Tax Audit Limit For Chartered Accountants: Supreme Court Transfers To Itself Pleas Challenging Constitutional Validity Of ICAI Guidelines

The Supreme Court has transferred to itself the writ petitions pending before Kerala, Madras and Calcutta High Courts which challenge the constitutional validity of guidelines issued by Institute of Chartered Accountants of India (ICAI) limiting the number of Tax Audits of Chartered Accountants.

The Chapter VI of the Council General Guidelines, 2008 stipulates that a member of the Institute in practice shall not accept, in a financial year, more than the "specified number of tax audit assignments", which is at present 60 under Section 44AB of the Income-tax Act, 1961. Further, Section 22 of the Chartered Accountants Act, 1949 defines "professional or other misconduct" to include any act or omission provided in any of the Schedules to the Act. Clause (1) of Part II of the Second Schedule to the Act stipulates that a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct if he contravenes any of the provisions of the Act or the regulations made thereunder or any guidelines issued by the Council of the Institute. As such, if a member of the Institute contravenes the provisions of the aforesaid Chapter VI of the Guidelines dated 08.08.2008, he shall be deemed to be guilty of professional misconduct under the Chartered Accountants Act, 1949.

These guidelines and the disciplinary proceeding initiated against Chartered Accountants invoking it are under challenge before Kerala, Madras and Calcutta High Courts mainly on the ground that the same is violative of Article 19(1)(g) of the Constitution of India. The ICAI, therefore approached the Apex Court by filing a petition under Article 139-A(1) of the Constitution of India.

The court noted that the writ petitions filed in many High Courts challenging the earlier guideline dated 13.01.1989 [ specifying that a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he  accepts in a financial year, more than specified number of tax audit assignments under Section 44AB of the Income-tax Act, 1961] were transferred to the Supreme Court. The said cases were disposed as infructuous since the impugned 1989 guidelines were replaced by 2008 guidelines. On the writ petitions pending before the High courts challenging 2008 guidelines, the bench comprising Justices Ashok Bhushan, R. Subhash Reddy and MR Shah observed:

"The guidelines which are impugned in the High Court and consequent disciplinary proceedings initiated against various chartered accountants throughout the country is an issue of public importance affecting Chartered Accountants as well as the citizens who have to obtain compulsory tax audits. We are satisfied that to settle the law and to clear the uncertainty among tax professionals and citizens, it is appropriate that this Court may transfer the writ petition, to authoritatively pronounce the law on the subject."

Allowing the transfer petitions, the bench also observed that the interim orders passed in the writ petitions which are being transferred to this Court shall continue till any other order is passed by it.

CASE: INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA vs. SHAJI POULOSE [TRANSFER PETITION (CIVIL) NO(S). 2849-2859/2019]
CORAM: Justice Ashok Bhushan, R. Subhash Reddy and MR Shah
COUNSEL: Sr. Adv Arvind Datar, Sr. Adv R. Basant 

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