Explained| Supreme Court verdict on Constitutionality of ICAI guidelines limiting number of tax audits by chartered accountants per year

Constitutionality of ICAI guideline

Supreme Court: In batch of writ petitions filed by Chartered Accountants challenging the validity of Clause 6 of Guidelines No.1 CA(7)/02/2008 dated 08-08-2008 issued by the Institute of Chartered Accountants of India (‘Institute’), under powers conferred by the Chartered Accountants Act, 1949 ( ‘1949 Act’ ) on the ground that the same is illegal, arbitrary and violative of Article 19(1)(g) of the Constitution of India, the Division Bench of B.V. Nagarathna* and Augustine George Masih, JJ. has held the following:

  • Clause 6.0, Chapter VI of the impugned Guidelines and its subsequent amendment is valid and is not violative of Article 19(1)(g) of the Constitution as it is a reasonable restriction on the right to practice the profession by a Chartered Accountant and is protected or justifiable under Article 19(6) of the Constitution. However, the said clause 6.0, Chapter VI of the Guidelines and its subsequent amendment is deemed not to be given effect to till 01-04-2024.

  • All proceedings initiated pursuant to the impugned Guidelines in respect of the writ petitioners and other similarly situated Chartered Accountants stand quashed.

  • Institute was given the liberty to enhance the specified number of audits that a Chartered Accountant can undertake under Section 44AB of the IT Act, 1961, if it deems fit.

  • The writ petitioners or any other member of the Institute were given the liberty to represent in the above context, which may be considered if the Institute intends to amend the Guidelines.


The Chartered accountants are aggrieved by the mandatory ceiling limit imposed by Clause 6.0, Chapter VI of the said Guidelines on the number of tax audits that a Chartered Accountant can accept in a financial year under Section 44-AB of the Income Tax Act, 1961 (‘IT Act’). Clause 6.0, Chapter VI of Guidelines dated 08-08-2008 provides that a member of the Institute in practice shall not accept, in a financial year, more than the “specified number of tax audit assignments” under Section 44-AB of the IT Act, 1961. It further provides that in the case of a firm of Chartered Accountants, the “specified number of tax audit assignments” shall be construed as the specified number of tax audit assignments for every partner of the firm.


1. Whether the Council of the respondent Institute, under the 1949 Act, was competent to impose, by way of Guidelines, a numerical restriction on the maximum number of tax audits that could be accepted by a Chartered Accountant, under Section 44AB of the 1961 Act, in a Financial Year by way of a Guideline?

The Court perused the impugned Guideline dated 08-08-2008. After taking note of the object of the 1949 Act, the Court said that for quality of service rendered by the Chartered Accountant as a professional regulation of the profession is necessary and the Institute has been established for, such regulation of the profession.

The Court referred to Section 22 of the Act, which defines “professional or other misconduct” to deem to include any act or omission provided in any of the Schedules. The Court noted that professional or other misconduct is defined by a deeming provision which implies that the Schedules which have enumerated various kinds of misconducts are not exhaustive or static. With the passage of decades and with the emerging varieties of misdemeanor, omissions or commissions of Chartered Accountants which are not in consonance with professional ethics and would amount to misconduct can be defined under the Schedules to ensure quality service being rendered by the Chartered Accountants as professionals. Therefore, the deeming provision would imply that with the passage of time, there could be newer misconducts which could be included in the Schedules in the form of regulations or Guidelines.

The Court noted that Part II of the Second Schedule has delegated the power to the Council to make any regulation or Guideline, the breach of which would amount to a misconduct. This delegation to define and enumerate a misconduct by way of a regulation or a Guideline is a legislative device adopted by the Parliament to leave it to the discretion of the Council of the Institute to incorporate, define and insert a Guideline or a regulation, the breach of which would result in a misconduct committed by a Chartered Accountant. This is done to avoid the Parliament itself amending the Schedules to the 1949 Act every time a different type of misconduct is to be inserted to the Schedules by way of an amendment to the Act.

Therefore, the Court said that the regulation or Guideline issued by the Council, the breach of which would result in a professional misconduct, being a part of clause 1 of Part II of the Second Schedule have to be read as part and parcel of the 1949 Act itself. The delegation of powers to add newer types of misconducts by way of a regulation or a Guideline is neither excessive nor ultra vires under Section 22 of the 1949 Act which deems any breach of a regulation or Guideline as a misconduct as per Clause 1 of part II of Schedule II to the 1949 Act.

Thus, the Court held that the Council of the Institute had the legal competence to frame the impugned Guideline restricting the number of tax audits that a Chartered Accountant could carry out which was initially thirty and later raised to forty-five and thereafter to sixty in an assessment year. Therefore, the Council of the Institute having the legal competence to frame the Guidelines, the breach of which would result in professional misconduct, in terms of clause 1 of Part II of the Second Schedule of the 1949 Act cannot be held to be vitiated on account of there being lack of competency or powers to frame the impugned Guideline by the Council.

2. Whether the restrictions imposed are unreasonable and therefore, violative of the right guaranteed to Chartered Accountants under Article 19(1)(g) of the Constitution?

3. Whether the restrictions imposed are arbitrary and illegal and therefore impermissible under Article 14 of the Constitution?

The Court took note of Article 19(1)(g) and (6) of the Constitution and reiterated that restrictions imposed by the State upon the freedom guaranteed by Article 19(1)(g) cannot be justified on any ground outside Article 19(6) of the Constitution.

The Court further noted that the Institute has placed reliance on the letter of CBDT and the CAG Report to satisfy the overwhelming need to place a ceiling limit as the best conceivable and practical measure at rectifying the targeted mischief.

The Court placed reliance on Sakhawant Ali v. State of Orissa, (1954) 2 SCC 758, wherein it was held that disqualification of a legal practitioner from contesting elections did not prevent him from practising his profession of law and as such, the right to practice the profession of law under Article 19(1)(g) did not imply the existence of a fundamental right in any person to stand as a candidate for election to the municipality.

Therefore, the Court rejected the assertion of chartered accountants, that the undertaking of more than a specified number of tax audit assignments would not imperil the integrity and quality of the tax audit, because a reasonable possibility of the fall in quality owing to the surfeit of tax audit assignments exists. Trusting on the wisdom of the Institute, as it has acted on bona fide and genuine recommendations of the CAG and the CBDT, the Court found no fault in the endeavour of the Institute to eliminate the possibility of the conduct of tax audits in an insincere, unethical or unprofessional manner.

The Court reiterated that the thread of public interest has been visible in the 1949 Act since its inception. The Statement of Objects and Reasons of the 1949 Act makes it clear that the Act was brought in to ensure that accountants all over the country, in discharge of their public duties, are governed by a central body that is not transitional.

After perusing the Wanchoo Committee Report, Finance Bill, 1984 and the accompanying Memorandum, the Court said that the intent of insertion of Section 44AB of the IT Act, 1961, was to facilitate the process of tax administration to the benefit of the public exchequer. The genesis of the opportunity to conduct tax audits was not regulation of a practice essential to the Chartered Accountant profession per se but rather to take assistance of auditors, in discharge of their public duties, for plugging tax leakage and thereby saving the time of the Assessment Officers on presentation of quality tax audit reports in a prescribed format. Therefore, it is for these intents and purposes, the privilege of conducting tax audits was extended to Chartered Accountants by creating a privilege to conduct such audits subject to reasonable restrictions.

The Bench further said that the idea of compulsory tax audits was neither an inherent part of the practice of a Chartered Accountant nor an essential function which could be claimed as a fundamental right under Article 19(1)(g). Through the extension of statutory privilege by Section 44AB, IT Act, 1961, a Chartered Accountant gets the chance to undertake tax audits under the said section. Thus, if the Parliament, at a certain future date, due to technological developments or any other reason, finds that expeditious and accurate assessments can be ensured without imposing on assessees the burden of additional requirement of tax audit report and thereby deletes Section 44AB from the IT Act, 1961, it could not be possibly argued that the right under Article 19(1)(g) has been abridged.


2024 SCC OnLine SC 988

Appellants :
Shaji Poulose

Respondents :

Advocates who appeared in this case

For Petitioner(s):
Ashwin Kumar D.S., Adv., Aditi Anil Dani, Adv., Rangasaran Mohan, Adv., Surbhi Mehta, AOR, Ishan Roy Chowdhury, Adv.,Tapesh Kumar Singh, Sr. Adv., Sukant Vikram, AOR,Prashant Bharadwaj, Adv., Aditya Pratap Singh, Adv.,Pai Amit, AOR, Pankhuri Bhardwaj, Adv., Abhiyudaya Vats, Adv., Nikhil Pahwa, Adv., Vanshika Dubey, Adv., Kushal Dube, Adv., Tathagata Dutta, Adv., P. Ashok, Adv.,Lochana S. Babu, Adv., Petitioner-in-person, Smarhar Singh, AOR, Jai Krishna Singh, Adv., Shweta Kumari, Adv., Manish K. Bishnoi, AOR, Narinder K Verma, Adv., Ila Shikhar Sheel, Adv., Nirmal Prasad, Adv., Khubaib Shakeel, Adv., Pallavi Singh, Adv.,Pallavii Singh, Adv., Arjun Garg, AOR, Shobhit Jain, Adv., Aakash Nandolia, Adv., Sagun Srivastava, Adv, Kriti Gupta, Adv., Preetesh Kapur, Sr. Adv., Ashmita Bisarya, Adv., Sanjay Dutt, Adv., Nirmal Kumar Ambastha, AOR, Renjith B. Marar, Adv., Lakshmi N. Kaimal, AOR, Rajkumar Pavothil, Adv., Arun Poomulli, Adv., Keshavraj Nair, Adv., Avinash Krishnakumar, Adv., Harsh Vardhan Shah Shyam, Adv, By Courts Motion, AOR, E. M. S. Anam, AOR, Anas Tanwir, AOR,Ebad Ur Rahman, Adv., Md. Asif Abbas, Adv., Masoom Rajsingh, Adv., Tanay Hegde, Adv.,Parijat Kishore, AOR, Beno Bencigar, Adv., Sanyat Lodha, AOR,Vishnu Mohan, Adv.,Ravi Raghunath, AOR,Goutham Shivshankar, AOR,B. Ramana Kumar, Adv., B Ramanakumar, Adv., K. Paari Vendhan, AOR,Raghunatha Sethupathy B, Adv., Ragunatha Sethupathy B., Adv., Ramya, Adv., Ramya A., Adv.

For Respondent(s):
Arvind P. Datar, Sr. Adv., Pramod Dayal, AOR, Nikunj Dayal, Adv., K M Natraj, A.S.G., Rupesh Kumar, Sr. Adv., Raj Bahadur Yadav, AOR, Piyush Beriwal, Adv., Bhuvan Mishra, Adv., Shivank Pratap Singh, Adv., Prahlad Singh, Adv., Shashank Bajpai, Adv., Vatsal Joshi, Adv., Ashok Panigrahi, Adv., Swayam Prabhu Das, Adv., Diwakar Sharma, Adv., Amrish Kumar, AOR, Wills Mathews, Adv., Dhanesh M Nair, Adv., Paul John Edison, Adv., Devendra Kumar Tiwari, Adv., Rakesh Garg, Adv. ,Ashish Gopal Garg, Adv., Shweta Garg, AOR


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