Supreme Court Upholds Chartered Accountants’ Body To Limit Number Of Audits In A Year

The Supreme Court on Friday 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. This decision, effective from April 1, 2024, reinforces ICAI”s authority to regulate the profession and maintain high standards.

A bench comprising Justices BV Nagarathna and Augustine George Masih ruled that the rule, outlined in Chapter VI of the Council Guidelines No. 1-CA(7)/02/2008 and its amendments, does not violate the fundamental right to practice any profession under Article 19(1)(g) of the Constitution. They also quashed disciplinary proceedings initiated against members for exceeding the audit limit, citing legal uncertainty.

“ICAI has, over time, received recognition as a premier accounting body domestically and globally for maintaining the highest standards,” the Court stated, emphasizing the institute”s role in upholding the integrity and dynamism of the Chartered Accountancy profession. The Court also noted that ICAI could increase the audit limit in the future.

The compulsory tax audit regime, introduced in 1984 under Section 44AB of the Income-tax Act, 1961, mandates audits for businesses or professions with turnover exceeding a certain threshold. The ICAI”s 1988 notification limited the number of audits per Chartered Accountant to ensure quality and compliance, a restriction reaffirmed by the 2008 guidelines.

Challenges to these guidelines led to conflicting judgments in various High Courts, prompting the Supreme Court to consolidate and address the issue comprehensively. Senior Advocate Paramjit Singh Patwalia argued against the guideline, claiming it infringed on the fundamental right to practice a profession and violated the right to equality. Senior Advocate Arvind P. Datar, representing ICAI, defended the guideline, emphasizing its role in maintaining audit quality and preventing tax evasion.