rule issued by the Institute of Chartered Accountants of India (ICAI) that limits Chartered Accountants to a maximum of 60 tax audit assignments per financial year. The bench, comprising Justices BV Nagarathna and Augustine George Masih, ruled that the regulation does not violate the fundamental right to practice a profession under Article 19(1)(g) of the Constitution.

The ruling came after a legal battle where the primary argument against the guidelines was that they infringed on the fundamental right to practice a profession and the right to equality. Senior Advocate Paramjit Singh Patwalia represented the petitioners, while Senior Advocate Arvind P. Datar represented the ICAI.

The Court decided that the rule will be effective from April 1, 2024, and annulled any disciplinary proceedings against members who breached this limit prior to the effective date. Additionally, the Court affirmed that the ICAI may increase the audit limit if deemed necessary.

In their judgment, the justices praised the ICAI for its high standards and significant contributions to the accounting profession, both nationally and internationally. They commended the ICAI for maintaining the highest standards and playing a significant role in ensuring the credibility of the CA course and examination.

The compulsory tax audit regime was introduced in 1985 to reduce tax evasion and fraudulent practices. The ICAI set a limit on the number of tax audit assignments a Chartered Accountant could accept in a financial year in 1988, which was extended to each partner in CA firms. Violating this limit constituted professional misconduct.

The decision by the Supreme Court brings clarity to the issue that has faced legal challenges across various High Courts. The ruling sets a precedent for the profession and emphasizes the importance of maintaining ethical standards in the accounting industry.

Overall, the judgment reaffirms the authority of the ICAI to regulate the profession and ensures that Chartered Accountants uphold the highest standards of integrity and professionalism in their practice.