A Division Bench of the Supreme Court of India on September 22 continued hearing the challenge against a rule issued by the Institute of Chartered ccountants Of India (ICAA) barring members from accepting more than the “specified number of tax audit assignments” (at present, the upper limit is set at 60) in a financial year. This matter is now being adjudicated almost two years after the Supreme Court had decided to withdraw similar writ petitions pending in different High Courts and authoritatively pronounce the law on the subject itself.
The compulsory tax audit regime was introduced in 1984 by the insertion of Section 44AB in the Income-tax Act, 1961, which came into effect on April 1 1985. This section made it obligatory for a person carrying on a business or a profession with total sales, turnover or gross receipts exceeding a certain threshold prescribed in the Act in any previous year, to get their accounts of such previous year audited by a Chartered Accountant. The condition laid down under this section is fulfilled only when such an assessee procures a report of the audit in the prescribed form duly signed and verified by the Chartered Accountant before a specified date
Before 1985, only the accounts maintained by companies and cooperative societies were required to be audited under the Companies Act, 1956 and the Co-operative Societies Act, 1912 respectively. Other categories of taxpayers were exempt from this obligation to get their accounts audited. Section 44AB was enacted primarily to counter tax evasion and check fraudulent practices.
In 1988, in the exercise of the powers conferred by Clause (ii) of Part II of the Second Schedule to the Chartered Accountants Act, 1949, the Council of the Institute of Chartered Accountants of India issued a notification prohibiting members from accepting more than the specified number of tax audit assignments under Section 44AB of the Income-tax Act in a financial year. In the case of a Chartered Accountant firm, this limitation would be applicable to each partnerIt was categorically stated in the notification that non-compliance with the said provision would result in the delinquent member being held guilty of ‘professional misconduct’. In 2006, the Chartered Accountants Act, 1949 was amended by the Parliament, after which the impugned notification was superseded by Guidelines issued on August 8, 2008