Date of the Judgment: 17 May 2024
Citation: (2024) INSC 451
Judges: Justice B.V. Nagarathna and Justice Augustine George Masih.
Can a professional body like the Institute of Chartered Accountants of India (ICAI) limit the number of tax audits a chartered accountant can undertake? The Supreme Court recently addressed this question, examining the balance between professional freedom and the need for regulatory oversight. This judgment clarifies the power of the ICAI to set such limits while also providing relief to those who had been penalized under the contested guidelines.

Case Background

This case involves a challenge by several Chartered Accountants against the Institute of Chartered Accountants of India (ICAI) regarding restrictions on the number of tax audits they could undertake in a financial year. The ICAI, through its guidelines, had set a limit on the number of tax audits a chartered accountant could accept under Section 44AB of the Income Tax Act, 1961. These guidelines were challenged as being arbitrary, illegal, and violative of Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession.

The petitioners, practicing Chartered Accountants, were aggrieved by Clause 6.0 of the ICAI Guidelines dated 08.08.2008, which imposed a ceiling on the number of tax audits an accountant could accept under Section 44AB of the Income Tax Act, 1961. They also sought the quashing of disciplinary proceedings initiated against them for exceeding this limit. The ICAI had initially set a limit of 30 audits in 1989, which was later increased to 60 in 2014.

Timeline

Date Event
02.03.1970 Government of India constituted the Direct Taxes Enquiry Committee under Justice K.N. Wanchoo.
December 1971 The Wanchoo Committee submitted its Final Report to the Government of India, recommending compulsory audit of accounts.
1975 Section 142(2A) was inserted to the IT Act, 1961, giving special power of audit by a Chartered Accountant in certain cases.
1984 Section 44AB of the IT Act, 1961, was inserted by the Finance Act, 1984, providing for compulsory audit.
01.04.1985 Section 44AB of the IT Act, 1961 came into force.
19.01.1988 CBDT sought comments from ICAI on restricting the number of tax audits a Chartered Accountant may complete.
22.02.1988 The Professional Development Committee of ICAI recommended a maximum of twenty tax audits of non-corporate assessees per year.
13.01.1989 ICAI Notification No.1/CA(7)/3/88 set a limit of thirty audits.
1997 ICAI considered the issue of certain Chartered Accountants exceeding the prescribed limit.
1999 ICAI decided that no change was warranted in the limit of thirty tax audits.
12.09.2003 The Financial Law Committee of ICAI recommended increasing the ceiling limit for tax audit assignments to fifty.
27.02.2007 The Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 came into effect.
11.05.2007 ICAI increased the limit on number of tax audits from thirty to forty-five per Chartered Accountant per year.
08.08.2008 ICAI issued Guidelines, superseding earlier notifications.
01.04.2013 Supreme Court dismissed Civil Appeals No.7208-7209 of 2005 as having become infructuous.
February 2014 ICAI increased the limit on accepting tax audits from forty-five to sixty.
19.12.2014 CAG Report No. 32 of 2014 was presented to Parliament.
09.12.2020 Supreme Court transferred writ petitions pending before various High Courts to the Supreme Court.
17.05.2024 Supreme Court delivered the judgment.

Course of Proceedings

The petitioners initially filed writ petitions before various High Courts, challenging the ICAI guidelines and the disciplinary proceedings initiated against them. The Supreme Court, recognizing the importance of the issue and the need for a uniform resolution, transferred all the petitions to itself.

The Madras High Court had previously quashed a similar notification in 1989, which was stayed by the Supreme Court. However, the ICAI issued new guidelines in 2008, which were again challenged. The Supreme Court, in its current judgment, has addressed these challenges, providing clarity on the matter.

Legal Framework

The judgment primarily revolves around the interpretation of the following:

  • Article 19(1)(g) of the Constitution of India: This article guarantees the right to practice any profession.
  • Article 19(6) of the Constitution of India: This allows the State to impose reasonable restrictions on the right to practice any profession in the interest of the general public.
  • Section 44AB of the Income Tax Act, 1961: This section mandates compulsory tax audits for certain businesses and professions.
  • The Chartered Accountants Act, 1949: This act establishes the ICAI and empowers it to regulate the profession of chartered accountancy.
  • Clause (1) of Part II of the Second Schedule to the Chartered Accountants Act, 1949: This clause 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 respondent -Institute.

The Court also considered the powers of the ICAI under the Chartered Accountants Act, 1949, particularly Sections 15, 22, and 30, which define the functions of the Council, professional misconduct, and the power to make regulations, respectively. The court noted that the 2022 amendment to the Act substituted “regulation” with “regulation and development,” indicating a broader scope of the ICAI’s powers.

Arguments

Petitioners’ Arguments:

  • The petitioners argued that the restriction on the number of tax audits was an unreasonable infringement on their right to practice their profession under Article 19(1)(g) of the Constitution. They contended that the ICAI’s guidelines were arbitrary and lacked a rational nexus with the objectives of the Chartered Accountants Act, 1949.

  • They submitted that the restriction should be based on the volume of work rather than the number of audits, as some audits are more complex and time-consuming than others. They also argued that the guidelines discriminated against chartered accountants in smaller cities and towns.

  • The petitioners contended that accepting a legitimate professional engagement cannot be considered professional misconduct. They further argued that the restriction was not based on any statistical data or reasonable explanation and therefore, could not be justified under Article 19(6) of the Constitution.

  • They highlighted that a similar notification issued by the ICAI in 1989 had been quashed by the Madras High Court, and the current guidelines were an attempt to circumvent that judgment.

  • The petitioners also argued that the guidelines were not issued in compliance with the provisions of the Chartered Accountants Act, 1949, as they were not notified in the official Gazette of India and were not laid before both Houses of Parliament as required by Section 30B of the Act.

Respondents’ Arguments:

  • The ICAI argued that the restriction was imposed to maintain the quality of tax audits and was in the interest of the general public. They stated that the cap on tax audits did not restrict the freedom of Chartered Accountants but only regulated it.

  • The ICAI contended that the limit was decided by an expert body (the Council) after considering various factors and that the restriction was only on tax audits under Section 44AB of the IT Act, 1961, and not on other types of audits.

  • They submitted that the right to practice as a Chartered Accountant is not absolute and is subject to reasonable restrictions under Article 19(6) of the Constitution. They argued that the guidelines were issued under the powers conferred by the Chartered Accountants Act, 1949, and were necessary for maintaining professional standards.

  • The ICAI relied on communications from the Central Board of Direct Taxes (CBDT) and the Comptroller and Auditor General of India (CAG) reports, which highlighted the need for such restrictions to maintain the quality of tax audits.

  • The ICAI also argued that the definition of professional misconduct could include deviations from quality compliance standards, and that the restriction was necessary to ensure equitable distribution of work among Chartered Accountants.

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Submissions Table

Main Submission Sub-Submission (Petitioners) Sub-Submission (Respondents)
Violation of Article 19(1)(g) Restriction is unreasonable and arbitrary. Restriction is a reasonable measure in public interest.
Competency of ICAI ICAI lacks the power to impose such a restriction. ICAI has the statutory power to regulate the profession.
Quality of Audits Restriction on number does not ensure quality. Restriction is necessary to ensure quality and prevent tax evasion.
Discrimination Guidelines discriminate between Chartered Accountants in different areas. Guidelines are uniformly applicable to all members.
Procedural Impropriety Guidelines were not issued in compliance with the Act. Guidelines were issued under the powers conferred by the Act.
Professional Misconduct Accepting more work cannot be termed as professional misconduct. Breach of the guidelines constitutes professional misconduct.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

  1. Whether the Council of the ICAI was competent to impose a numerical restriction on the maximum number of tax audits that could be accepted by a Chartered Accountant under Section 44AB of the IT Act, 1961.
  2. Whether the restrictions imposed were unreasonable and violated the rights guaranteed to Chartered Accountants under Article 19(1)(g) of the Constitution.
  3. Whether the restrictions imposed were arbitrary and illegal, and therefore, impermissible under Article 14 of the Constitution.
  4. Whether exceeding the specified number of tax audits could be deemed “professional misconduct.”

Treatment of the Issue by the Court

Issue Court’s Decision Brief Reason
Competency of ICAI to impose numerical restriction. Upheld The Court held that the ICAI had the legal competence to frame the guidelines under the Chartered Accountants Act, 1949, and the delegation of power was not excessive.
Reasonableness of restrictions under Article 19(1)(g). Upheld The Court found the restrictions to be reasonable and in the interest of the general public, as they aimed to ensure the quality of tax audits and prevent tax evasion.
Validity of restrictions under Article 14. Upheld The Court held that the restrictions were not arbitrary or illegal and were necessary for maintaining professional standards and ensuring equitable distribution of work.
Exceeding the limit as professional misconduct. Partially Upheld, Relief Granted While the Court upheld that exceeding the limit could be deemed professional misconduct, it quashed the disciplinary proceedings against the petitioners due to the uncertainty in law and selective enforcement by the ICAI.

Authorities

Authority Court How Considered Legal Point
Raja Video Parlour vs. State of Punjab, (1993) 3 SCC 708 Supreme Court of India Distinguished The court distinguished this case, which dealt with seating capacity in cinema halls, from the present case, noting that the nature of the profession and the public interest involved were different.
Kusum Ingots & Alloys Ltd. vs. Union of India, (2004) 6 SCC 254 Supreme Court of India Cited The court noted that a judgment questioning the constitutionality of a parliamentary Act will have effect throughout the territory of India.
Institute of Chartered Financial Analysts of India vs. Council of the Institute of Chartered Accountants of India, (2007) 12 SCC 210 Supreme Court of India Distinguished The court distinguished this case, which dealt with the acquisition of additional qualifications, from the present case, noting that the restriction was not on the acquisition of knowledge but on the number of audits.
B.P. Sharma vs. Union of India, (2003) 7 SCC 309 Supreme Court of India Cited The court cited this case to emphasize the sanctity of the right guaranteed under Article 19(1)(g), noting that a ban on carrying on a private profession or self-employment must have a valid reason.
Municipal Corporation of Greater Mumbai vs. Anil Shantaram Khoje, (2016) 15 SCC 726 Supreme Court of India Cited The court cited this case to emphasize that a regulation comes into operation only after promulgation in the official gazette.
Modern Dental College and Research Centre vs. State of Madhya Pradesh, (2016) 7 SCC 353 Supreme Court of India Cited The court cited this case to emphasize that any restriction on a fundamental right must satisfy the proportionality test.
V. Sasidharan vs. Peter and Karunakar, (1984) 4 SCC 230 Supreme Court of India Cited The court cited this case to contend that a technical profession stands on a different footing to other professions.
Aswini Kumar Ghose vs. Arabinda Bose, (1952) 2 SCC 237 Supreme Court of India Cited The court cited this case to emphasize that a rule made by an authority to deny the right to exercise an essential part of a function would be a serious invasion on the statutory right to practice.
Devata Prasad Singh Chaudhuri vs. Chief Justice and Judges of Patna High Court, (1962) 3 SCR 305 Supreme Court of India Cited The court cited this case to emphasize that a rule made by an authority to deny the right to exercise an essential part of a function would be a serious invasion on the statutory right to practice.
Shri R. Nanabhoy vs. Union of India, 1982 SCC Online Del. 210 High Court of Delhi Distinguished The court distinguished this case, which dealt with cost audits, noting that the present case had legislative sanction and expert opinion supporting the restriction.
Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association CSI CINOD Secretariat, Madras, (1992) 3 SCC 1 Supreme Court of India Cited The court cited this case to argue that a stay on the operation of a judgment does not mean the judgment is bad in law.
All-India Federation of Tax Practitioners vs. Union of India, (2007) 7 SCC 527 Supreme Court of India Cited The court cited this case to emphasize that a Chartered Accountant obtains a license or privilege from the competent body to practice.
Kerala Ayurveda Paramparya Vaidya Forum vs. State of Kerala, (2018) 6 SCC 648 Supreme Court of India Cited The court cited this case to emphasize that the right to practice a profession is subject to regulatory measures aiming to ensure standards and public interest.
Nagar Rice and Flour Mills vs. N. Teekappa Gowda and Bros., (1970) 1 SCC 575 Supreme Court of India Cited The court cited this case to emphasize that restrictions on the freedom of trade must be justified under Article 19(6).
Hathising Manufacturing Co. Ltd. vs. Union of India, (1960) 3 SCR 528 Supreme Court of India Cited The court cited this case to emphasize that restrictions on fundamental rights must be reasonable and in the interest of the general public.
Stephen Otis & Joseph F. Gassman vs. E. A. Parker, 187 U.S. 606 (1903) US Supreme Court Cited The court cited this case to emphasize that the courts cannot interfere with state regulations unless there is a clear infringement of fundamental rights.
Saghir Ahmad vs. State of U.P., (1954) 2 SCC 399 Supreme Court of India Cited The court cited this case to emphasize that the burden to establish that a restriction is within the purview of Article 19(6) is on the State.
Sakhawant Ali vs. State of Orissa, (1954) 2 SCC 758 Supreme Court of India Cited The court cited this case to emphasize that restrictions can be imposed to prevent possible misconduct and malpractice, even if the likelihood is low.
Ohralik vs. Ohio State Bar Association, 436 U.S. 447 (1978) US Supreme Court Cited The court cited this case to emphasize that the State has a strong interest in regulating licensed professions.
Williamson vs. Lee Optical Co., 348 U.S. 483 (1955) US Supreme Court Cited The court cited this case to emphasize that the State has a strong interest in regulating licensed professions.
Semler vs. Oregon State Board of Dental Examiners, 294 U.S. 608 (1935) US Supreme Court Cited The court cited this case to emphasize that the State has a strong interest in regulating licensed professions.
Goldfarb vs. Virginia State Bar, 421 U.S. 773, 792, (1975) US Supreme Court Cited The court cited this case to emphasize that the interest of the States in regulating lawyers is especially great.
Mohd. Faruk vs. State of M.P., (1969) 1 SCC 853 Supreme Court of India Cited The court cited this case to emphasize that restrictions on fundamental rights must be necessary and that a less drastic restriction should be considered.
K. K. Kochuni vs. States of Madras and Kerala, 1958 SCC OnLine SC 12 Supreme Court of India Cited The court cited this case to emphasize the need to balance individual rights with the public interest.
Krishnan Kakkanth vs. Govt. of Kerala, (1997) 9 SCC 495 Supreme Court of India Cited The court cited this case to emphasize that reasonableness of restriction is to be determined from the standpoint of the interests of general public.
P.V. Sivarajan vs. Union of India, AIR 1959 SC 556 Supreme Court of India Cited The court cited this case to emphasize that the rule-making authority can decide which test would meet the requirements of public interest.
Sukumar Mukherjee vs. State of W.B., (1993) 3 SCC 723 Supreme Court of India Cited The court cited this case to emphasize that a restriction on a profession is reasonable if it is in the interest of the general public.
Minerva Talkies, Bangalore vs. State of Karnataka, AIR 1988 SC 526 Supreme Court of India Cited The court cited this case to emphasize that a restriction on a business is not unreasonable merely because it results in a reduction in income.
T. Velayudhan Achari vs. Union of India, (1993) 2 SCC 582 Supreme Court of India Cited The court cited this case to emphasize that limiting the number of depositors is not violative of Article 19(1)(g) if it is in public interest.
B.K. Kamath vs. The Institute of Chartered Accountants, (2003) 2 KLJ 21 High Court of Kerala Cited The court cited this case to emphasize that restrictions on the profession of Chartered Accountants are necessary to ensure quality of work.
Jindal Paper & Plastics vs. Union of India, (1997) 10 SCC 536 Supreme Court of India Cited The court cited this case to emphasize that for the period of uncertainty in law, a lesser interest rate can be charged.
Kasinka Trading vs. Union of India, (1995) 1 SCC 274 Supreme Court of India Cited The court cited this case to emphasize that for the period of uncertainty in law, a lesser interest rate can be charged.
Malpe Vishwanath Acharya vs. State of Maharashtra, (1998) 2 SCC 1 Supreme Court of India Cited The court cited this case to emphasize that a provision which was reasonable may become unreasonable with the passage of time.
Motor General Traders vs. State of A.P., (1984) 1 SCC 222 Supreme Court of India Cited The court cited this case to emphasize that a provision which was reasonable may become unreasonable with the passage of time.
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Judgment

The Supreme Court held that:

  • The ICAI was competent to impose a numerical restriction on tax audits.
  • The restrictions imposed were reasonable and did not violate Article 19(1)(g) of the Constitution, as they were in the interest of the general public.
  • The restrictions were not arbitrary or illegal and were permissible under Article 14 of the Constitution.
  • Exceeding the specified number of tax audits could be deemed “professional misconduct.”
Submission by Parties Court’s Treatment
Petitioners’ claim that the restriction is an unreasonable infringement of their right to practice their profession. Rejected. The Court held that the restriction was a reasonable measure in public interest and did not violate Article 19(1)(g).
Petitioners’ claim that the ICAI lacked the power to impose such a restriction. Rejected. The Court held that the ICAI had the statutory power to regulate the profession and impose such restrictions.
Petitioners’ claim that the restriction on the number of audits does not ensure quality. Rejected. The Court held that the restriction was necessary to ensure quality and prevent tax evasion.
Petitioners’ claim that the guidelines discriminate between Chartered Accountants in different areas. Rejected. The Court held that the guidelines were uniformly applicable to all members and that reduction of income cannot be a ground for holding a reasonable restriction unreasonable.
Petitioners’ claim that the guidelines were not issued in compliance with the Act. Rejected. The Court held that the guidelines were issued under the powers conferred by the Act.
Petitioners’ claim that accepting more work cannot be termed as professional misconduct. Partially Upheld. The Court held that breach of the guidelines constituted professional misconduct, but quashed the disciplinary proceedings due to uncertainty in law.

How each authority was viewed by the Court:

  • Raja Video Parlour vs. State of Punjab, (1993) 3 SCC 708:* Distinguished, as the nature of the profession and public interest are different.
  • Kusum Ingots & Alloys Ltd. vs. Union of India, (2004) 6 SCC 254:* Cited, to emphasize that a judgment questioning the constitutionality of a parliamentary Act will have effect throughout the territory of India.
  • Institute of Chartered Financial Analysts of India vs. Council of the Institute of Chartered Accountants of India, (2007) 12 SCC 210:* Distinguished, as the restriction was not on the acquisition of knowledge but on the number of audits.
  • B.P. Sharma vs. Union of India, (2003) 7 SCC 309:* Cited, to emphasize the sanctity of the right guaranteed under Article 19(1)(g).
  • Municipal Corporation of Greater Mumbai vs. Anil Shantaram Khoje, (2016) 15 SCC 726:* Cited, to emphasize that a regulation comes into operation only after promulgation in the official gazette.
  • Modern Dental College and Research Centre vs. State of Madhya Pradesh, (2016) 7 SCC 353:* Cited, to emphasize that any restriction on a fundamental right must satisfy the proportionality test.
  • V. Sasidharan vs. Peter and Karunakar, (1984) 4 SCC 230:* Cited, to contend that a technical profession stands on a different footing to other professions.
  • Aswini Kumar Ghose vs. Arabinda Bose, (1952) 2 SCC 237:* Cited, to emphasize that a rule made by an authority to deny the right to exercise an essential part of a function would be a serious invasion on the statutory right to practice.
  • Devata Prasad Singh Chaudhuri vs. Chief Justice and Judges of Patna High Court, (1962) 3 SCR 305:* Cited, to emphasize that a rule made by an authority to deny the right to exercise an essential part of a function would be a serious invasion on the statutory right to practice.
  • Shri R. Nanabhoy vs. Union of India, 1982 SCC Online Del. 210:* Distinguished, as the present case had legislative sanction and expert opinion supporting the restriction.
  • Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association CSI CINOD Secretariat, Madras, (1992) 3 SCC 1:* Cited, to argue that a stay on the operation of a judgment does not mean the judgment is bad in law.
  • All-India Federation of Tax Practitioners vs. Union of India, (2007) 7 SCC 527:* Cited, to emphasize that a Chartered Accountant obtains a license or privilege from the competent body to practice.
  • Kerala Ayurveda Paramparya Vaidya Forum vs. State of Kerala, (2018) 6 SCC 648:* Cited, to emphasize that the right to practicea profession is subject to regulatory measures aiming to ensure standards and public interest.
  • Nagar Rice and Flour Mills vs. N. Teekappa Gowda and Bros., (1970) 1 SCC 575:* Cited, to emphasize that restrictions on the freedom of trade must be justified under Article 19(6).
  • Hathising Manufacturing Co. Ltd. vs. Union of India, (1960) 3 SCR 528:* Cited, to emphasize that restrictions on fundamental rights must be reasonable and in the interest of the general public.
  • Stephen Otis & Joseph F. Gassman vs. E. A. Parker, 187 U.S. 606 (1903):* Cited, to emphasize that the courts cannot interfere with state regulations unless there is a clear infringement of fundamental rights.
  • Saghir Ahmad vs. State of U.P., (1954) 2 SCC 399:* Cited, to emphasize that the burden to establish that a restriction is within the purview of Article 19(6) is on the State.
  • Sakhawant Ali vs. State of Orissa, (1954) 2 SCC 758:* Cited, to emphasize that restrictions can be imposed to prevent possible misconduct and malpractice, even if the likelihood is low.
  • Ohralik vs. Ohio State Bar Association, 436 U.S. 447 (1978):* Cited, to emphasize that the State has a strong interest in regulating licensed professions.
  • Williamson vs. Lee Optical Co., 348 U.S. 483 (1955):* Cited, to emphasize that the State has a strong interest in regulating licensed professions.
  • Semler vs. Oregon State Board of Dental Examiners, 294 U.S. 608 (1935):* Cited, to emphasize that the State has a strong interest in regulating licensed professions.
  • Goldfarb vs. Virginia State Bar, 421 U.S. 773, 792, (1975):* Cited, to emphasize that the interest of the States in regulating lawyers is especially great.
  • Mohd. Faruk vs. State of M.P., (1969) 1 SCC 853:* Cited, to emphasize that restrictions on fundamental rights must be necessary and that a less drastic restriction should be considered.
  • K. K. Kochuni vs. States of Madras and Kerala, 1958 SCC OnLine SC 12:* Cited, to emphasize the need to balance individual rights with the public interest.
  • Krishnan Kakkanth vs. Govt. of Kerala, (1997) 9 SCC 495:* Cited, to emphasize that reasonableness of restriction is to be determined from the standpoint of the interests of general public.
  • P.V. Sivarajan vs. Union of India, AIR 1959 SC 556:* Cited, to emphasize that the rule-making authority can decide which test would meet the requirements of public interest.
  • Sukumar Mukherjee vs. State of W.B., (1993) 3 SCC 723:* Cited, to emphasize that a restriction on a profession is reasonable if it is in the interest of the general public.
  • Minerva Talkies, Bangalore vs. State of Karnataka, AIR 1988 SC 526:* Cited, to emphasize that a restriction on a business is not unreasonable merely because it results in a reduction in income.
  • T. Velayudhan Achari vs. Union of India, (1993) 2 SCC 582:* Cited, to emphasize that limiting the number of depositors is not violative of Article 19(1)(g) if it is in public interest.
  • B.K. Kamath vs. The Institute of Chartered Accountants, (2003) 2 KLJ 21:* Cited, to emphasize that restrictions on the profession of Chartered Accountants are necessary to ensure quality of work.
  • Jindal Paper & Plastics vs. Union of India, (1997) 10 SCC 536:* Cited, to emphasize that for the period of uncertainty in law, a lesser interest rate can be charged.
  • Kasinka Trading vs. Union of India, (1995) 1 SCC 274:* Cited, to emphasize that for the period of uncertainty in law, a lesser interest rate can be charged.
  • Malpe Vishwanath Acharya vs. State of Maharashtra, (1998) 2 SCC 1:* Cited, to emphasize that a provision which was reasonable may become unreasonable with the passage of time.
  • Motor General Traders vs. State of A.P., (1984) 1 SCC 222:* Cited, to emphasize that a provision which was reasonable may become unreasonable with the passage of time.
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Relief Granted

The Supreme Court, while upholding the ICAI’s power to limit tax audits, granted relief to the petitioners by quashing the disciplinary proceedings initiated against them. This relief was granted due to the following reasons:

  • Uncertainty in the Law: The Court acknowledged that there was a period of uncertainty regarding the validity of the ICAI’s guidelines, and the petitioners had acted under the impression that the restrictions were not legally binding.
  • Selective Enforcement: The Court noted that the ICAI had not uniformly enforced the guidelines, and some Chartered Accountants who had exceeded the limit were not subject to disciplinary proceedings.
  • Principles of Natural Justice: The Court emphasized that the principles of natural justice must be followed in disciplinary proceedings and that the petitioners should not be penalized for actions taken during a period of legal ambiguity.

However, the Court clarified that the judgment did not invalidate the ICAI’s power to impose such restrictions in the future. The Court also emphasized that the ICAI must ensure that its guidelines are transparent, uniformly applied, and in compliance with the law.

Flowchart of the Decision

ICAI Imposes Limit on Tax Audits
↓
Petitioners Challenge the Restriction
↓
Supreme Court Considers the Issue
↓
Court Upholds ICAI’s Power to Limit Audits
↓
Court Finds Restriction Reasonable and in Public Interest
↓
Court Quashes Disciplinary Proceedings Due to Uncertainty in Law and Selective Enforcement
↓
Future Enforcement of Limits Valid, Must Be Transparent and Uniform

Conclusion

The Supreme Court’s judgment in the Shaji Poulose case provides significant clarity on the powers of the ICAI to regulate the profession of chartered accountancy. While upholding the ICAI’s authority to impose numerical restrictions on tax audits, the Court also emphasized the need for transparency, uniformity, and fairness in the application of such guidelines. The relief granted to the petitioners highlights the importance of considering the principles of natural justice and the need for clarity in the law. This case serves as a reminder of the delicate balance between professional freedom and regulatory oversight, and the judiciary’s role in ensuring that both are protected.

Source: Shaji Poulose vs. Institute of Chartered Accountants of India