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cmaadarshkalamachalMemorandum
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cmaadarshkalamachalAbout the Institute
T
he Institute of Cost Accountants of India (ICMAI) is a statutory body set up under an Act of
Parliament in the year 1959. The Institute as a part of its obligation, regulates the profession of Cost
and Management Accountancy, enrols students for its courses, provides coaching facilities to the
students, organizes professional development programmes for the members and undertakes research
programmes in the eld of Cost and Management Accountancy. The Institute pursues the vision of cost
competitiveness, cost management, efcient use of resources and structured approach to cost accounting
as the key drivers of the profession. In today’s world, the profession of conventional accounting and
auditing has taken a back seat and cost and management accountants increasingly contributing towards
the management of scarce resources like funds, land and apply strategic decisions. This has opened up
further scope and tremendous opportunities for cost accountants in India and abroad.
The Institute is headquartered in Kolkata having four Regional Councils at Kolkata, Delhi, Mumbai and
Chennai, 117 Chapters in India and 11 Overseas Centres. The Institute is the largest Cost & Management
Accounting body in the world with about 1,00,000 qualied CMAs and over 5,00,000 students pursuing the
CMA Course. The Institute is a founder member of International Federation of Accountants (IFAC),
Confederation of Asian and Pacic Accountants (CAPA) and South Asian Federation of Accountants
(SAFA). The Institute is also an Associate Member of ASEAN Federation of Accountants (AFA) and member
in the Council of International Integrated Reporting Council (IIRC), UK.
Vision Statement
“The Institute of Cost Accountants of India would be the preferred source of resources
and professionals for the nancial leadership of enterprises globally.”
Mission Statement
“The CMA Professionals would ethically drive enterprises globally by creating value
to stakeholders in the socio-economic context through competencies drawn
from the integration of strategy, management and accounting.”
Institute Motto
From ignorance, lead me to truth
From darkness, lead me to light
From death, lead me to immortality
Peace, Peace, Peace
EXECUTIVE SUMMARY
Memorandum for Inclusion of “Cost Accountant” in the definition of
“Accountant”
Under Section 515(3)(b) of the Income-Tax Bill, 2025
1. The Institute of Cost Accountants of India (ICMAI) was set up under the Cost Accountants
Act enacted by Parliament in 1959 to regulate and develop the profession of Cost Accountancy
in India.
2. The Institute of Chartered Accountants of India (ICAI) was set up under the Chartered
Accountants Act enacted by Parliament in 1949 to regulate and develop the profession of
Chartered Accountancy in India.
3. Historically, the Income Tax Act of 1961 defined the term ‘accountant’ to mean Chartered
Accountants (CAs), as the Cost Accountants’ profession was still in its infancy.
4. However, over the years, Cost Accountants have evolved with rigorous training and have
contributed significantly to the areas of taxation, accounting, management accounting, cost
accounting and auditing.
5. Both ICAI & ICMAI are founder members of all international bodies of accountants, viz.,
International Federation of Accountants (IFAC), Confederation of Asian and Pacific Accountants
(CAPA) and South Asian Federation of Accountants (SAFA).
6. Today, both Cost Accountants and Chartered Accountants are widely recognized under various
statutes and play critical roles in tax compliance and representation before authorities. Some of
the areas under various statutes where Cost Accountants have been representing before the Govt.
Authorities with other peer accounting professionals are stated as under:
o Goods and Services Tax [GST] - {Initially, under section 35(5) of CGST Act, Chartered
Accountants as well as Cost Accountants were eligible for GST Audit though section 35(5)
has been omitted later} [Special audit u/s 66 (i) of CGST shall be conducted by Chartered
Accountant or Cost Accountant]
o Customs Act
o Erstwhile Central Excise Act
o Service Tax Act
o VAT Audit/Certifications under all states’ VAT Act
o Tax Return Preparer (Amendment) Scheme, 2018
o Appearances before Sales Tax Authorities
o Certification under Foreign Trade Policy
o Stock Audit, Concurrent Audit, Forensic Audit and other professional services of various
Banks.
o In Companies Act 2013, section 138 defines that Internal Auditor shall be a Chartered
Accountant or Cost Accountant.
o Both are eligible for Insolvency professional by Insolvency and Bankruptcy Board of India
(“IBBI”) and Registered Valuer under 247 of the Companies Act, 2013.
7. The 49th Report of the Parliamentary Standing Committee on Finance (15th Lok Sabha) on
the “Direct Taxes Code Bill, 2010” emphasized the necessity for broader inclusion of finance
professionals. By recommending the inclusion of Cost Accountants, the Committee recognized
their critical role in providing SMEs with a cost-effective and simplified tax compliance option.
Behind every successful business decision, there is always a CMA vii
8. The Direct Taxes Code (DTC) 2013 formally proposed to expand the definition of “accountant”
to include Cost Accountants and Company Secretaries, showing progressive legislative intent
towards recognition of broader professional expertise.
9. The 122nd Report of the Department Related Parliamentary Standing Committee on
Commerce on Ease of Doing Business (December 21, 2015) supported this approach by
explicitly recommending the inclusion of Cost Accountants, Company Secretaries, and other
financial professionals in the definition of “accountant.”
10. Both CA and CMA are known as “Accountant” as well as “Auditor”, as pronounced by Supreme
Court & High Courts in several judgements.
11. Notably, Section 142(2A) of the Income Tax Act, 1961 allows the appointment of Cost
Accountants for inventory valuation.
12. Globally, Cost Accountants are treated at par with other accounting professionals. South Asian
and European Countries recognize Cost Accountants as ‘accountants’ and ‘auditors.’
13. Inclusion of “Cost Accountant” in the definition of “Accountant” under Section 515(3)(b) of
the Income-Tax Bill, 2025 will provide a fair opportunity and recognition to the professional
expertise of Cost Accountants, ensuring a more inclusive and strengthened tax framework of the
Country.
MEMORANDUM
For Inclusion of “Cost Accountant”
in the definition of
“Accountant”
Under Section 515(3)(b) of the
Income-Tax Bill, 2025
Behind every successful business decision, there is always a CMA ix
T
he Institute of Cost Accountants of India (erstwhile The Institute of Cost and Works
Accountants of India) was first registered as “Indian Institute of Cost and Works Accountants”
on the 14th June, 1944 under the Indian Companies Act, 1913. On 28th May, 1959, the
Institute was established by a special Act of Parliament, namely, the Cost Accountants Act,
1959 as a statutory professional body for the regulation and development of the profession of Cost and
Management accountants in India. The Institute is under the administrative control of the Ministry of
Corporate Affairs, Government of India.
The Institute is headquartered in Kolkata having four Regional Councils at Kolkata, Delhi, Mumbai and
Chennai, 117 Chapters in India and 11 Overseas Centres. The Institute is the largest Cost & Management
Accounting body in the world with about 1,00,000 qualified CMAs and over 6,00,000 students pursuing
the CMA Course. The Institute is a founder member of International Federation of Accountants (IFAC),
Confederation of Asian and Pacific Accountants (CAPA) and South Asian Federation of Accountants
(SAFA). The Institute is also an Associate Member of ASEAN Federation of Accountants (AFA) and
member of International Integrated Reporting Council (IIRC), UK.
The Institute of Cost Accountants of India has made persistent representations to the Ministry of
Finance, Government of India for inclusion of “Cost Accountant” in the definition of “Accountant”
given in the Explanation to section 288(2) of the Income Tax Act, 1961 (Now section 515 (3) (b) of the
Income Tax Bill, 2025). (Detailed list is enclosed as Annexure-I)
Despite several representations over the years, this long-pending request remains unaddressed, including
in the newly introduced Income Tax Bill, 2025 tabled in the parliament on 13th February 2025, which
also does not recognize ‘Cost Accountants’ under the said definition given in section 515 (3) (b) of the
Income Tax Bill, 2025.
The New Income Tax Bill 2025, introduces significant reforms to India’s tax system, including notable
changes to transfer pricing regulations. A key amendment allows for the multi-year determination of
the Arm’s Length Price (ALP). Under this provision, taxpayers can opt to apply the ALP determined
for a particular assessment year to similar international or specified domestic transactions for the two
consecutive years immediately following that year. This change aims to reduce compliance burdens by
eliminating repetitive analyses for identical transactions over multiple years. It is to be noted that the
Cost Accountants are the only professionals who are reporting related party transactions in Cost Audit
Report since last fifteen years.
Further, the Institute hereby reiterates its submission for Inclusion of “Cost Accountant” in the definition
of “Accountant” under Section 515(3)(b) of the Income-Tax Bill, 2025, as follows:
Parliamentary Standing Committee on Finance in its 49th Report of 15th Lok Sabha, relating to
“The Direct Taxes Code Bill, 2010” had already recommended inclusion of Cost Accountant in the
definition of ‘Accountant’. The Committee observations (Page 336 Para No. 17.9) are as follows:
“The Committee observed that the Ministry’s reasoning for non-inclusion of related professionals
in the definition of accountant is a very strict construction of the term.
In the view of the Committee, the suggested amendment may provide the Small and Medium
Enterprises (SMEs) a wider and cost effective scope for selection of professionals and will be an
important initiative towards simplified tax compliance regime.
The Ministry may therefore re-consider the suggestion to widen the scope of the definition of
“accountant”.
� Direct Taxes Code (DTC) 2013 proposed that the definition of “accountant” should include a
Company Secretary within the meaning of the Company Secretaries Act, 1980. The relevant extract
of the DTC 2013 (Page 202 Para No. 320(2)) are reproduced below:
“(2) “accountant” means a chartered accountant within the meaning of the Chartered Accountants
Act, 1949 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act,
and shall include-
x Behind every successful business decision, there is always a CMA
(i) a company secretary within the meaning of the Company Secretaries Act, 1980;
(ii) a cost accountant within the meaning of the Cost and Works Accountants Act, 1959; or
(iii) any person having such qualifications as the Board may prescribe, for the purposes specified
in this behalf.”
� 122nd Report of the Department Related Parliamentary Standing Committee on Commerce
on Ease of Doing Business dated 21st December 2015, recommended expanding the definition of
‘accountant’ under the Income Tax Act to include other Finance Professionals, specifically mentioning
Cost Accountant. The relevant extract of the 122nd Report (Page 22 Para No. 8.19) are reproduced
below:
“8.19 The Committee notes the response of the Government that a proposal to give certain rights
to the Cost Accountants and Company Secretaries under the definition of ‘accountant’ under the
Income Tax Act is under consideration. It recommends that the definition of ‘accountant’ under
the Income Tax Act may be expanded so that people representing the companies’ cases may also
include non-Chartered Accountants viz. cost accountants, company secretary, income tax experts,
practicing advocates, etc.”
� C&AG Observations – The C&AG, in its Report No. 32 of 2014 (Performance Audit), observed
serious flaws in the existing practice of tax audit & certification work performed by the Chartered
Accountants. This had resulted in substantial loss of tax revenue to the Government. [22 CAs signed
more than 400 tax audit reports for AY 2013-14. One signed 2471 reports and another, 990 reports.
This is fraught with serious quality of tax audits.]
� Both CA and CMA are known as “Accountant” as well as “Auditor”, as pronounced by Supreme
Court & High Courts in several judgements.
� Independent Audit - It would be more prudent if tax audit of an entity is independently done by a
professional other than the chartered accountants who has already conducted financial audit of the
same entity.
� Competition - Monopolistic and restrictive practices breed inefficiency, complacency, & corruption.
Thus, allowing monopoly of all tax audits and various certifications required under the IT Act only
to the CAs is not in the best interest of the Department nor it benefits the assessee.
� Globally, the term ‘accountant’ includes all accountants who are granted professionally qualified
degrees by their respective national accounting bodies. Generally, no difference is made among them.
In India, the roots of the Income Tax Act, 1961 lies in the original Act enacted during the British
period in 1922. Similar legislations were adopted by Pakistan. In the UK, Cost & Management
Accountants are recognized as ‘accountants’ at par with the accountants qualified from other five
National Accounting Institutes. In Pakistan & Bangladesh, the Cost Accountants are treated at par as
‘accountants’ and also as ‘auditors’ under all Statutes governing corporate law practice and taxation
practice. In the current era of globalization and WTO regime, where the accountancy profession is
gaining.
� No Threat to CAs – Number of CMAs presently in practice are about 3-4% compared to that of
CAs in tax practice. Allowing CMAs to undertake tax audit & certification work under the IT Act
will surely bring healthy competition that would benefit the tax administration system as well as
the assessees, especially the MSME assessees. CMAs would rather become an important asset for
the Department [with no threat to the profession of chartered accountants, as is being wrongly
perceived].
� Computation of arm’s length price for transfer pricing u/s section 92C by using cost plus method,
profit split method and transactional net margin method require calculations based on the cost
accounting principles. These cases can be best computed and certified by a cost accountant giving
ease to the Transfer Pricing Officers.
Behind every successful business decision, there is always a CMA xi
Equality of CA and CMA
Both ICAI & ICMAI are National level Accounting Institutes set-up by the Parliament of India.
Both are members of all international bodies of accountants, viz., IFAC, CAPA, and SAFA.
Globally, the term ‘accountant’ includes all accountants that are granted professionally qualified
degrees by their respective national accounting bodies. Generally, no difference is made amongst
them.
The University Grant Commission (UGC) vide do no.9-35/2016/CPP-Il dated 15th April 2021
consider the CA/CS/ICWA (now CMA) qualification equivalent to Post Graduate Degree.
National Recognition Information Centre of UK (NARIC, UK), which is the designated agency for
recognition of international qualifications and professional skills, have benchmarked and recognized
the CMA and CA Qualification as equivalent to Master’s Degree in UK.
Regulation 166 of the Chartered Accountants Act, and Regulation 111 of the Cost & Works
Accountants Act have identical provisions i.e. Members in practice to engage only in the profession
of “accountancy”.
Both the professionals, i.e., CAs and CMAs have similar Curriculum and Pedagogy for their students
so far as it relates to the domain areas of accountancy, audit, corporate laws, and direct & indirect
taxes. Only the nomenclature may be different but the course content is the same. CMA subjects
emphasizes heavily on the areas of cost optimization, optimum utilization of scarce resources,
pinpointing areas requiring cost controls etc. and the curriculum is suitably designed to equip
members accordingly. Comparative Study of CMA Syllabus 2022 with CA New Scheme is
enclosed as Annexure-II.
Both qualifications are equally recognized by Government of India for entry into the Indian Cost
Accounts Service and other senior positions under different organizations. Similarly, both have equal
recognition for all middle/ senior level positions in the industry. [Actually, in number of companies,
CMAs hold the position of CEO/CFO.]
Large number of Central and State Statutes recognize both CA and CMA absolutely at par in several
professional areas of accounting and audit. Both are equally allowed to appear before statutory and
quasi-judicial authorities. Detailed list of areas of practice for Cost Accountants is enclosed as
Annexure-III. Some of the areas under various statutes where Cost Accountants have been given
equal opportunities with other peer accounting professionals are mentioned under:
Goods and Services Tax [GST]
{However under section 35(5) of CGST Act, Chartered Accountants as well as Cost Accountants
were eligible for GST Audit though section 35(5) has been omitted later} [Special audit u/s 66
(i) of CGST shall be conducted by Chartered Accountant or Cost Accountant]
Customs Act
Erstwhile Central Excise Act
Service Tax Act
VAT Audit/Certifications under all states’ VAT Act
Tax Return Preparer (Amendment) Scheme, 2018
Appearances before Sales Tax Authorities
Certification under Foreign Trade Policy
Stock Audit, Concurrent Audit, Forensic Audit and other professional services of various Banks.
In Companies Act 2013, section 138 defines that Internal Auditor shall be a Chartered Accountant
or Cost Accountant.
Both are eligible for Insolvency professional by Insolvency and Bankruptcy Board of India
(“IBBI”) and Registered Valuer under 247 of the Companies Act, 2013.
xii Behind every successful business decision, there is always a CMA
The Government of Kerala, Personnel and Administrative Reforms Department vide its order dated
20.11.2024, has recognized the Cost Accountant qualification as equivalent to that of Chartered
Accountant for the purpose of appointment to the posts and service in various Departments/PSUs/
Institutions under the State Government in the appropriate field.
As per US Laws, Indian Cost Accountants’ firms registered with the PCAOB are permitted to
undertake statutory financial audit of all US-SEC listed companies operating anywhere in the
world.
Members of both the Institutes viz. the cost accountant and chartered accountant are governed by
exactly the same code of conduct, disciplinary mechanism, and professional ethics.
Both the Institutes have issued Accounting and Auditing Standards that are binding on their Members
in practice.
Judicial Ratios
What is an accountant? According to the Wikipedia, the free encyclopedia, and also the Australian
Accountants Directory they are, “a practitioner of accountancy or accounting, which is the measurement,
disclosure or provision of assurance about financial information that helps managers, investors, tax
authorities and others make decisions about allocating resources” Therefore, as per the dictionary
meaning as well as in the legal parlance, both Cost Accountant and Chartered Accountant are known
as “Accountant” as well as “Auditor”. In this context, the following judgments are relevant:
Hon’ble Supreme Court upheld the decision of Mumbai High court and held both Cost Accountants
and Chartered Accountants as ‘Accountant’ under section 61 of the Maharashtra Value Added
Tax Act, 2002. Further, both are recognized as ‘Accountants’ under the VAT Acts of 22 States &
UTs of India. [2008 14 STT 348, (2008) 14 VST 69 Bom]
It may be noted that VAT audits are akin to the tax audit.
Hon’ble Karnataka High Court in W.A. No. 31061/2013 (CS) has ruled that ‘Auditor’ does not
mean a person holding the degree of Chartered Accountant under section 63 of the Karnataka
Co-operative Societies Act, 1959 read with Article 243ZM of the Constitution of India.
Writ Petition Nos. 2026-2031 of 2015 filed by the Karnataka State Chartered Accountants in
Karnataka High Court challenging the inclusion of Cost Accountants and Cost Accountant Firms
for Statutory Audit of annual accounts of Cooperative Societies was dismissed on 29.03.2016.
Provisions u/s 44AB [introduced in 1984] read with section 288 of the Income Tax Act were challenged
by various associations of Income Tax or Sales Tax Practitioners in different High Courts and later
in the Supreme Court. All these Courts held that the tax practitioners cannot be covered under the
meaning of the term ‘accountant’. Institute of Cost Accountants of India, being set-up by an Act of
Parliament, was never a party in any such case. Hence, there was no view expressed by any Court
in India that the Cost Accountants cannot be called as ‘accountant’ within the meaning assigned
under the Income Tax Act, 1961. We are of the strong opinion that supplementary tax-audit report
under section 44AB of the Act signed by the cost accountants can definitely throw significant tax
related issues before the Tax Assessment Officer enabling realization of higher tax revenue.
On the qualification of “Accountant” under the Income Tax Act 1961, the Courts said that Audit
is a specialized function by independent professional with necessary qualification who should have
qualified with specialized subject of accountancy & auditing in the syllabus; and should have sufficient
training & skill to do audits. Income Tax audit also involves the compliance of tax provisions in
books of accounts & its authenticity that requires superior & special qualifications possessed &
recognized by law. Therefore, the Courts held that the qualification of Chartered Accountants has
been recognized by law as a professional qualification of accountants whose syllabus has adequate
coverage of Accountancy & Audit and the Members are allowed to practice after training & having
gathered experience in skills of audit. Keeping the Court observations in view and comparing the
Behind every successful business decision, there is always a CMA xii
syllabus, pedagogy and training requirements, both Cost Accountants and Chartered Accountants
qualify to be an Accountant and an Auditor under the Income Tax Act.
Summary/ highlights of the viewpoints & pronouncements of various Hon’ble Court Judgments listing
principles recognizing the qualification of ‘Accountant’ that equally recognizes and applies to Cost
Accountants is given in Annexure-IV.
Keeping in view the judicial pronouncements, there appears no reason of assigning restricted meaning
to the term ‘accountant’ to mean only a chartered accountant under the provisions of Income Tax Act.
xiv Behind every successful business decision, there is always a CMA
Annexures
S. No. Date Page No.
Details of recent representations submitted for inclusion of the Cost
1 - 101
Accountant in the definition of Accountant under IT Act, 1961
Letter dated 17.09.2024 submitted to Member Secretary, Committee for
1 2
Comprehensive Review of the IT Act, 1961
2 Letter dated 13.08.2024 submitted to Chairman , CBDT 4
3 Letter dated 10.08.2023 submitted to Chairman , CBDT 7
4 Letter dated 29.07.2021 submitted to Hon’ble MoS Finance 10
Letter dated 28.01.2021 submitted to Hon’ble Minister of Finance &
5 13
Corporate Affairs
Letter dated 30.12.2020 submitted to Hon’ble MoS Finance &
6 16
Corporate Affairs
Letter dated 27.08.2019 submitted to Hon’ble Minister of Finance &
7 19
Corporate Affairs
Letter dated 12.08.2019 submitted to Member CBDT & Convenor of
8 23
Task Force on DTC
Letter dated 06.08.2019 submitted to Hon’ble Minister of Finance &
Annexure -I 9 27
Corporate Affairs
Letter dated 18.07.2019 submitted to Hon’ble Minister of Finance &
10 29
Corporate Affairs
11 Letter dated 20.11.2018 submitted to Hon’ble Finance Minister 52
12 Letter dated 23.05.2018 submitted to Hon’ble Finance Minister 64
13 Letter dated 06.12.2016 submitted to Hon’ble Finance Minister 65
14 Letter dated 23.11.2015 submitted to Joint Secretary, CBDT, MoF 79
15 Letter dated 20.11.2015 submitted to Hon’ble Finance Minister 80
16 Letter dated 25.10.2015 submitted to Joint Secretary, CBDT, MoF 89
17 Letter dated 05.08.2015 submitted to Chairperson, CBDT, MoF 91
18 Letter dated 21.11.2013 submitted to Hon’ble Finance Minister 93
Letter dated 25.11.2009 submitted to Hon’ble Minister of Corporate
19 96
Affairs
Letter dated 15.07.2009 submitted to Hon’ble Minister of Corporate
20 98
Affairs
21 Letter dated 14.07.2009 submitted to Hon’ble Finance Minister 99
Annexure -II Comparative Study of CMA Syllabus 2022 with CA New Scheme 102 - 105
Annexure -III Detailed list of areas of practice for Cost Accountants 106 - 117
Summary/ highlights of the viewpoints & pronouncements of
various Hon’ble Court Judgments listing principles recognizing the
118 - 159
qualification of ‘Accountant’ that equally recognizes and applies to Cost
Annexure -IV Accountants
1 Karnataka High Court dated 30.10.2013 119
2 Karnataka High Court dated 29.03.2016 127
3 Bombay High Court dated 28.03.2008 139
Behind every successful business decision, there is always a CMA xv
Annexure - I
Details of recent representations submitted for inclusion of the
Cost Accountant in the definition of Accountant under
IT Act, 1961
Behind every successful business decision, there is always a CMA 1
2 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 3
4 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 5
6 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 7
8 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 9
ǣͳͶʹǣͲǣʹͲʹͳ ʹͻǡʹͲʹͳ
Dr. Bhagwat Kishanrao Karad,
̵
ǦͳͳͲͲͲͳ
Subject: Request for inclusion of "Cost Accountant" in the definition of "Accountant" given in
the Explanation to section 288(2) of the Income Tax Act, 1961
ǡ
Ǥ
ʹͲǤͳͳǤʹͲͳͷǡ ͲǤͳʹǤʹͲͳǡ ʹ͵ǤͲͷǤʹͲͳͺǡ ʹͲǤͳͳǤʹͲͳͺǡ ͳͺǤͲǤʹͲͳͻ Ƭ ʹͺǤͲͳǤʹͲʹͳǤ
ͳʹǤͲͺǤʹͲͳͻʹǤͲͺǤʹͲͳͻǤ
Ǥ
ǡ
̵ ̵ ʹͺͺȋʹȌ ǡ ͳͻͳ
ǡ ǡ owing to
opposition by the Institute of Chartered Accountants of India.
ǡ
ǡ ̵ ̵
̵ ̵Ǣ
ǤHowever, we are not privy to the facts given in the final
report submitted by the Task Force.
ǡ
the role of an “accountant” as defined under section 288 should
ǡ
Ǥ
ǡ̵ ±ǡʹͲͳͻǤ
"Concerns Submitted to Union Finance Minister regarding Definition of Accountant in
Income-tax Act, 1961: Recently, the Institute of Cost Accountants of India and the Institute of
Company Secretaries of India have submitted representations to the Government requesting
for an amendment in the definition of term ‘Accountant’ in the Explanation to Section 288(2)
of the Income-tax Act, 1961. Taking note of this development, we have submitted our detailed
concerns in respect of the same to the Union Finance Minister vide separate letters. We have
mentioned that the role of an “accountant” as defined under section 288 should continue to be
restricted exclusively to chartered accountants in practice, who alone possess the requisite
professional competence to perform the said role efficiently and effectively."
ǡ
Ǥǡ
Ǥǡ
̵
‘Accountant’ Ƭ Ǥ
ǡ
ǡ Ǥ
10 Behind every successful business decision, there is always a CMA
ǡ
ǡǤ ǡ
Ǥ
ǡ Ǥ ǡ
Ǥ
ǡ ǡ
ǡ
Ǥ
ǡƬ ȋȌ
Ǥ
ǡ
͵Ǥ
ǡǢ
ʹͲͳ͵
ͳͻͳǤ ǡ
Ǥ Ȁ ͳ͵ͺ
ǡʹͲͳ͵Ǥ ǡ
ȏ Ȑ ǡ ǡ ǡ ǡ ǡ
Ǥ
Ǧ Ǥ
ǡ ʹͲͳǢ
ȋƬȌǡʹͲͳǤ
Most important to note that as per US Laws, Indian Cost Accountants' firms registered with the
Public Company Accounting Oversight Board (PCAOB) are permitted to undertake statutory
financial audit of all US-SEC listed companies operating anywhere in the world.
ǡ ͳͻͶͶǡ
ͳͻͷͻ ǡ ǡ
Ǥ ̵ ̵
ȋȌ ǡ ͲͲǡͲͲͲ Ǥ
ǡ ͳͲ Ǥ
ȋ Ȍǡ
ȋȌ ȋ ȌǤ
Both ICAI-CA & ICAI-CMA have similar Curriculum & Pedagogy for their students so far as it
relates to the domain areas of accountancy, audit, corporate laws, and direct & indirect taxes.
Their Members are subject to same Conduct & Disciplinary mechanism, Professional Ethics,
Accounting & Auditing Standards, Peer Review System, and Quality Review.
ǦƬ Ǧ Ǧ Ǥ
ǡ Ǥǡ ǡ ǡ Ǥ
ǡ ̵ ̵
Ǥ
̶ ̶ ̶̶ǡ Ƭ
Ǥ ǡͳ ǡͳͳͳ
Ƭ ǤǤ
the profession of “ ”.
Behind every successful business decision, there is always a CMA 11
In view of above, there appears no justification for making any difference between a CA and
CMA for doing tax audit under the Income Tax Act 1961.
ǡ ȋ Ȍ
es a ‘dominant firm’ as defined by the Competition Act. Their
ǡʹͲͳ͵ ǡͳͻͳǤ
ǡ ƬǤ
Ƭ ǡǤ͵ʹʹͲͳͶȋ Ȍǡ
Ƭ Ǥ
Ǥ
Ǥ ǡ Ǥ The
solution lies in opening the profession to greater competition based on competence, ethics and
performance.
The monopolistic and restrictive practices breed inefficiency, complacency, & corruption. Thus,
allowing monopoly to the Chartered Accountants to conduct tax audit of all companies and
other legal entities such as partnership/LLP/proprietorship firms, HUFs, cooperatives,
societies, trusts, etc. is not in the best interest of the Government nor it benefits the auditees. It
is, therefore, necessary to allow CMAs to do tax audit under the Income Tax Act, 1961 that will
surely bring healthy competition and benefit all companies & other legal entities, especially
the MSMEs.
ǡǡ
ǡ ̵ ̵̵ ̵
Ǥ
ǡ ǡ Ǧ
̵
̵ͷ ʹͲʹͷǤ
Ǥ
ǡ
(CMA Biswarup Basu)
President
12 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 13
14 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 15
ǣͳͶʹǣͳʹǣʹͲʹͲ ͵ͲǡʹͲʹͲ
Shri Anurag Singh Thakur
Hon’ble Union Minister of State for Finance and
ǡ
Subject: Request for inclusion of "Cost Accountant" in the definition of "Accountant" given
in the Explanation to section 288(2) of the Income Tax Act, 1961
ǡ
Ǥ
ʹͲǤͳͳǤʹͲͳͷǡͲǤͳʹǤʹͲͳǡʹ͵ǤͲͷǤʹͲͳͺǡʹͲǤͳͳǤʹͲͳͺǡƬͳͺǤͲǤʹͲͳͻǤ
ͳʹǤͲͺǤʹͲͳͻʹǤͲͺǤʹͲͳͻǤǤ
ǡ
̵ ̵ ʹͺͺȋʹȌ ǡ ͳͻͳ
ǡ ǡ owing to
opposition by the Institute of Chartered Accountants of India.
ǡ
ǡ ̵ ̵
̵ ̵Ǣ
Ǥ However, we are not privy to the facts given in the
final report submitted by the Task Force.
ǡ
the role of an “accountant” as defined under section
ʹͺͺ ǡ
Ǥ ǡ̵ ±ǡʹͲͳͻǤ
"Concerns Submitted to Union Finance Minister regarding Definition of Accountant
in Income-tax Act, 1961: Recently, the Institute of Cost Accountants of India and the
Institute of Company Secretaries of India have submitted representations to the
Government requesting for an amendment in the definition of term ‘Accountant’ in the
Explanation to Section 288(2) of the Income-tax Act, 1961. Taking note of this
development, we have submitted our detailed concerns in respect of the same to the Union
Finance Minister vide separate letters. We have mentioned that the role of an “accountant”
as defined under section 288 should continue to be restricted exclusively to chartered
accountants in practice, who alone possess the requisite professional competence to
perform the said role efficiently and effectively."
ǡ
Ǥ ǡ
Ǥ
ǡ ̵
in the definition of ‘Accountant’ Ƭ Ǥ
ǡ
16 Behind every successful business decision, there is always a CMA
ǡ
Ǥ
ǡ
ǡǤ ǡ
Ǥ
ǡ Ǥǡ
Ǥ
ǡ ǡ
ǡ
Ǥ
ǡƬ ȋȌ
Ǥ
ǡ
͵Ǥ
ǡǢ
ʹͲͳ͵
ͳͻͳǤ ǡ
Ǥ Ȁ ͳ͵ͺ
ǡ ʹͲͳ͵Ǥ ǡ
ȏ Ȑ ǡ ǡ ǡ ǡ
ǡ Ǥ
Ǧ Ǥ
ǡʹͲͳǢ
ȋƬȌǡʹͲͳǤ
Most important to note that as per US Laws, Indian Cost Accountants' firms registered with
the Public Company Accounting Oversight Board (PCAOB) are permitted to undertake
statutory financial audit of all US-SEC listed companies operating anywhere in the world.
ǡ ͳͻͶͶǡ
ͳͻͷͻǡǡ
Ǥ ̵ ̵
ȋȌ ǡ ͲͲǡͲͲͲ Ǥ
ǡ ͳͲ
Ǥ ȋ Ȍǡ
ȋȌ
ȋ ȌǤ
Both ICAI-CA & ICAI-CMA have similar Curriculum & Pedagogy for their students so far as it
relates to the domain areas of accountancy, audit, corporate laws, and direct & indirect
taxes. Their Members are subject to same Conduct & Disciplinary mechanism, Professional
Ethics, Accounting & Auditing Standards, Peer Review System, and Quality Review.
Ǧ Ƭ Ǧ Ǧ
Ǥ ǡǤǡ ǡǡ
Ǥ ǡ ̵ ̵
Ǥ
̶ ̶ ̶̶ǡ Ƭ
Behind every successful business decision, there is always a CMA 17
Ǥ ǡ ͳ ǡ ͳͳͳ
Ƭ ǤǤ
only in the profession of “ ”.
In view of above, there appears no justification for making any difference between a CA and
CMA for doing tax audit under the Income Tax Act 1961.
ǡ ȋ Ȍ
s such constitutes a ‘dominant firm’ as defined by the Competition Act. Their
ǡ ʹͲͳ͵ ǡ ͳͻͳǤ
ǡ
ƬǤƬ ǡǤ͵ʹʹͲͳͶȋ Ȍǡ
Ƭ
Ǥ Ǥ
Ǥ ǡ
ǤThe solution lies in opening the profession to greater competition based
on competence, ethics and performance.
The monopolistic and restrictive practices breed inefficiency, complacency, & corruption.
Thus, allowing monopoly to the Chartered Accountants to conduct tax audit of all
companies and other legal entities such as partnership/LLP/proprietorship firms, HUFs,
cooperatives, societies, trusts, etc. is not in the best interest of the Government nor it
benefits the auditees. It is, therefore, necessary to allow CMAs to do tax audit under the
Income Tax Act, 1961 that will surely bring healthy competition and benefit all companies &
other legal entities, especially the MSMEs.
ǡ ǡ
ǡ ̵ ̵̵ ̵
Ǥ
ǡ ǡ Ǧ
̵̵ͷ ʹͲʹͶǤ
ʹͲʹͳǤ
Ǥ
ǡ
(CMA Biswarup Basu)
President
18 Behind every successful business decision, there is always a CMA
G:142:08:2019
August 27, 2019
Smt. Nirmala Sitharaman
Hon’ble Union Minister of Finance and
Corporate Affairs,
Ministry of Finance
North Block,
New Delhi - 110 001
Re: Request for Inclusion of Cost Accountant as Accountant u/s 288 of I.Tax
Act
Respected Madam,
This is with reference to our letter no. G:142:08:2019 dated August 06, 2019
submitted to your good office, the Institute would further like to summarise the
existing provisions, modification proposed and reasons thereof, for your kind
consideration.
Existing Provisions
Section 288 of Income Tax Act describes the persons entitled to appear before
any Income Tax Authority or Appellate Tribunal, as an "authorized
representative" of the assessee.
Sub-section (2) gives list of such persons. Clause (v) says 'any person who has
passed any accountancy examination recognized in this behalf by the Board' –
Cost & Management Accountant (CMA) is recognized under this clause.
Clause (iv) includes 'an accountant'. As per explanation, “accountant" means a
Chartered Accountant in practice who is eligible for appointment as an auditor
u/s section 141 of the Companies Act, 2013.
Modification Proposed
"Accountant" should mean a Chartered Accountant or a Cost Accountant in
practice who is eligible for appointment either as an auditor u/s section 141 or as
cost auditor u/s 148 of the Companies Act, 2013.
Brief Reasons
Parliamentary Committee in its 49th Report of 15th Lok Sabha, relating to
"The Direct Taxes Code Bill, 2010" had already recommended inclusion of Cost
Accountants in the definition of 'accountant'.
Behind every successful business decision, there is always a CMA 19
C&AG Observations – The C&AG, in its Report No. 32 of 2014 (Performance
Audit), observed serious flaws in the existing practice of tax audit & certification
work performed by the Chartered Accountants. This had resulted in substantial
loss of tax revenue to the Government. [22 CAs signed more than 400 tax
audit reports for AY 2013-14. One signed 2471 reports and another, 990
reports. This is fraught with serious quality of tax audits.]
Both CA and CMA are known as "Accountant" as well as "Auditor", as
pronounced by Supreme Court & High Courts in several judgements.
Independent Audit - It would be more prudent if tax audit of an entity is
independently done by a professional other than the chartered accountants who
has already conducted financial audit of the same entity.
Competition - Monopolistic and restrictive practices breed inefficiency,
complacency, & corruption. Thus, allowing monopoly of all tax audits and
various certifications required under the IT Act only to the CAs is not in the best
interest of the Department nor it benefits the assessee.
Globally, many countries have either exempted SMEs from statutory annual
financial audit OR allowed CMAs & other members to do financial/tax audit of
small & medium size companies. This reduces burden on SMEs and breeds
competition.
No Threat to CAs – Number of CMAs presently in practice are about 4-5%
compared to that of CAs in tax practice. Allowing CMAs to undertake tax audit
& certification work under the IT Act will surely bring healthy competition that
would benefit the tax administration system as well as the assessees, especially
the MSME assessees. CMAs would rather become an important asset for the
Department [with no threat to the profession of chartered accountants, as
is being wrongly perceived].
Computation of arm's length price for transfer pricing u/s section 92C by using
cost plus method, profit split method and transactional net margin method
require calculations based on the cost accounting principles. These cases can
be best computed and certified by a cost accountant giving ease to the Transfer
Pricing Officers.
Equality of CA and CMA
Both ICAI-CA & ICAI-CMA are National level Accounting Institutes set-up by the
Parliament of India. Both are members of all international bodies of
accountants, viz., IFAC, CAPA, and SAFA.
20 Behind every successful business decision, there is always a CMA
Globally, the term 'accountant' includes all accountants that are granted
professionally qualified degrees by their respective national accounting bodies.
Generally, no difference is made amongst them.
Regulation 166 of the Chartered Accountants Act, and Regulation 111 of the
Cost & Works Accountants Act have identical provisions i.e. Members in
practice to engage only in the profession of “accountancy”.
Both CA and CMA pass through almost same course curriculum, pedagogy, and
practical training, so far as it relates to the domain areas of accountancy, direct
& indirect taxes, corporate laws, and audit. CMAs equally possess in-depth
knowledge, skill, and experience of accounting, audit, and taxation.
Both qualifications are equally recognized by Government of India for entry into
the Indian Cost Accounts Service and other senior positions under different
organizations. Similarly, both have equal recognition for all middle/ senior level
positions in the industry. [Actually, in number of companies, CMAs hold the
position of CEO/CFO.]
Large number of Central and State Statutes recognize both CA and CMA
absolutely at par in several professional areas of accounting and audit. Both are
equally allowed to appear before statutory and quasi-judicial authorities. Few
examples are:
o Financial Audit of Cooperative entities allowed in few States
o Internal Audit u/s 138 and all certification work allowed under the
Companies Act, 2013
o Audit and certification under the Goods and Services Tax [GST] Act,
Customs Act, erstwhile Central Excise Act, Service Tax Act, VAT Acts,
etc
o Insolvency Professional under the IB Code, 2016
o Registered Valuer under the Companies (Registered Valuer &
Valuation) Rules, 2017
o Tax Return Preparer (Amendment) Scheme, 2018
As per US Laws, Indian Cost Accountants' firms registered with the
PCAOB are permitted to undertake statutory financial audit of all US-SEC
listed companies operating anywhere in the world.
Members of both the Institutes viz. the cost accountant and chartered
accountant are governed by exactly the same code of conduct, disciplinary
mechanism, and professional ethics.
Behind every successful business decision, there is always a CMA 21
Both the Institutes have issued Accounting and Auditing Standards that are
binding on their Members in practice.
In consideration of the above representation, we are looking forward to a favourable
response from your office on our request for modification of the term "Accountant"
as appearing in the Explanation below sub-section (2) of section 288 of the Income
Tax Act, 1961 to include the "Cost Accountants".
Thanking you.
Yours Sincerely,
CMA Balwinder Singh
President
22 Behind every successful business decision, there is always a CMA
G:142:08:2019
August 12, 2019
Shri Akhilesh Ranjan
Member (Legislation) &
Convenor, Task force on the Direct Tax Code
Central Board of Direct Taxes
Ministry of Finance
North Block,
New Delhi - 110 001
Re: Request for Inclusion of Cost Accountant as Accountant u/s 288 of
Income Tax Act
Respected Sir,
With reference to our letter no. G:142:08:2019 dated August 06, 2019 submitted to
your good office on the subject mentioned above, the Institute would further like to
summarise below the existing provisions, modification proposed and reasons
thereof, for your kind consideration.
Existing Provisions
Section 288 of Income Tax Act describes the persons entitled to appear before
any Income Tax Authority or Appellate Tribunal, as an "authorized
representative" of the assessee.
Sub-section (2) gives list of such persons. Clause (v) says 'any person who has
passed any accountancy examination recognized in this behalf by the Board' –
Cost & Management Accountant (CMA) is recognized under this clause.
Clause (iv) includes 'an accountant'. As per explanation, “accountant" means a
Chartered Accountant in practice who is eligible for appointment as an auditor
u/s section 141 of the Companies Act, 2013.
Modification Proposed
"Accountant" should mean a Chartered Accountant or a Cost Accountant in
practice who is eligible for appointment either as an auditor u/s section 141 or as
cost auditor u/s 148 of the Companies Act, 2013.
Brief Reasons
Parliamentary Committee in its 49th Report of 15th Lok Sabha, relating to
"The Direct Taxes Code Bill, 2010" had already recommended inclusion of Cost
Accountants in the definition of 'accountant'.
Behind every successful business decision, there is always a CMA 23
C&AG Observations – The C&AG, in its Report No. 32 of 2014 (Performance
Audit), observed serious flaws in the existing practice of tax audit & certification
work performed by the Chartered Accountants. This had resulted in substantial
loss of tax revenue to the Government. [22 CAs signed more than 400 tax
audit reports for AY 2013-14. One signed 2471 reports and another, 990
reports. This is fraught with serious quality of tax audits.]
Both CA and CMA are known as "Accountant" as well as "Auditor", as
pronounced by Supreme Court & High Courts in several judgements.
Independent Audit - It would be more prudent if tax audit of an entity is
independently done by a professional other than the chartered accountants who
has already conducted financial audit of the same entity.
Competition - Monopolistic and restrictive practices breed inefficiency,
complacency, & corruption. Thus, allowing monopoly of all tax audits and
various certifications required under the IT Act only to the CAs is not in the best
interest of the Department nor it benefits the assessee.
Globally, many countries have either exempted SMEs from statutory annual
financial audit OR allowed CMAs & other members to do financial/tax audit of
small & medium size companies. This reduces burden on SMEs and breeds
competition.
No Threat to CAs – Number of CMAs presently in practice are about 4-5%
compared to that of CAs in tax practice. Allowing CMAs to undertake tax audit
& certification work under the IT Act will surely bring healthy competition that
would benefit the tax administration system as well as the assessees, especially
the MSME assessees. CMAs would rather become an important asset for the
Department [with no threat to the profession of chartered accountants, as
is being wrongly perceived].
Computation of arm's length price for transfer pricing u/s section 92C by using
cost plus method, profit split method and transactional net margin method
require calculations based on the cost accounting principles. These cases can
be best computed and certified by a cost accountant giving ease to the Transfer
Pricing Officers.
Equality of CA and CMA
Both ICAI-CA & ICAI-CMA are National level Accounting Institutes set-up by the
Parliament of India. Both are members of all international bodies of
accountants, viz., IFAC, CAPA, and SAFA.
24 Behind every successful business decision, there is always a CMA
Globally, the term 'accountant' includes all accountants that are granted
professionally qualified degrees by their respective national accounting bodies.
Generally, no difference is made amongst them.
Regulation 166 of the Chartered Accountants Act, and Regulation 111 of the
Cost & Works Accountants Act have identical provisions i.e. Members in
practice to engage only in the profession of “accountancy”.
Both CA and CMA pass through almost same course curriculum, pedagogy, and
practical training, so far as it relates to the domain areas of accountancy, direct
& indirect taxes, corporate laws, and audit. CMAs equally possess in-depth
knowledge, skill, and experience of accounting, audit, and taxation.
Both qualifications are equally recognized by Government of India for entry into
the Indian Cost Accounts Service and other senior positions under different
organizations. Similarly, both have equal recognition for all middle/ senior level
positions in the industry. [Actually, in number of companies, CMAs hold the
position of CEO/CFO.]
Large number of Central and State Statutes recognize both CA and CMA
absolutely at par in several professional areas of accounting and audit. Both are
equally allowed to appear before statutory and quasi-judicial authorities. Few
examples are:
o Financial Audit of Cooperative entities allowed in few States
o Internal Audit u/s 138 and all certification work allowed under the
Companies Act, 2013
o Audit and certification under the Goods and Services Tax [GST] Act,
Customs Act, erstwhile Central Excise Act, Service Tax Act, VAT Acts, etc
o Insolvency Professional under the IB Code, 2016
o Registered Valuer under the Companies (Registered Valuer & Valuation)
Rules, 2017
o Tax Return Preparer (Amendment) Scheme, 2018
As per US Laws, Indian Cost Accountants' firms registered with the
PCAOB are permitted to undertake statutory financial audit of all US-SEC
listed companies operating anywhere in the world.
Members of both the Institutes viz. the cost accountant and chartered
accountant are governed by exactly the same code of conduct, disciplinary
mechanism, and professional ethics.
Behind every successful business decision, there is always a CMA 25
Both the Institutes have issued Accounting and Auditing Standards that are
binding on their Members in practice.
In consideration of the above representation, we are looking forward to a favourable
response from your office on our request for modification of the term "Accountant"
as appearing in the Explanation below sub-section (2) of section 288 of the Income
Tax Act, 1961 to include the "Cost Accountants".
Thanking you.
Yours Sincerely,
CMA Balwinder Singh
President
Copy to:
1. Shri Girish Ahuja, Member, Task force on the Direct Tax Code
2. Shri Rajiv Memani, Member, Task force on the Direct Tax Code
3. Shri Mukesh Patel, Member, Task force on the Direct Tax Code
4. Smt. Mansi Kedia, Member, Task force on the Direct Tax Code
5. Shri G C Srivastava, Member, Task force on the Direct Tax Code
26 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 27
28 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 29
30 Behind every successful business decision, there is always a CMA
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32 Behind every successful business decision, there is always a CMA
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34 Behind every successful business decision, there is always a CMA
•
•
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36 Behind every successful business decision, there is always a CMA
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38 Behind every successful business decision, there is always a CMA
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•
•
•
•
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40 Behind every successful business decision, there is always a CMA
•
•
•
•
•
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42 Behind every successful business decision, there is always a CMA
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44 Behind every successful business decision, there is always a CMA
Page 17 of 23
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Page 18 of 23
46 Behind every successful business decision, there is always a CMA
DGFT Public
Notice No.
08/2015-2020
(ANF 5B)
Page 19 of 23
Behind every successful business decision, there is always a CMA 47
Page 20 of 23
48 Behind every successful business decision, there is always a CMA
Page 21 of 23
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Page 22 of 23
50 Behind every successful business decision, there is always a CMA
Page 23 of 23
Behind every successful business decision, there is always a CMA 51
52 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 53
54 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 55
56 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 57
58 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 59
60 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 61
62 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 63
G:142:05:2018
May 23, 2018
Shri Piyush Goyal
The Hon’ble Minister of Finance,
Government of India,
North Block,
New Delhi
Subject: Suggestions and Submissions in upcoming New Direct Tax Law.
Dear Sir,
Best wishes,
With the intention of the Government to simplify the present Income–tax Act, by way of
enacting new Direct Tax Law, the Institute of Cost Accountants of India has made an attempt
to revisit the entire Direct Tax gamut of the Country as well as the best practices followed in
other countries in the world both developed and developing countries and to frame a hassle
free Direct Tax Law for the citizen of India thereby protecting the Interest of Revenue.
With the opinion from our members and Resource Persons, working in the Industry & practice
and taxpayers, the suggestions and submissions have been compiled and drafted in the
context of upcoming New Direct Tax Law.
Further, we are enclosing herewith submissions on inclusion of “Cost Accountants” under the
definition of “Accountant” u/s 288 (2) of Income Tax Act, 1961
If considered necessary, please give us an opportunity to present before you the above in
person at your convenient date and time. We are eagerly looking forward to your
confirmation for a suitable date.
Thanking you.
Yours Sincerely,
CMA Sanjay Gupta.
Enclosed – As above
Copy to:
1. Hon’ble Minister of State, Ministry of Finance, Government of India, North Block, New Delhi
2. Secretary-Expenditure & Finance Secretary, MoF, Government of India
3. Secretary, Department of Revenue, MoF, Government of India
4. Chairman, Central Board of Direct Taxes, Department of Revenue, MoF
5. Chairman, Task force for enacting new Direct Tax Law.
64 Behind every successful business decision, there is always a CMA
G:142:48:2016 6th December, 2016
The Hon’ble Minister
Ministry of Finance,
Government of India,
North Block,
New Delhi
Subject: Request to modify the term "Accountant" as appearing in the
Explanation below sub-section (2) of section 288 of the Income Tax
Act, 1961 to include the "Cost Accountant" therein
Respected Sir,
We hereby wish to bring to your kind notice that there is an urgent need to amend
meaning of the term “accountant” as assigned in the Explanation below section 288 of
the Income Tax Act, 1961 so as to bring both Cost Accountants and Chartered
Accountants at par under its ambit. Our submission is based on the fact that both
professionally qualified accountants not only pass through the same course
curriculum, pedagogy, and practical training, but have already been recognized ‘at
par’ under various other Central and State Statutes so far as it relates to the domain
areas of accountancy, audit, taxation, and corporate laws. In this regime of
liberalization, this will induce healthy competition with no extra cost to the assessee.
Further, tax audit is required to be done in compliance with the provisions of Income
Tax Act/Rules and Income Computation & Disclosure Standards [ICDS] notified by the
CBDT under section 145(2) of the Act that are binding for any professional
performing functions as 'accountant' from the AY 2017-18. It may be relevant to note
that these ICDS largely follow the cost accounting principles in determining the
admissibility of either revenues or expenses for finalizing the tax assessments.
Therefore on this count, there appears no case for making any distinction among
the cost accountants and chartered accountants.
Rather, in the best interest of the Department, it would be more effective if the tax
audit of an entity is done by an accountant other than the chartered accountant who
himself has conducted the financial audit of the same entity. The cost accountant
would then conduct an independent second audit [i.e. tax audit] of the same entity
and make his report to Assessment Officer in the prescribed forms. This would,
certainly, be more prudent approach to safeguard the interest of Government and
all stakeholders. Allowing cost accountants to do tax audit would improve the
quality of tax audit in the country as the C&AG had observed substantial decline in the
services of chartered accountants in areas of tax audit practice.
Behind every successful business decision, there is always a CMA 65
Though the number of cost accountants presently in practice are only about 5-6%
compared to that of chartered accountants in tax practice, but we are sure that
allowing Cost Accountants to also conduct tax audit & certification work under
various provision of the Income Tax Act will surely bring in more efficiency in the tax
administration system and ensure better tax compliance. Cost Accountants would
rather become an important asset for the Department [with no threat to the
profession of chartered accountants, as is being wrongly perceived]. They would
rather provide more competitive practice to the large number of tax payers,
especially the corporate tax payers and among them, more importantly to the MSME
tax payers.
Our detailed submissions are made as under.
Existing Provisions under Section 288 of Income Tax Act, 1961
Section 288 of the Income Tax Act describes the persons entitled to appear before any
Income Tax Authority or the Appellate Tribunal, as an "authorized representative" of
the assessee, in connection with any proceedings under the Act [otherwise than when
the assessee is required to attend personally for examination on oath or affirmation].
Sub-section (2) gives list of such persons. Clause (v) read with sub-rule (3) of Rule 50
of the Income Tax Rules, 1962 includes a "Cost Accountant" in the list of authorized
persons.
Further, Clause (iv) thereof includes 'an accountant' and as the explanation below
sub-section (2) defines the term “accountant" as under:
"Explanation — In this section, "accountant" means a ;chartered accountant as defined
in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38
of 1949) who holds a valid certificate of practice under sub-section (1) of section 6 of
that Act, but does not include [except for the purposes of representing the assessee
under sub-section (1)] —
(a) in case of an assessee, being a company, the person who is not eligible for
appointment as an auditor of the said company in accordance with the
provisions of sub-section (3) of section 141 of the Companies Act, 2013 (18 of
2013); or
(b) in any other case, —
(i) the assessee himself or in case of the assessee, being a firm or association of
persons or Hindu undivided family, any partner of the form, or member of
the association or the family;
(ii) in case of the assessee, being a trust or institution, any person referred to in
clauses (a), (b), (c) and (cc) of sub-section (3) of section 13;
66 Behind every successful business decision, there is always a CMA
(iii) in case of any person other than persons referred to in sub-clauses (i) and
(ii), the person who is competent to verify the return under section 139 in
accordance with the provisions of section 140;
(iv) any relative of any of the persons referred to in sub-clauses (i), (ii) and (iii);
(v) an officer or employee of the assessee;
(vi) an individual who is a partner, or who is in the employment, of an officer or
employee of the assessee;
(vii) an individual who, or his relative or partner—
(I) is holding any security of, or interest in, the assessee:
Provided that the relative may hold security or interest in the
assessee of the face value not exceeding one hundred thousand
rupees;
(II) is indebted to the assessee:
Provided that the relative may be indebted to the assessee for an
amount not exceeding one hundred thousand rupees;
(III) has given a guarantee or provided any security in connection with
the indebtedness of any third person to the assessee:
Provided that the relative may give guarantee or provide any
security in connection with the indebtedness of any third person to
the assessee for an amount not exceeding one hundred thousand
rupees;
(viii) a person who, whether directly or indirectly, has business relationship
with the assessee of such nature as may be prescribed;
(ix) a person who has been convicted by a court of an offence involving fraud
and a period of ten years has not elapsed from the date of such conviction."
The aforesaid provisions and the term “accountant” analyzed
It may be noted that while both chartered accountant and cost accountant are treated
at par under this section for appearance before the tax authorities on behalf of the
assessees, a different definition of the term "accountant" assigning the meaning only
to the "chartered accountants" creates a clear disparity among them for providing
services under various other sections of the Act. There does not appear any
justification of creating a disparity among them under law.
As may be seen, wherever any certification work is to be carried out to claim certain
deductions under the Income Tax Act, it is but natural that the profession of Cost
Behind every successful business decision, there is always a CMA 67
Accountancy is granted equal statutory recognition to that of Chartered Accountancy.
Not doing so would amount to clear injustice [or being labeled as 'biased']. The
focus of this representation is to seek such rectification treating Cost Accountants at
par with the Chartered Accountants not only for purposes of Section 288 but more
particularly with reference to various certification works being carried out under
different provisions of the Act.
It is important to note that the term “accountant” as defined above has been used in
several other provisions under the Act, wherever a need has been felt to get the
accounts/data certified from an accountant. All these provisions have been examined
in-depth and it is seen that there is not even a single area where cost accountants
cannot be assigned "at par role as accountant" vis-à-vis the chartered
accountants. In fact, there are number of areas where cost accountant is more
competent to correctly certify and enable better tax compliance/assessment.
Detailed examination is given in Appendix-I. Verification of the authenticity of the
data filed by the assessee should be allowed to be certified by any professionally
qualified person viz. a chartered accountant or a cost accountant.
Recommendation by the Parliamentary Committee to include Cost Accountants in
the definition of 'accountant': On the issue of widening the definition of 'accountant',
the Standing Committee on Finance in Para 17.9 of its 49th Report of 15th Lok Sabha,
relating to "The Direct Taxes Code Bill, 2010" had said as under:
"The Committee observed that the Ministry's reasoning for non-inclusion of related
professionals in the definition of accountant is a very strict construction of the term.
In the view of the Committee, the suggested amendment may provide the Small and
Medium Enterprises (SMEs) a wider and cost effective scope for selection of
professionals and will be an important initiative towards simplified tax compliance
regime. The Ministry may therefore re-consider the suggestion to widen the scope of
the definition of “accountant”."
Though the DTC was not finally implemented, but the recommendation of the
Standing Committee to widen the scope of definition of 'accountant' under the Income
Tax Act is still relevant and needs to be reckoned.
Recognition at par under all other Statutes: It is important to note that while all
other tax related Central Statutes viz. the Central Excise Act, Customs Act, Finance
Acts relating to Service Tax, Wealth Tax Act, Estate Duty Act [both now repealed] and
all States VAT Acts recognize both cost accountants and chartered accountants
absolutely at par; it is only the Income Tax Act that has so far failed to give them equal
treatment. It may be further noted that even the proposed Goods and Services Tax
[GST] laws have provided for a fair, equitable and ‘at par’ treatment to both cost
68 Behind every successful business decision, there is always a CMA
accountants and chartered accountants in all areas relating to audit,
certification, etc. Hence, even after 65 years, there appears no reason to continue
with the same age-old definition of the term ‘accountant’ under the Income Tax Act
restricting its meaning to only the ‘chartered accountants’. We submit that this may
immediately be amended to include the cost accountants as well.
Computation of arm's length price under section 92: It may be noted that in case of
computation of arm's length price for transfer pricing, section 92C has prescribed six
methods. Of all these, three methods viz. cost plus method, profit split method, and
transactional net margin method require calculations based on the cost
accounting principles. These cases can be best computed and certified by a cost
accountant giving ease to the Transfer Pricing Officers to comfortably accept the
APAs. This would not only benefit the Assessees; serve best interest of the
Department; and also avoid unnecessary litigation. Unfortunately, here again, the
report required to be furnished under section 92E from an accountant [read with
Rule 10E & Form 3CEB] means only the 'chartered accountant'. This appears to be
blatantly wrong and is neither in the interest of the Department not the assessee.
Therefore, all cases relating to transfer pricing should, at best, be certified and
reported upon by the cost accountants.
Tax Audit under Section 44AB: Section 44AB of the Income Tax Act [introduced in
1984] provides that every person carrying on the business or profession [having
gross sales/receipts more than the specified limits] shall get his accounts audited by
an accountant, and furnish by the specified date the report of such audit in the
prescribed form duly signed and verified by such accountant and setting forth such
particulars as may be prescribed. It further provides that
in a case where such person is required by or under any other law to get his
accounts audited, it shall be sufficient compliance with the provisions of this
section if such person gets the accounts of such business or profession audited
under such law before the specified date and furnishes by that date the report of
the audit as required under such other law; and
a further report by an accountant in the form prescribed under this section.
It also specifies that for the purposes of this section "accountant" shall have the same
meaning as in the Explanation below sub-section (2) of section 288. That means the
chartered accountant only.
Rule 6G of the Income Tax Rules provides that the report of audit of accounts under
section 44AB shall be in Form No. 3CA for persons who are required to get their
accounts audited by or under any other law; and in Form No. 3CB in all other cases.
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Further, the particulars which are required to be furnished under section 44AB shall
be in Form No. 3CD that can be signed by any person authorized to sign either form
3CA of 3CB. There is no separate form prescribed under the Rules for the
'accountant' to give a further report.
In this connection, the following issues require your consideration:
a) Cost Accountants are allowed to undertake financial audit of cooperative
societies in certain States [all other States are in the process of amending
their laws]. Hence in such cases, they can also do tax audit and certify Form
3CA & 3CD. Then, why they cannot do tax audit in all other cases?
b) Tax audit is actually not an audit. All figures required to be furnished in
Form CD are based on the audit already done by the Financial Auditor.
Only requirement is to compute the data as required by the Tax Authorities
and certify its correctness. This can be easily done by the Cost Accountant
as well who is an equally competent 'accountant'.
c) In the best interest of the Department, it would be more prudent if the tax
audit of an entity is done by an accountant [i.e. by a cost accountant] other
than the chartered accountants who has already conducted the financial
audit of the same entity.
Recognition of 'Cost Accountant' by US Laws for doing financial audit of US-SEC
Listed Companies: In USA, there is an independent Public Company Accounting
Oversight Board [PCAOB] that was created through the Sarbanes-Oxley Act of 2002.
The PCAOB oversee the audits of public companies in order to protect investors and
the public interest by promoting informative, accurate, and independent audit
reports. As per the laid down provisions, any professional accounting/audit firm
intending to undertake statutory audit and US-SEC filing & attest functions of U.S.
companies or SEC listed companies require registration with PCAOB. This applies to
all firms practicing anywhere in the world. It would be important to note that
number of Indian CA firms as well as CMA firms is registered with the PCAOB. It
means that the Indian Cost Accountants' firms registered with the PCAOB are
permitted to undertake statutory financial audit of all US-SEC listed companies
operating anywhere in the world. Given so, it would appear irrational if the same
Cost Accountants are not permitted to undertake audit/certification work under
the Income Tax Act, 1961.
70 Behind every successful business decision, there is always a CMA
Proposed Amendment in Explanation below Section 288 of Income Tax Act, 1961
Keeping in view the brief facts mentioned above and detailed justification given
hereunder, we suggest that the said definition of “accountant” may be amended as
under:
“[Explanation.—In this section, "accountant" means a chartered accountant as
defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants
Act, 1949 who holds a valid certificate of practice under sub-section (1) of
section 6 of that Act, or a cost accountant as defined in clause (b) of sub-
section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of
1959) who holds a valid certificate of practice under sub-section (1) of
section 6 of that Act, but does not include [except for the purposes of
representing the assessee under sub-section (1)]—
(a) in case of an assessee, being a company, the person who is not eligible for
appointment as an auditor of the said company in accordance with the
provisions of sub-section (3) of section 141 of the Companies Act, 2013 (18 of
2013); or who is not eligible for appointment as auditor of the said
company in accordance with the provisions of sub-section (3) of section
148 of that Act;”
Detailed rationale for inclusion of “Cost Accountants” in the definition of
“Accountant”
a) Chartered Accountants Act was enacted in 1949 and the Income Tax Act was
enacted in 1961. At that time, sufficient numbers of only chartered
accountants, including many of pre-Independence era who all were
recognized under the 1949 Act, were available in the country. In 1961, there
was no cost accountant in practice in the country. Hence, the Income Tax Act
provided that the term 'accountant' to mean only the chartered accountant.
b) Further, to supplement the work of chartered accountants; to perform efficiency
analysis with a view to improve resource management and tax compliance [both
direct & indirect]; and on the same footing as of Institute of Chartered
Accountants of India, the Institute of Cost Accountants of India [erstwhile known
as the Institute of Cost & Works Accountants of India] was set up under the Cost
and Works Accountants Act enacted by the Parliament in 1959. Further, the
Companies Act, 1956 was amended in 1965 to include audit of cost accounting
records of the specified companies by the cost accountants in practice.
Consequently, the first cost accountant in practice came in 1966 and the first firm
of cost accountants was formed only in 1968. Since no fully qualified cost
Behind every successful business decision, there is always a CMA 71
accountant in practice was available in 1961; hence, they were not included in
the meaning of the term 'accountant' assigned under section 288 of the
Income Tax Act, 1961.
c) Acts & Regulations of the both the Institutes carry an identical provision to
allow its members to practice only the profession of accountancy. The
Regulations are issued in exercise of the powers conferred under the Act and are
notified and published in the official gazette and also laid in the Parliament.
Regulation 111 of the Cost and Works Accountants Regulations, 1959 says as
under:
"A Cost Accountant in practice shall not engage in any business or occupation other
than the profession of accountancy unless it is permitted by a general or specific
resolution of the Council."
Similarly, Regulation 190A of the Chartered Accountants Regulations, 1949 says
as under that is identical to above:
"A Chartered Accountant in practice shall not engage in any business or occupation
other than the profession of accountancy unless it is permitted by a general or
specific resolution of the Council."
It is clear that both Institutes allow their members to practice only the
profession of accountancy.
d) Both the professionally qualified accountants viz. Cost Accountant and Chartered
Accountant pass through the same course curriculum, pedagogy, and
practical training, so far as it relates to the domain areas of accountancy,
direct & indirect taxes, corporate laws, and audit. For your appreciation,
comparative status of the framework followed by the Institute of Cost
Accountants of India and Institute of Chartered Accountants of India is given in
Appendix-II. Cost Accountant, a competent professional comes in existence
after exhaustive exposure provided by the Institute through intensive
coaching, multi-level examinations, rigorous training and continuing
education programs.
e) It may be seen from the details given in appendix, syllabus of Cost Accountancy
include full papers on Corporate Laws, Financial Accounting, Direct Taxation,
Indirect Taxation, Auditing, and Financial Management wherein the students
are tested at an advanced level ['C' level] for their knowledge, comprehension,
application, analysis, synthesis, and evaluation. Thus, vast exposure is provided
to the Cost Accountants in the areas of accounts, audit & taxation, enabling
them to acquire proficiency in these domains. Further, before acquiring
72 Behind every successful business decision, there is always a CMA
Associate Membership, they have to undergo 3-years’ industrial, professional &
audit training, which in practical terms is more than the 3-years articleship
training prescribed for the chartered accountancy course in India. Similar
provisions with more stringent practice exposure in accounts, audit & taxation
exist for granting the Fellow Membership. This means, a Cost Accountant
possesses complete & in-depth knowledge of direct taxation, skill of doing
audit and the sufficient experience of accounting, audit and taxation.
f) Members of both the Institutes viz. the cost accountant and chartered
accountant are governed by exactly the same code of conduct and disciplinary
mechanism as enshrined in their respective Acts. Both are required to follow
the same level of professional ethics in public practice.
g) Large number of Central and State Statutes recognize both Cost Accountant
and Chartered Accountant absolutely at par in several professional areas of
accounting and audit, statutory audit of financial books of account,
certification based on examination of financial records, appearance before
statutory and quasi-judicial authorities, and recognition under several
provisions of Companies Act, 2013. Brief details are given in Appendix-III. As
already mentioned above, both cost accountants and chartered accountants are
already recognized at par under the Wealth Tax Act, Estate Duty Act [both now
repealed], Central Excise Act, Customs Act, and Finance Act. The proposed GST
laws have also provided for fair, equitable and ‘at par’ treatment to both cost
accountants and chartered accountants in all areas relating to audit,
certification, etc. Accordingly, there is ample justification to treat them at par
even under the Income Tax Act. It may be noted that Cost Audit Report is used
as an important document for tax assessments.
h) As per US Laws, any professional accounting/audit firm intending to undertake
statutory audit and US-SEC filing & attest functions of U.S. companies or SEC listed
companies require registration with their Public Company Accounting Oversight
Board [PCAOB] that was created through the Sarbanes-Oxley Act of 2002. This
applies to all firms practicing anywhere in the world. It would be important to
note that number of Indian CA firms as well as CMA firms is registered with
the PCAOB. It means that the Indian Cost Accountants' firms registered with
the PCAOB are permitted to undertake statutory financial audit of all US-SEC
listed companies operating anywhere in the world. Given so, it would appear
irrational if the same Cost Accountants are not permitted to undertake
audit/certification work under the Income Tax Act, 1961.
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i) Both the Institutes are represented on all the accounting or auditing standard
setting bodies in the country viz. National Advisory Committee on Accounting
Standards, Accounting Standards Board, Auditing & Assurance Standards Board,
Cost Accounting Standards Board, Cost Auditing & Assurance Standards Board,
etc. Both these qualifications are equally recognized by the Government of
India for entry into the Indian Cost Accounts Service and other senior positions
under different organizations. Similarly, both have equal recognition for all
middle/ senior level positions in the industry.
j) Both the Institutes have issued Accounting and Auditing Standards that are
binding on the Members in practice. Though all corporate entities follow these
standards, but the same are not relevant in the context of audit & certification
under the Income Tax Act/Rules. For this purpose, the Department has
already issued various Income Computation Disclosure Standards [ICDS] that
are binding for any professional performing functions as 'accountant'. On this
count, there appears no case for making any distinction among the cost
accountants and chartered accountants. It may be relevant to note that these
ICDS largely follow the cost accounting principles in determining the
admissibility of either revenues or expenses for finalizing the tax assessments.
A clear example lies in the inventory valuation. Comparative statement showing
linkage of ICDS with the Cost Accounting Standards is given at Appendix-IV.
k) Both these Institutes viz. Institute of Chartered Accountants of India and Institute
of Cost Accountants of India are founding members of all the international bodies
of accountants, viz., International Federation of Accountants (IFAC),
Confederation of Asian and Pacific Accountants (CAPA), and South Asian
Federation of Accountants (SAFA). Hence, internationally, both are equally known
as 'accountant'. It will not be proper to accord different treatment or
recognition under the Income Tax Act to the members of both these National
level Accounting Institutes set-up by the Parliament of India.
l) Globally, the term 'accountant' includes all accountants that are granted
professionally qualified degrees by their respective national accounting
bodies. Generally, no difference is made amongst them. In India, roots of
Income Tax Act, 1961 lies in the original Act enacted during the British period in
1922. Similar legislations were adopted by Pakistan. In UK, the Cost &
Management Accountants are recognized as 'accountants' at par with the
accountants qualified from other five national Accounting Institutes. In Pakistan &
Bangladesh [other two offshoots of erstwhile British India], the Cost Accountants
are treated at par as 'accountants' and also as 'auditors' under all Statutes
governing corporate law practice and taxation practice. The details are given in
74 Behind every successful business decision, there is always a CMA
Appendix-V. In the current era of globalization and WTO regime, where the
accountancy profession is gaining prime recognition all over the world, India
should follow the global good practices.
m) There are many Cost Accountants who have authored books on several related
subjects including financial accounting, cost accounting, direct & indirect taxation,
transfer pricing, auditing, internal audit, cost audit, financial management,
business valuation, etc. and many of these are used by the students of chartered
accountancy as well. A few of these authors and other CMA members also act as
expert faculties with the professional bodies and leading b-schools. Many cost
accountants have been members of important Committees of the Government.
CMAs also act as tax-advisers to large corporates. In short, the Cost Accountants
are not only highly skilled but fully equipped to handle special certification &
audit functions as envisaged under the Income Tax Act, 1961.
Judicial Ratios
What is an accountant? According to the Wikipedia, the free encyclopedia, and also
the Australian Accountants Directory they are, “a practitioner of accountancy or
accounting, which is the measurement, disclosure or provision of assurance about
financial information that helps managers, investors, tax authorities and others make
decisions about allocating resources” Therefore, as per the dictionary meaning as
well as in the legal parlance, both Cost Accountant and Chartered Accountant are
known as "Accountant" as well as "Auditor". In this context, the following
judgments are relevant:
Hon’ble Supreme Court upheld the decision of Mumbai High court and held
both Cost Accountants and Chartered Accountants as 'Accountant' under
section 61 of the Maharashtra Value Added Tax Act, 2002. Further, both are
recognized as 'Accountants' under the VAT Acts of 22 States & UTs of India.
[2008 14 STT 348, (2008) 14 VST 69 Bom]
o It may be noted that VAT audits are akin to the tax audit.
Hon'ble Karnataka High Court in W.A. No. 31061/2013 (CS) has ruled that
'Auditor' does not mean a person holding the degree of Chartered
Accountant under section 63 of the Karnataka Co-operative Societies Act,
1959 read with Article 243ZM of the Constitution of India.
o Writ Petition Nos. 2026-2031 of 2015 filed by the Karnataka State
Chartered Accountants in Karnataka High Court challenging the inclusion
of Cost Accountants and Cost Accountant Firms for Statutory Audit of
annual accounts of Cooperative Societies was dismissed on 29.03.2016.
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Provisions u/s 44AB [introduced in 1984] read with section 288 of the Income
Tax Act were challenged by various associations of Income Tax or Sales Tax
Practitioners in different High Courts and later in the Supreme Court. All these
Courts held that the tax practitioners cannot be covered under the meaning of
the term 'accountant'. Institute of Cost Accountants of India, being set-up by
an Act of Parliament, was never a party in any such case. Hence, there was
no view expressed by any Court in India that the Cost Accountants cannot
be called as 'accountant' within the meaning assigned under the Income
Tax Act, 1961. We are of the strong opinion that supplementary tax-audit
report under section 44AB of the Act signed by the cost accountants can
definitely throw significant tax related issues before the Tax Assessment
Officer enabling realization of higher tax revenue.
On the qualification of “Accountant” under the Income Tax Act 1961, the
Courts said that Audit is a specialized function by independent professional
with necessary qualification who should have qualified with specialized
subject of accountancy & auditing in the syllabus; and should have sufficient
training & skill to do audits. Income Tax audit also involves the compliance of
tax provisions in books of accounts & its authenticity that requires superior &
special qualifications possessed & recognized by law. Therefore, the Courts
held that the qualification of Chartered Accountants has been recognized by
law as a professional qualification of accountants whose syllabus has adequate
coverage of Accountancy & Audit and the Members are allowed to practice
after training & having gathered experience in skills of audit. Keeping the
Court observations in view and comparing the syllabus, pedagogy and
training requirements, both Cost Accountants and Chartered Accountants
qualify to be an Accountant and an Auditor under the Income Tax Act.
Summary/ highlights of the viewpoints & pronouncements of various Hon'ble Court
Judgments listing principles recognizing the qualification of 'Accountant' that equally
recognizes and applies to Cost Accountants is given in Appendix-VI.
Keeping in view the judicial pronouncements, there appears no reason of
assigning restricted meaning to the term 'accountant' to mean only a chartered
accountant under the provisions of Income Tax Act.
Adverse Impact of Monopoly by the Chartered Accountants
It is a well known fact that monopolistic and restrictive practices breed inefficiency,
complacency and corruption. Thus, allowing monopoly of all tax audits and various
certifications required under the Income Tax Act only to the Chartered Accountants is
neither in the best interest of the Department nor it benefits the assessee. In this
76 Behind every successful business decision, there is always a CMA
context, in its Report No. 32 of 2014 (Performance Audit), the Comptroller & Auditor
General of India had observed serious flaws in the existing practice of tax audit &
certification work performed by the Chartered Accountants under various provisions
of Income Tax Act, 1961. This has resulted in substantial loss of tax revenue to the
Government. Few examples of such flaws are:
In number of cases, serious inadequacies, or inaccuracies were observed in the
tax audit reports signed by the chartered accountants.
Similarly, in many cases, inadequate disclosures or omissions were observed.
In other cases, incomplete or non-committal comments were observed.
In many cases, chartered accountants who signed the audit
reports/certificates were relatives to the assessee or related to the directors of
the assessee company.
Many chartered accountants issued more than the prescribed limit of tax audit
reports. The C&AG report contains names of 22 CAs who signed more than 400
tax audit reports for AY 2013-14. One signed 2471 reports and another, 990
reports. This is fraught with serious quality of tax audits.
In no case, Department took any action against the erring chartered
accountants.
It is an accepted dictum that competition brings efficiency. In this context, it may
be noted that the Standing Committee on Finance in its Forth-Ninth Report (15th Lok
Sabha) had said that the Committee observe that the Ministry’s reasoning for non-
inclusion of related professionals in the definition of accountant is a very strict
construction of the term. In the view of the Committee, the suggested amendment may
provide the Small and Medium Enterprises (SMEs) a wider and cost effective scope for
selection of professionals and will be an important initiative towards simplified tax
compliance regime. The Ministry may therefore re-consider the suggestion to widen the
scope of the definition of “accountant”.
Therefore, allowing Cost Accountants to also undertake tax audit & certification
work under the Income Tax Act will surely bring in healthy competition that
would benefit the tax administration system as well as the assessees, especially
the MSME assessees.
Gist of the Proposal and Requests
Aforesaid details, read with additional details given in the appendices, provide
sufficient evidence to prove that both Chartered Accountants and Cost Accountants
are absolutely at par while assigning meaning to the term 'accountant'. Therefore,
there is enough rationale necessitating modification of Explanation below sub-section
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(2) of section 288 of the Income Tax Act, 1961 justifying need to include Cost
Accountants in the definition of term 'Accountant'. In our view, there is no reason as
to why Cost Accountants should not be included [among those who are eligible] to
function as 'accountant' under all other relevant provisions of Income Tax Act, 1961.
We are sure the above modification will greatly benefit the Department and CBDT in
correctly finalizing the tax assessments thereby resulting in much higher revenue to
the Government. This view was fully supported by the Standing Committee on
Finance. The expertise of Cost Accountants and use of cost management techniques in
valuation of inventory and Input/ Output analysis will ensure protection of revenue.
Meanwhile, if considered necessary, please give us an opportunity to place before
you the above in person through a slide presentation at your convenient date and
time. We are eagerly looking forward to your confirmation for a suitable date. For
this act, the entire CMA profession would be indebted to you.
Thanking you,
With regards,
Yours Sincerely
(CMA Manas Kumar Thakur)
President
Enclosed- As above
Copy to:
1. Shri Santosh Kumar Gangwar, Hon'ble Minister of State, Ministry of Finance,
Government of India, North Block, New Delhi
2. Shri Arjun Ram Meghwal, Hon'ble Minister of State, Ministry of Finance,
Government of India, North Block, New Delhi
3. Secretary, Department of Revenue, Ministry of Finance, Government of India,
North Block, New Delhi
4. Chairman, Central Board of Direct Taxes, Department of Revenue, Ministry of
Finance, Government of India, North Block, New Delhi
78 Behind every successful business decision, there is always a CMA
G:142:11:2015 23rd November 2015
Shri V Anandarajan, IAS
Joint Secretary to Government of India
Tax, Policy & Legislation – II
Central Board of Direct Taxes
Department of Revenue, Ministry of Finance
Room No 147-C, North Block
New Delhi – 110001
Subject: Request for inclusion of Cost Accountants within the meaning of ‘Accountant’ under
the Income Tax Act
Reference: Our letter number G:142:48:2015 dated 20th November 2015
Respected Sir,
We are thankful to you for extending warm reception and patient listening when we visited your office
on 20th November 2015. With reference to the discussion we had with you, we are attaching herewith
Office Memorandum No. 2/5/2009-PI dated 23rd December 2009 issued by the Ministry of Corporate
Affairs to the Ministry of Finance for considering the request of Institute for inclusion of Cost
Accountants within the meaning of ‘Accountant’ given in the explanation to sub-section 2 of section
288 of the Income Tax Act, 1961, when the Cost Accountants are already covered under clause (v) of the
same section for the same objective. In this regard, our representations dated 25th November 2009 to
the Hon’ble Minister of Corporate Affairs and dated 15th July 2009 to the Hon’ble Finance Minister are
attached herewith for your kind consideration.
As desired, copies of detailed syllabus prescribed by both the Institutes (The Institute of Cost
Accountants of India and The Institute of Chartered Accountants of India) relating to Direct Taxes are
enclosed. In addition, copies of the Cost and Works Accountants Act, 1959 and Chartered Accountants
Act, 1949 together with relevant regulations are enclosed for your kind appreciation that the
Disciplinary Framework for the Members is exactly the same under both Statutes.
Further, extracts of the relevant Central and State Statutes recognising Cost Accountants / Chartered
Accountants to undertake statutory audit / certification functions of concerned entities, are also
enclosed for your ready reference.
We shall be happy to provide any further information / clarification your office may require in this
regard.
Thanking you,
Yours faithfully,
(CMA P.V. Bhattad)
Copy to: Ms Pragya S. Saksena, IRS, Joint Secretary, TPL-I, CBDT, Dept. of Revenue, Ministry of Finance
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G:142:08:2015 5th August 2015
Ms. Anita Kapur, IRS
Chairperson,
Central Board of Direct Tax,
Department of Revenue,
Ministry of Finance, North Block
New Delhi - 110001
Sub: Contribution of CMAs in effective tax-governance
Respected Madam,
At the outset we express our infinite gratitude for appointment granted to us.
Needless to say, The Institute of Cost Accountants of India, is set up by an Act of Parliament. It
will not be out of place to mention that members of the Institute of Cost Accountants of India,
and members of the Institute of Chartered Accountants of India has been recognized at par by
the following ministries and enactment has been made for certification/audit as mentioned in
the relevant act/rules:
1. Ministry of Finance, Department of Revenue- Central Excise, Customs, Service Tax and
litigation matters thereof.
2. Ministry of Corporate Affairs all work other than financial audit and cost audit.
3. Ministry of Finance - SEBI, NSDL
4. Compliance Audit of RBI
5. Ministry of commerce AND industries - all certifications in foreign trade policy
6. Ministry of Telecommunication - TRAI
7. State Governments - VAT Audit
8. Co-operative Audit/Special Audit
9. Central Electricity Regulatory Commission (CERC)
Detailed list is enclosed herewith.
It will not be out of place to mention the syllabus of our Institute is focusing for indepth study in
the fields of accountancy, taxation (direct - 150 marks and indirect - 150 marks) and both the
Institutes have got the same weightage and the same has been revised to the extent of 400
marks by both the Institute. In other words, focus on taxation and accounting in the syllabus of
the Institute of Chartered Accountants of India and Institute of Cost Accountants of India is the
same. Rather, our Institute focuses more on the issues with respect to costing and valuation
which is very important to detect diversion of profits/evasion of taxes.
Behind every successful business decision, there is always a CMA 91
The Cost Audit specifically provides for reconciliation between financial accounts and cost
accounts which reveals and focuses on abnormal cost and abnormal expenses which has been
accounted in financial accounts. Fortunately, cost audit is required to be enclosed with tax audit
report and observations of cost auditor also need to be given in the tax audit. We really
appreciate the focus of your department giving value to the professional knowledge of our
members.
In this connection, let us draw your kind attention on our various representations made
suggesting the changes required in Income Tax Act,1961 incorporating the changes of definition
of Accountant u/s 288(2)(iv) in line with the recommendations of the Direct Tax Code,2013,
which was also approved by the Parliamentary Standing Committee on Finance. Detailed
representation is enclosed herewith once again.
Proposed amendment of the Definition of “Accountant” vide Clause (iv) of sub-Section (2)
Section 288 of the Income tax Act, 1961
Sec. 288(2)(iv-v) of Income tax Act, 1961 “accountant” - means
“a Chartered Accountant within the meaning of Chartered Accountants Act, 1949 (38 of1949),
or a cost accountant within the meaning of the Cost & Works Accountants Act, 1959”
We would like to be associated and work jointly with you for nation building and suggesting
guidelines on avoidance of leakage of revenue. Further, we will also facilitate in implementation
and increase effectiveness in tax administration with the object of ease of doing business but
without compromising on statutory tax collection mechanism.
Thanking you,
Yours faithfully,
(CMA P.V. Bhattad)
92 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 93
94 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 95
96 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 97
98 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 99
100 Behind every successful business decision, there is always a CMA
Behind every successful business decision, there is always a CMA 101
Annexure - II
Comparative Study of CMA Syllabus 2022 with CA New Scheme
102 Behind every successful business decision, there is always a CMA
Comparative Study of CMA Syllabus 2022 with CA New Scheme
Foundation Level
CMA - 2022 CA ( New Scheme)
CMA Paper No. CA Paper No.
(Marks Allocation) (Marks Allocation)
A. Fundamentals of Business Laws (80) and
Paper 1 B. Fundamentals of Business Communications (20) Paper 2 Business Laws (100)
A. Fundamentals of Financial (70)
Paper 2 B. Cost Accounting (30) Paper 1 Accounting (100)
Quantitative Aptitude (40)
A. Fundamentals of Business Mathematics (40) Business Mathematics
Paper 3 B. Fundamentals of Business Statistics (60) Paper 3 Logical Reasoning (20)
Statistics (40)
A. Fundamentals of Business Economics (70)
Paper 4 Paper 4 Business Economics (100)
B. Fundamentals of Management (30)
Comparative Study of CMA Syllabus 2022 with CA New Scheme
Intermediate Level
Page 1 of 6
CMA – 2022 CA( New Scheme)
CMA Paper No. CA Paper No.
(Marks Allocation) (Marks Allocation)
Intermediate: Group – I
Business Laws and Ethics
Business Laws (30)
Industrial Laws (15)
Paper 5 Paper 2 Corporate Laws (100)
Corporate Laws (40)
Business Ethics (15)
Financial Accounting
Fundamentals (15)
Special Transactions (10)
Paper 6 Financial Statements (20) Paper 1 Advanced Accounting (100)
Partnership (20)
Lease, Branch and Departmental (15)
Accounting Standards (20)
Taxation
Direct Taxation (50)
Paper 7 Paper 4 A. Direct Tax
Indirect Taxation (50)
B. Indirect Tax
Cost Accounting
Introduction (40) Cost and Management Accounting
Paper 8 Paper 3
Methods of Costing (30) and (100)
Techniques (30)
Page 2 of 6
Behind every successful business decision, there is always a CMA 103
Intermediate: Group – II
Operations Management (60) and Paper 6B Strategic Management
Paper 9 Paper 7
Strategic Management (40) (50)
Paper 5
Corporate Accounting (50) and
Paper 10 Auditing and Ethics (100)
Auditing (50)
Financial Management (80) Paper 6A Financial Management
Paper 11 Paper 8
Business Data Analytics (20) (50)
Management Accounting
Introduction (5)
Activity Based Costing (10)
Decision Making Tools (30)
Paper 12 Standard Costing and Variance Analysis (15) Paper 4 Cost and Management Accounting
Forecasting, Budgeting and Budgetary Control (15)
Divisional Performance Management (10)
Responsibility Accounting (5)
Decision Theory (10)
Notes:
1. Compulsory Tutorial Workshops have been included in CMAS for total forty-four hours after completion of Intermediate level. The objective is to enhance
and reinforce application orientations in delivery of knowledge for augmentation of skills. Workshops of four hours have specifically been dedicated for
Research Methodology which would help students for learning all subjects. The balance forty hours have been allocated for workshops on six different
Papers of Final Level. All these would be delivered by leaders from Industry.
2. CMAs in addition to all these have provisions for the following Schedule of Mandatory Skill Training Programs on completion of which separate
Certificates will jointly be issued by ICIA-CMA and respective training service providers for the first four items:
Intermediate Level
A. SAP Financial Power User (60 Hours) – This training facility is not there in CA
B. Microsoft Office (40 Hours)
C. E Filing (20 Hours)
D. Cambridge University Press Soft Skills (20 Hours)
Intermediate and Final Levels: Practical Training (15 Months) Page 3 of 6
Final Level: Industry Oriented Training Program (7 Days)
3. The Institute of Chartered Accountants of India has introduced the following Online Modules for Self-Paced Study by students. While this method of
training students and extent of effective learning impacts thereof is subject to debate, for CMAS this method has not been adopted in this round of syllabus
review.
Compulsory Online Modules
Set A: Corporate and Economic Laws
Set B: Strategic Cost and Performance Management
Optional Online Modules – Students will have to choose one of the Modules each from Set C and Set D as detailed below
Set C: Subjects which are stated to be globally for positioning CA qualification as a Global qualification:
1. Risk Management
2. Sustainable Development and Sustainability Reporting
3. Public Finance and Government Accounting
4. The Insolvency and Bankruptcy Code, 2016
5. International Taxation
6. The Arbitration and Conciliation Act, 1996
7. Forensic Accounting
8. Valuation
9. Financial Services and Capital Markets
10. Forex and Treasury Management
Set D: Towards developing inherent traits of CA students and incorporating multi-disciplinary approach envisaged in NEP, 2020
1. The Constitution of India & Art of Advocacy
2. Psychology & Philosophy
3. Entrepreneurship & Start-Up Ecosystem
4. Digital Ecosystem and Controls
4. CMAs have introduced ‘Cost and Management Accountant’s Learning Objectives (CMLOs) to which the Subject Leaning Objectives (SLOBs) of the
Paper converge. SLOBs have been crafted based on learning objectives converging from each Module of the Paper. Learning outcomes and application
skills have also been defined for each Paper. Specific taxonomies would be used while setting Question Papers and evaluating answer books of students
with the objective to assess to what extent learning objectives have been fulfilled and outcomes are perceivable in students’ answers. CA, however, has a
prescribe ‘Skill Assessment Specification Grid’ comprising of ‘Skill Levels’, ‘Comprehension & Knowledge’, ‘Analysis & Applications’ and ‘Evaluation
and Synthesis)
Page 4 of 6
104 Behind every successful business decision, there is always a CMA
Comparative Study of CMA Syllabus 2022 with CA New Scheme
Final Level
CMA – 2022 CA (New Scheme)
CMA Paper No. CA Paper No.
(Marks Allocation) (Marks Allocation)
Final: Group – I
Strategic Financial Management
A. Investment Decisions (25)
B. Security Analysis and Portfolio Management (35)
Paper 14 Paper 2 Advanced Financial Management (100)
C. Financial Risk Management (20)
D. International Financial Management (15)
E. Digital Finance (5)
Direct Tax Laws and International Taxation
Direct Tax Laws & International
Paper 15 A. Direct Tax Laws (60) Paper 3
Taxation
B. International Taxation (40)
Final: Group – II
Paper 17 Cost and Management Audit Paper 3 Advanced Auditing and Professional
A. Cost Audit (50) Ethics (100)
B. Management Audit (25)
C. Internal Control, Internal Audit, Operational Audit (15)
D. Forensic Audit and Anti-Money Laundering (10)
Paper 18 Corporate Financial Reporting Paper 1 Financial Reporting (100)
A. Indian Accounting Standards (25)
B. Valuation of Shares and A&R of Financial Investments (15)
C. Accounting for Bus. Combination and Restructuring (20)
D. Consolidated and Separate Financial Statements (20)
E. Recent Developments in Fin. Reporting (10)
F. Government Accounting in India (10)
Paper 19 Indirect Tax Laws and Practice Paper 8 Indirect Tax Laws
CMA – 2022 CA (New Scheme) Page 5 of 6
CMA Paper No. CA Paper No.
(Marks Allocation) (Marks Allocation)
Paper 20 20A. Strategic Performance Management and Business Valuation Paper 6 Integrated Business Solutions (Multi-
(Elective Papers) 20B. Risk Management in Banking and Insurance disciplinary case study with Strategic
20C. Entrepreneurship and Startups Management (100)
Note:
CA-P has introduced Self-paced online
study for two mandatory and two
optional Papers as have been detailed in
page 4 above. Accordingly, it has reduced
two subjects from the Final Level of the
Curriculum.
*******
Page 6 of 6
Behind every successful business decision, there is always a CMA 105
Annexure - III
Detailed list of areas of practice for Cost Accountants
106 Behind every successful business decision, there is always a CMA
Institute of Cost Accountants of India
Annexure III
IX
List of practice areas for Cost Accountants to undertake Statutory Audits,
provide Certifications, etc. and Appear before the Statutory and Quasi-
Judicial Authorities
*****
Statutory Financial Audits
Statutory Financial Audit of co-operative societies under the respective Co-operative
Societies Act of Maharashtra, Karnataka, West Bengal, and Himachal Pradesh [other
states are in the process of amending their Co-operative Societies Act]
o Karnataka High Court in W.A. No. 31061/2013 (CS) has ruled that 'Auditor'
does not mean a person holding the degree of Chartered Accountant.
o Karnataka High Court in W.P. No. 2026-2031 of 2015 (CS-RES) has further ruled
that auditing the accounts of a co-operative society is not the exclusive
domain of Chartered Accountants.
Internal Audit/Concurrent Audit and other Audits
Statutory Internal Audit of all companies mandated under Section 138 of the
Companies Act, 2013, including Central PSUs, State PSUs and Co-operative Societies.
Internal audit of Stockbrokers, Trading/Clearing members, Credit Rating Agencies
and Registrars to an Issue / Share Transfer Agents (RTAs) as prescribed by Securities
& Exchange Board of India (SEBI).
Share Reconciliation Audit of Issuer Companies under Section 76(1) of the Securities
& Exchange Board of India (SEBI) (D&P) Regulations, 2018.
Internal Audit and Concurrent Audit of Depository operations under National
Securities Depository Ltd.
Concurrent Audit of National Health Mission (NHM) and National Aids Control
Organization (NACO) empowered by the Ministry of Health & Family Welfare.
Concurrent Audit/Internal Audit under the Model Concession Agreement (MCA) of
infrastructure for PPP Projects in Highways empowered by the Ministry of Road
Transport and Highways.
Billing and Metering Audit and Accounting Separation Audit of Telecom Service
Providers mandated by Telecom Regulatory Authority of India (TRAI).
Page 1 of 11
Behind every successful business decision, there is always a CMA 107
Institute of Cost Accountants of India
Audit of Digital Addressable System in accordance with the regulatory framework for
digital addressable systems comprising of the “Telecommunication (Broadcasting and
Cable) Service Interconnection (Addressable Systems) Regulations, 2017,
“Telecommunication (Broadcasting and Cable) Services Standards of Quality of Service
and Consumer Protection (Addressable Systems) Regulations, and
“Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable
Systems) Tariff Order, 2017.
Concurrent Audit, Stock Audit, Receivables Audit, Internal Audit, etc. of all Public and
Private Sector Banks.
Commercial Audit of State PSUs under the directions of Principal-Director,
Commercial Audit, Maharashtra.
Stock Audit for Working Capital Finance prescribed by National Bank for Agriculture
and Rural Development (NABARD).
Audit as prescribed under the Central Electricity Regulatory Commission (Procedures
for calculating the expected revenue from tariffs and charges) Regulations, 2010.
Audit of the SEZ Developer as may be directed by Commissioner of Customs/Central
Excise. (Circular No. 52/2002-Customs dated 14th August, 2002)
Computation of freight of time chartered/daughter vessel and its inclusion in the
assessed value as extended cost of transportation [Circular No.04/2006 dated 12th
January, 2006]
Statutory Special Audits under Tax Laws
Inventory Valuation by Cost Accountants under Section 142 (2A) of the Income Tax
Act, 1961
Statutory Special Audit of the Financial Accounts, Records & Indirect Taxes under the
following Tax laws (some of these provisions have been later modified)
o Special Audit under Section 66(1) of Central Goods & Service Tax Act, 2017 –
CMA will have access to all business records under Section 71
o Special Audit Section 14A & 14AA of the Central Excise Act 1944
o Audit of Service Tax Section 72A inserted by Finance Act, 2012
o Special Audit under Section 11 of the Customs Act, 1962.
Statutory VAT Audit under Value Added Tax Acts of all States & UTs
o Hon’ble Supreme Court upheld the decision of Mumbai High court and held Cost
Page 2 of 11
108 Behind every successful business decision, there is always a CMA
Institute of Cost Accountants of India
Accountant as 'Accountant' U/S 61 of The Maharashtra Value Added Tax Act.
Cost Accountants are recognized as 'Accountants' under the VAT Acts of 22 States
of India. (Now repealed)
Certification based on the examination of Financial Records
Certification of average annual turnover of the Bidder as per Annexure 9:
Prequalification criteria of Manual for procurement of Goods 2017 issued by
Department of Expenditure, Minister of Finance.
Certification of Form-I Annual Performance Report for Units under Rule 22 (Terms
and conditions for availing exemptions, drawbacks and concessions) of Special
Economic Zones Rules, 2006 as per Special Economic Zones (2nd Amendment) Rules,
2019 notified by the Ministry of Commerce and Industry on 7.3.2019.
Half-yearly certificate regarding utilization of goods and services by the Developer
under Rule 12(7) of Special Economic Zones Rules, 2006 as amended by the Ministry
of Commerce and Industry vide notification dated 19th September 2018.
Certification of Annual Performance Report under Foreign Trade Policy since 2007.
All Certificates under Foreign Trade Policy & Procedures 2015-20 (as amended) and
Aayat Niryat (Import and Export) Forms (ANF).
Certification of Form ANF-3B for claiming Services Exports from India Scheme (SEIS)
benefits under Foreign Trade Policy 2015-2020 as amended by Directorate General of
Foreign Trade (DGFT).
Certification for Local Content vide Ministry of Commerce and Industry Order No. P-
45021/2/2017-B.E.-II dated 15th June, 2017 on Public Procurement (Preference to
Make in India) Order, 2017.
Certifying Proforma CI & C2 and Statement of Cost of Production under Anti-Dumping
as prescribed by the Ministry of Commerce & Industry.
Following Certificates under the Customs Act, 1962
o For duty paid on materials used for manufacture of exported goods as required
under Forms DBK-I, II, IIA, III, IIIA under the Customs Act, 1962
o Certifying that burden of 4% CVD [i.e. SAD] has not been passed on by the
importer to any other person
o For refund of additional duty of Customs on the goods imported for
subsequent sale under Indian Customs Act
Page 3 of 11
Behind every successful business decision, there is always a CMA 109
Institute of Cost Accountants of India
o To claim drawback under the Fixation of brand rate of Drawback without pre-
verification - Simplified procedure Scheme
Certificate towards the authenticated figures of circulation, as per the Annexure XII of
the DAVP guidelines representing a statement signed by both publisher and Cost
Accountant with their official seals giving the details of newsprint and ink stored and
consumed during the period.
All certificates prescribed by the Fertilizer Industry Coordination Committee (FICC)
in respect of product wise status of production, dispatches & stock; cost data for
subsidy scheme, transportation claims, escalation claims, and equalize freight claims
Certificates in Form-I to VI prescribed by the National Pharmaceutical Pricing
Authority under Drugs (Prices Control) Order, 1995;
Certifying half yearly return in Form ‘N’ for Quantity of Rubber purchased &
consumed by manufacturers under rule 33 (f) of the Rubber Rules, 1955 (now
omitted)
Certificate of fulfillment of Hank Yarn obligation for Textile Industry and Textile
Committee Cess – Monthly Return in Form – A authorized by Ministry of Textiles.
Certification of Surveyor and Loss Assessor License Application [and renewal
thereof] under Insurance Regulatory and Development Authority (IRDA)
Issue of e-Mudra Digital Certificates under e-Mudra Scheme of Ministry of Finance
Certification of various forms prescribed under the Central Electricity Regulatory
Commission (CERC) and State Electricity Regulatory Commissions (SERCs)
Valuation Certificate for Foreign Direct Investment (FDI) in Limited Liability
Partnership (LLP) under Master Circular No. 15/2014-15 dated 1st July, 2014
Valuation Certificate under Notification No. FEMA.298/2014-RB: Foreign Exchange
Management (Transfer of Issue of Security by a Person Resident Outside India) (Third
Amendment) Regulations, 2014 dated 13th March, 2014
Central Board of Indirect Taxes and Custom included Cost Accountant for providing
assistance in the audit (Para 6) in the Notification No 45/2018-Customs (N.T.) dated
24.5.2018 on Custom Audit Regulation 2018.
Central Board of Indirect Taxes & Customs issued Circular No.33/2018 dated
19.9.2018 authorizing Cost Accountants to provide the certificates on sanction of
pending IGST refund claims where records have not been transmitted from the GSTN
to DG systems.
Page 4 of 11
110 Behind every successful business decision, there is always a CMA
Institute of Cost Accountants of India
Annual utilization certificate under Incentive Scheme for New Sugar Factories and
Expansion Projects vide Notification No. F.3 (4)/89-PC/Vol.IV dated 28th February,
1997 of Ministry of Consumer Affairs, Food, & Public Distribution.
Bureau of Indian Standards included Cost Accountants for the purpose of
authentication of production statement in the Guidelines for Renewal of Licence
(RoL) as per the conformity assessment Scheme–I of Schedule–II of BIS (Conformity
Assessment) Regulations, 2018.
Certifying Annual returns and all e-forms filed by Companies with the Ministry of
Corporate Affairs.
Recognition by Reserve Bank of India (RBI) & Indian Banks Association (IBA)
Valuation Certificate as per RBI Circular No.2006-2007/224 DBOD. BP. BC No. 50 /
21.04.018/ 2006-07 dated January 4, 2007 for valuation of different classes of assets
(e.g. land and building, plant and machinery, agricultural land, etc.)
Certification of borrowal companies in respect of Lending under Consortium
Arrangement/ Multiple Banking Arrangements. (Circular No. RBI/2008-2009/379
DBOD. No. BP.BC.110/08.12.001/2008-09 dated 10th February, 2009).
Certification in respect of Loans and Advances – Statutory and Other Restrictions for
Lending under Consortium Arrangement/Multiple Banking Arrangement (Circular no.
RBI/2014-15/64 DBOD.No.Dir.BC. 16/13.03.00/2014-15 July 1, 2014).
Certification in respect of Guarantees, Co-Acceptances & Letters of Credit – Urban Co-
operative Banks (UCBs) (Circular no. RBI/2013-14/19 UBD.BPD.(PCB) MC
No.4/09.27.000/2013-14 July 1, 2013).
Certificate indicating fair price of capital contribution/profit share of an LLP and a
valuation certificate - Foreign Direct Investment (FDI) in Limited Liability Partnership
(LLP) (Circular no. RBI/201314/566 A.P. (DIR Series) Circular No. 123 dated April 16,
2014).
Certification in respect of Management of Advances – UCBs for Exchange of
information – Lending under Consortium Arrangement/Multiple Banking
Arrangements (Circular No. RBI/2014-15/21 UBD.BPD.(PCB) MC
No.5/13.05.000/2014-15 July 1, 2014).
Valuation Certificate in respect of Foreign Exchange Management (Transfer of Issue
of Security by a Person Resident Outside India) (Third Amendment) Regulations, 2014
(Notification No. FEMA.298/2014-RB: dated 13th March, 2014).
Page 5 of 11
Behind every successful business decision, there is always a CMA 111
Institute of Cost Accountants of India
Valuation certificate in the Gazette Notification dated 7th November, 2017 No. FEMA
20(R)/ 2017-RB Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations, 2017.
As per RBI/2017-18/194 A.P (DIR Series) Circular No. 30 dated June 07, 2018 on
Foreign Investment in India - Reporting in Single Master Form addressed to All
Category–I Authorized Dealer Banks.
Compliance Certificate mandated by the Reserve Bank of India (RBI) for Scheduled
Banks/ Urban Development Banks/ Urban Co-operative Banks in respect of lending
under the Consortium Arrangement/ Multiple Banking Arrangements
Certification of Annexure B for claiming of agency commission as per Circular No
RBI/2019-20/21 DGBA.GBD.No.5/31.02.007/2019-20 dated July 31, 2019 .
Regulation 11 of the Foreign Exchange Management (Transfer or Issue of Security by
a Person Resident Outside India) Regulations, 2017 authorizes Cost Accountant for
valuation on an arm’s length basis as per pricing methodology of Purchase/ Sale of
capital instruments of a listed Indian company on a recognized stock exchange in
India by Foreign Portfolio Investors (Schedule 2); and Investment in a Limited
Liability Partnership (LLP) (Schedule 6).
RBI mandated that in respect of all borrowing arrangement exceeding Rs. 500 crores,
an Independent Evaluation Committee (IEC) would carry out evaluation of the
Techno-Economic Viability (TEV) and proposed Restructuring Package. IBA
mandated that every IEC would include a Cost Accountant.
IBA recognized Firms of Cost Accountants for Empanelment as Forensic Auditor for
frauds and accordingly advised all its member Banks.
IBA advised all members Banks to engage Cost Accountants/Firms of Cost
Accountants for Stock Audit and Risk Based Internal Audit and other Banking
operations.
Appearance before the Statutory and Quasi-Judicial Authorities
Companies Act, 2013 –
o Right to legal representation: Section 432 of the Companies Act 2013
o Rights of a party to appear before the Bench: Regulation 19(2) of Company
Law Board Regulations, 1991
Central Excise & Customs - Appearance by Authorised Representative
o Section 35Q of the Central Excises Act, 1944
Page 6 of 11
112 Behind every successful business decision, there is always a CMA
Institute of Cost Accountants of India
o Section 146A of the Customs Act, 1962
o Rule 2(c) of the Customs, Excise and Gold (Control) Appellate Tribunal
(Procedure) Rules, 1982
Central Electricity Regulatory Commission (CERC) - Authority to represent before the
Commission vide Notification No. 8/(1)/99/CERC dated 27th August, 1999
The Competition Commission of India (CCI):
o Appearance before the Commission: Section 35 of the Competition
(Amendment) Act, 2007
o Right to legal representation: Appeal to the Appellate Tribunal: Section
53(1) of the Competition (Amendment) Act, 2007
Income Tax Act, 1961 - Appearance by Authorized Representative: Section 288 of the
Income Tax Act 1961 read with Rule 50 of the Income Tax Rules 1962
Securities Exchange Board of India (SEBI) - Right to Legal Representations: Clause
22C under Conditions for listing: Chapter IV of Listing of Securities
CGST Act - Appearance by authorized representative under Section 116 of Central
Goods & Services Tax Act, 2017
Right to Legal Representations: Section 23C, Explanation (c) of Depositories Act,
1996
Special Economic Zone (SEZ) - Rights of appellant to appear before the Board: Rule 61
of the Special Economic Zone Rules 2006
Telecom Regulatory Authority of India (TRAI) - Right to Legal Representation before
Appellate Tribunal as per Section 17 of TRAI Act, 1997
Rights of appellant to appear before the Board: Rule 61 of the Special Economic Zone
Rules 2006
Right to legal representation under8 Section 56 of the Real Estate (Regulation and
Development) Act, 2016.
Certification & other Opportunities under the Companies Act, 2013
Section 2(38): An expert who has the power or authority to issue a certificate in
pursuance of any law for the time being in force.
Section 7(1)(b): Declaration in Form no. INC-8 certifying that the memorandum and
articles of association have been drawn up in conformity with the provisions of
section 4 & 5 and rules made thereunder and that all the requirements of Companies
Page 7 of 11
Behind every successful business decision, there is always a CMA 113
Institute of Cost Accountants of India
Act 2013 and the rules made thereunder in respect of registration and matters
precedent or incidental thereto have been complied with.
Sections 7(1)(c), 168 & 170(2) and Rule 17 of the Companies (Incorporation)
Rules 2014 and Rules 8, 15 & 18 of the Companies (Appointment and Qualification of
Directors) Rules, 2014 - Particulars of appointment of Directors and the Key
Managerial Personnel and the changes among them in form no. DIR-12.
Section 8: Declaration in Form INC-14 that the memorandum and articles of
association have been drawn up in conformity with the provisions of section 8 and
rules made thereunder and that all the requirements of the Act and the rules made
thereunder relating to registration of the company under section 8 and matters
incidental or supplemental thereto have been complied with.
Section 10A read with Rule 23A of the Companies (Incorporation) Rules, 2014 -
Declaration in Form INC-20A at the time of commencement of business.
Section 12(2) & (4) and Rule 27 of the Companies (Incorporation) Rules 2014 -
Notice of situation or change of situation of registered office in form no. INC 22.
Section 39(4) and 42 (9) and Rule 12 and 14 Companies (Prospectus and
Allotment of Securities) Rules, 2014- Return of Allotment in form no. PAS 3.
Section 64(1) and Rule 15 of the Companies (Share Capital & Debentures) Rules,
2014 - Notice to Registrar of any alteration of share capital in form no. SH 7.
Sections 71(3), 77, 78 & 79 and Rule 3 of The Companies (Registration of charges)
Rules 2014 - Application for registration of creation or modification of charge for
debentures or rectification of particulars filed in respect of creation or modification of
charge for debentures in form no. CHG 9.
Sections 77, 78 and 79 and Rule 3(1) of the Companies (Registration of Charges)
Rules 2014 - Registration of creation, modification of charge (other than those related
to debentures) including particulars of modification of charge by Asset Reconstruction
Company in terms of Securitization and Reconstruction of Finance Assets and
Enforcement of Securities Act, 2002 (SARFAESI) in form no. CHG 1.
Section 82(1) and Rule 8(1) of the Companies (Registration of charges) Rules 2014-
Particulars of satisfaction of charges thereof in form no. CHG 4.
Section 117(1) - Filing of resolutions and agreements to the Registrar in form no.
MGT 14.
Section 137 – Filing of Financial Statements to the Registrar in form no. AOC-4.
Page 8 of 11
114 Behind every successful business decision, there is always a CMA
Institute of Cost Accountants of India
Section 143: Report to the Central Government if a fraud is being or has been
committed against the company by officers or employees of the company.
Section 149 (4) read with Rule 5 of the Companies (Appointment and Qualification
of Directors) Rules, 2014: Independent Director Possess skills, experience, and
knowledge in one or more fields, inter alia finance, to be an Independent Director.
Section 153 and Rule 9(1) of The Companies (Appointment and Qualification of
Directors) Rules, 2014 & Rule 10 of Limited Liability Partnership Rules, 2009: Digital
verification of the Form DIR-3: Application for allotment of Director Identification
Number.
Section 196 & 197 and Schedule V of the Companies Act, 2013 and Rule 3 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 -
Return of appointment of key managerial personnel in form no. MR-1.
Section 196, 197, 200, 201(1), 203(1) and Schedule V & Rule 7 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules 2014- Form of
application to the Central Government for approval of appointment and
remuneration or increase in remuneration or waiver for excess or over payment to
Managing Director or Whole Time Director or Manager and commission or
remuneration to Directors in form no. MR-2.
Section 232(7): Declaration of compliance alongwith Statement to be filed with
Registrar of Companies.
Section 259(1): Appointment as Company Administrator by the tribunal.
Section 275(1): Appointment as Company liquidator for winding up of the Company.
Section 366: Application by a company for registration in Form No. URC-1
Section 409(3): Appointment as Technical person of Tribunal.
Section 432: Appearance in the Tribunal for public examination of promoters/
directors.
Section 455(1) read with Rule 3 of the Companies (Miscellaneous) Rules, 2014–
Application to Registrar for obtaining status of dormant company in form no. MSC 1.
Section 455(5) and Rule 7 and 8 of the Companies (Miscellaneous) Rules, 2014-
Return of dormant companies in form no. MSC 3.
Rule 5(2) of Nidhi Rules, 2014 - Return of statutory compliances in form no. NDH 1.
Rule 5(3) of Nidhi Rules, 2014 - Application for extension of time in form no. NDH 2.
Page 9 of 11
Behind every successful business decision, there is always a CMA 115
Institute of Cost Accountants of India
Rule 21 of Nidhi Rules, 2014 - Half yearly return in form no. NDH 3.
Rule 8(8) of Companies (Registration Offices and Fees) Rules, 2014: Documents or
form or application filed may contain a power of attorney issued to Cost Accountant.
Rule 12 (1) of the Companies (Appointment and Qualification of Directors) Rules,
2014 - Intimation of change in particulars of Director to be given to the Central
Government in form no. DIR 6.
Rule 12(2) of the companies (Registration offices and Fees) Rules, 2014 - Form for
filing an application with Registrar of Companies in form no. GNL 1.
Rule 12(3) of the Companies (Registration offices and Fees) Rules, 2014 - Particulars
of person(s) or key managerial personnel charged or specified for the purpose of
sub-clause (iii) or (iv) of clause 60 of Section 2 in form no. GNL 3.
Rule 20(3)(ix) of the Companies (Management and Administration) Rules, 2014:
Scrutinizer for supervising the Voting through electronic means (e-voting) process.
Rule 31 of Companies (Incorporation) Rules, 2014- Notice of the order of the Court
or any other competent authority in form no. INC 28.
Recognition in other capacities - Insolvency Professional, Registered Valuer, Arbitrator,
E-Return Intermediary, etc.
Insolvency Professional under section 206 and 207 of the Insolvency and
Bankruptcy Code, 2016 read with Regulation 5 and 9 of the Insolvency and
Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.
Registered Valuer under Annexure IV of the Companies (Registered Valuers and
Valuation) Rules, 2017 for valuation of Securities or Financial Assets.
“Valuer” in respect of financial valuation under the Securities and Exchange Board of
India (Infrastructure Investment Trusts) Regulations, 2016 and Securities and
Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014
(Notification No. SEBI/LAD/NRO/GN/2016-17/021 dated 30.11.2016).
“Valuer” under Rule 5 of Customs valuation (Determination of Value of Export Goods)
Rules, 2007.
“Arbitrator” and as “Financial Expert” under the Arbitration & Conciliation
(Amendment) Act 2019.
“E-Return Intermediary” under Income Tax Act, 1961 vide Central Board of Direct
Taxes (CBDT) Notification no. S.O. 2670(E) and also by the National Securities
Depositories Limited.
Page 10 of 11
116 Behind every successful business decision, there is always a CMA
Institute of Cost Accountants of India
Certified Facilitation Centers (CFCs) – under ACES-CBEC Scheme: As per MOU
with CBEC, Ministry of Finance, Cost Accountants in whole-time practice are
authorized to set up Certified Facilitation Centers (CFCs) under Certified Facilitation
Centre Scheme in filing various Excise and Service Tax Returns under the provisions
of Central Excise Act and Service Tax Act.
Member of Fee Regulating Authority under Maharashtra unaided Private Professional
Educational (Regulation of Admissions and Fees) Act, 2015.
Central Board of Excise and Customs (CBEC) amended Customs Brokers Licensing
Regulations, 2013 and included Cost Accountant qualification for Customs Brokers
Examination to be held from the year 2017 onwards.
Recognition by International Financial Services Centre Authority (IFSCA)
The International Financial Services Centre Authority (IFSCA) vide its notification
dated 4th January, 2022 has authorized Cost Accountants to certify the networth
certificate of IFSC insurance intermediary office (IIIO) under the International
Financial Services Centres Authority (Insurance Intermediary) Regulations, 2021 and
also to certify that all the requirements of the International Financial Services Centres
Authority Act, 2019 read with IFSCA (Registration of Insurance Business)
Registration 2021 and notifications issued under section 2CA of the Act have been
complied with by the applicant.
Statutory Audits based on Cost Records – Areas exclusive to Cost Accountants
Statutory Audit of cost records under section 148 of the Companies Act, 2013.
Cost Audit and Performance Audit of co-operative societies under the respective Co-
operative Societies Act of West Bengal, Maharashtra, Karnataka, Punjab, and Delhi.
Valuation Certificate for Cost of goods produced for Captive Consumption as per Cost
Accounting Standard CAS-4 issued by the Institute, under Rule 8 of the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000.
Certificate for Average Cost of Transportation, in accordance with Cost Accounting
Standard CAS-5 issued by the Institute, under Rule 5 of the Central Excise Valuation
(Determination of Price of Excisable Goods) Rules, 2000.
*****
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Annexure - IV
Summary/ highlights of the viewpoints & pronouncements of
various Hon’ble Court Judgments listing principles recognizing
the qualification of ‘Accountant’ that equally recognizes and
applies to Cost Accountants
118 Behind every successful business decision, there is always a CMA
1.
2.
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3.
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—
—
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126 Behind every successful business decision, there is always a CMA
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF MARCH 2016
BEFORE:
THE HON’BLE MR. JUSTICE ANAND BYRAREDDY
WRIT PETITION Nos. 2026-2031 OF 2015 (CS-RES)
BETWEEN:
1. Karnataka State Chartered Accountants
Association, Bangalore,
No.7/8, 2nd Floor,
Shoukath Building,
SJP Road, Bangalore 560 002,
Represented by its President,
Sri. Raveendra S Kore.
2. Sri. Raveendra S Kore,
Son of Sangappa Kore,
Aged 36 years,
Residing at Flat No.203,
1st Floor, Maruthi Enclave,
Sy.No.205/94/2,
Balaji Layout, Mallathahalli,
Nagarabhavi,
Bangalore 560 056.
3. Smt. Tara Bevinje,
Daughter of B.S.Kakkillaya,
Aged 58 years,
Residing at Flat No.T 8 and 9,
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2
Srivarthe Prasiddi Apartments,
Bikasipura Main Road,
Yelachenahalli,
Bangalore 560 062.
4. Sri. H.M.Basavaraja,
Son of H.M.Panchaksharaiah,
Aged 59 years,
Residing at No.1287/68,
4th Cross, Ashokanagar,
BSK I Stage,
Bangalore 560 050.
5. Sri. B.V.Maddanaswamy,
Son of B.M.Vrushabhendrappa,
Aged 60 years,
Residing at No.145, 10th Main,
B.C.C.Layout, Vijayanagar,
Bangalore 560 040.
6. Sri. Sathisha .R,
Son of Late Rajanna,
Aged 38 years,
Residing at No.277,
Hasitat House, Unit 201,
1st Floor, 1st Main,
Chamarajpet,
Bangalore 560 018.
…PETITIONERS
(By Shri M.V.Sheshachala, Senior Advocate for Shri Aravind V
Chavan, Advocate)
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3
AND:
1. The State of Karnataka,
Department of Co-operation,
VI Floor, M.S.Building,
Bangalore 560 001.
(represented by its Secretary).
2. The State of Karnataka,
Department of Parliamentary Affairs,
M.S.Building,
Bangalore 560 001.
Represented by its Secretary.
3. The Registrar of Co-operative Societies,
No.1, Ali Asker Road,
Vasanthnagar,
Bangalore 560 052.
4. The Director of Co-operative Audit,
Karnataka, No.17,
Jayanivas, Shankarmutt Road,
Basavanagudi,
Bangalore 560 004.
5. Karnataka State Cost Accountants
Association, Bangalore,
Represented by its President,
Mr. Vishwanath Bhat.
6. Suresh R Gunjalli,
Cost Accountant,
No.10, 1st Floor,
Vinayaka Apartments,
Vinayaka Layout,
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4
Basaveshwaranagar,
Bangalore 560 079.
7. Girish .K,
Cost Accountant,
No.36, Chatura Homes,
2nd Main, Meenakshinagar,
Near Krishna Kalyana Mantapa,
Basaveshwaranagara,
Bangalore 560 079.
8. B. Jayendra Naik,
Cost Accountant,
No.101, Siri Meadows Apartments,
II Main, II Stage,
Vasantha Vallabha Nagar,
Vasanthapura,
Bengaluru 560 061.
9. Hari T Devadiga,
Cost Accountant,
No.28, Old No.40,
1st Floor, between 3rd and 4th Cross,
2nd Main Road, Chamarajpet,
Bangalore 560 018.
10. T.K. Jagannathan,
Cost Accountant,
No.50, 5th Cross,
2nd Main Road,
Chamarajpet,
Bangalore 560 018.
[respondent Nos.5 to 10 are
Impleaded vide court order
130 Behind every successful business decision, there is always a CMA
5
Dated 8.1.2016]
… RESPONDENTS
(By Shri A.S.Ponnanna, Additional Advocate General along with
Smt. Pramodhini Kishan, Government Pleader for Respondent
Nos.1 to 4;
Shri Udaya Holla, Senior Advocate for Shri Vivek Holla,
Advocate for Respondent Nos.5 to 10)
*****
These Writ Petitions are filed under Article 226 of the
Constitution of India, praying to declare clauses (v)(a) and (b) of
Section 26 of the Karnataka Co-operative Societies (Amendment)
Act, 2014, Act No.35 of 2014 i.e., amending Section 63 of the
Karnataka Co-operative Societies Act, 1959, dated 6.9.2014
produced Annexure-G by the respondents to include auditing by
Cost Accountants or Cost Accountants Firm, as null and void and
ultra-virus the Constitution of India and Central Legislatures and
etc;
These Writ Petitions having been heard and reserved on
29.2.2016 and coming on for pronouncement of Orders this day,
the Court delivered the following:-
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6
ORDER
The facts, as stated by the petitioners, are as follows:-
The first petitioner is an Association of Chartered
Accountants, registered under the Societies Registration Act,
1860. Petitioners no.2 to 6 are said to be practising Chartered
Accountants. The petitioners seek to challenge the amendment to
Section 63 of the Karnataka Co-operative Societies Act, 1959
(Hereinafter referred to as the ‘KCS Act’, for brevity), whereby
auditing of accounts by Cost Accountants of a firm of Cost
Accountants is permitted.
2. It is asserted that the KCS Act was enacted by the State
Legislature as legislation in respect of the subject 'co-operative
societies', which finds place under Entry 32 of List II of the
Seventh Schedule to the Constitution of India.
With the 97th Constitutional Amendment Act, 2011, having
received the assent of the President of India, and with the
introduction of Articles 243ZH to 243ZT, inter- alia, required the
State legislatures to introduce a law with a mandate that every co-
132 Behind every successful business decision, there is always a CMA
7
operative society shall maintain accounts and audit such accounts
in each financial year and such audit was to be done by an Auditor
or an Auditing firm.
Consequently, the KCS Act was sought to be amended by
the Karnataka Amendment Act no.3 of 2013. Section 63 was
amended to make auditing of the accounts of co-operative
societies compulsory. The auditing was to be assigned to
departmental auditors or to Chartered Accountants. This was
made to bring the provision in consonance with the 97th
Amendment to the Constitution.
It is the case of the petitioners that succumbing to the
pressure of lobbying and political pressure, brought by the
members of the Cost Accountants fraternity, the State Legislature
sought to bring a further amendment to Section 63 of the KCS
Act, by Act no. 35 of 2014. By the said amendment, the
definition of 'auditor' was enlarged to include a Cost Accountant,
within the meaning of the Cost and Works Accountants Act, 1959.
This action on the part of the legislature, according to the
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8
petitioners, permitted Cost Accountants to do the work of auditing
thereby encroaching on the profession of Chartered Accountants,
which would run counter to the 97th Amendment as well as the
Chartered Accountants Act, 1949.
The petitioners contend that the State legislature has
overlooked the classification of two distinct classes of
professionals. A Chartered Accountant is governed by the
Chartered Accountants Act, 1949, whereas a Cost Accountant is
governed by the Cost and Works Accountant Act, 1959. The
petitioners have depicted the distinction between the two
professions, in a tabular form, thus :
CHARTERED COST ACCOUNTANT
ACCOUNTANT
Thorough knowledge of every Knowledge of cost and
aspect of accounting, auditing financial management to ensure
and taxation a fine balance between
expenditures and available
recourses
CAs are involved in core Cost accountants are involved
accounting work of an in the costing part of financial
organisation transactions
CAs analyse risk and design Cost accountants assess the
134 Behind every successful business decision, there is always a CMA
9
efficient financial system feasibility of projects vis-à-vis
available funds
Taxation and auditing are main Cost management and
duties of a Chartered designing cost control methods
Accountant are main duties of a Cost
Accountant
Attention is drawn to the provisions of the Companies Act,
1956, The Income Tax Act,1961 and the Multi-State Co-operative
Societies Act, 2002, where under there are special references to
the role exclusively conferred on the Chartered Accountants, all of
which fortify the stand of the petitioners that the State legislature
could not therefore permit the Cost Accountants to entrench upon
the profession of the Chartered Accountants, which is the direct
consequence of the impugned amendment.
It is in this vein that the grounds urged in the writ petition
are sought to be highlighted by the learned Senior Advocate, Shri
M.V. Seshachala, appearing for the counsel for the petitioners.
3. The learned Additional Advocate General, Shri
A.S.Ponnanna appearing for the State would contend that in the
co-operative sector of the State, there are co-operative sugar
Behind every successful business decision, there is always a CMA 135
10
factories, co-operative spinning mills, co-operative industrial
societies, etc., wherein costing work plays an important role and
considering the syllabus, a Cost Accountant has to go through and
it was found that even a Cost Accountant has adequate knowledge
of Accounting principles and Accounting Systems and taking into
account the serious shortage of professionals available for
carrying out the audit work of co-operative societies, it was found
to be a dire need to include Cost Accountants and Cost
Accountant firms within the meaning of Auditor and Auditing
firm in Section 63 of the KCS Act.
4. Shri Udaya Holla, Senior Advocate, appearing for the
counsel for the impleading applicants, would contend that the
petitioners have suppressed the fact that they had earlier filed a
writ petition on identical grounds before the Dharwad Bench of
this Court and the same having been dismissed, the petitioners are
precluded from presenting the present petition.
On merits, it is pointed out that the petition is misconceived
as the Curriculum of the Cost Accountants is similar to that of
136 Behind every successful business decision, there is always a CMA
11
Chartered Accountants and the services rendered by both are
almost similar and various Central and State enactments empower
auditing being carried out by the Cost Accountants. A list of 46
such statutes are specified in the statement of objections. There is
also a comparative table of the Curriculum, pedagogy and
practical training of Cost Accountants and Chartered Accountants
to demonstrate that the Cost Accountants are competent to carry
out auditing work.
Reliance is also placed on the respective commentaries by
the learned authors S.P. Iyengar and M. Hanif, to indicate the
relationship between cost accounting and financial accounting. To
assert that all Cost Accountants are competent to carry out
auditing, which would encompass within itself both the costing
aspect as well as the financial statements of an entity.
5. On a careful consideration of the rival contentions, it is
not evident that by virtue of the impugned amendment, a Cost
Accountant has been enabled to carry out functions which can
only be performed by a Chartered Accountant. This is statutorily
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12
governed and there can be no entrenchment on such functions. It
is not the case of the petitioners that auditing the accounts of a co-
operative society is the exclusive domain of Chartered
Accountants. If that be so, there is no ground for challenge made
out.
The petitions are accordingly dismissed.
Sd/-
JUDGE
nv*
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The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
Bombay High Court
The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
Equivalent citations: 2008 14 STT 348, (2008) 14 VST 69 Bom
Author: F Rebello
Bench: F Rebello, R Mohite
JUDGMENT F.I. Rebello, J.
1. All these petitions are being disposed of by this common judgment as the main challenge in all the
petitions is to the constitutional validity of Section 61(1) and the explanation thereto, of the
Maharashtra Value Added Tax Act (hereinafter referred to as the "Act") on the ground that it
infringes the equality clause as enshrined in Article 14, the right to carry on profession under Article
19(1)(g) as also under Article 254, as the provisions for "audit" would not fall within the competence
of the State Legislature under Entry No. 54 of List II of the VIIth schedule to the Constitution of
India. In the alternative to read down Section 61, so as to empower Advocates and Sales Tax
Practitioners to audit and give report in Form No. 704. There are some other incidental challenges
in Writ Petition No. 1777 of 2007 to contend that the explanation also be declared void as being
violative of Article 265 which provides that no tax shall be levied or collected except by the authority
of law and Article 301 as it infringes the freedom to carry on trade, commerce and intercourse
through out the territory of India.
2. Writ Petition No. 3203 of 2006 is filed by the Association and its President who is Petitioner No.
2. The association is registered under the Societies Registration Act, 1960 having registration No.
Bom 166/71. They contend that for the last 56 years, advocates and sales tax Practitioners who are
its members have been enjoying an equal level field in practice before the Sales Tax Authorities. The
impugned provision seeks to keep out a class of advocates and sales tax practitioners from their
legitimate field of practice. This class of practitioners and advocates have attained appreciable
standard of expertise to understand and interpret the sales tax laws before the tax authorities under
the Act. The Advocates also practice in the field of sales tax before the High Court and Supreme
Court. Therefore, there is no reason to take away a vested right of such large class of practitioners in
a bid to favour a particular class at the cost of rest of the categories. Under Section 82 of the Act,
various categories of persons are entitled to practice who are called sales tax practitioners. They
comprise of (1) Advocates, (2) Chartered Accountants (3) Other persons who hold qualification
prescribed under the Act and (4) Government servants of the Sales Tax Department upon their
leaving or retiring from the service in sales tax department. On account of the impugned legislation,
this class of advocates and practitioners are being denied the rightful field of practice for certifying
deductions and claims under the Act.
3. Writ Petition (L) No. 623 of 2007 is by the Bar Council of Maharashtra and Goa. It is their
contention that Section 61 of the Act has confined the function of audit only to a Chartered
Accountant and excluded other professionals and authorised persons like the Sales Tax
Practitioners, Advocates and Cost Accountants. A perusal of Section 61 as also the reading of the
prescribed form of Audit would show that the audit is in fact a statutory return of the dealer for the
purpose of enabling the Sales Tax Officer to complete assessment and therefore, involves minor
skills which can be better performed by the advocates and as such exclusion of advocates and Sales
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The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
Tax Practitioners from performing audit or carrying on audit is clearly discriminatory, arbitrary and
unreasonable. Several other States in the country have provided that the value added tax audit can
be done not only by the C.A. but also by other professionals, including advocates.
4. Writ Petition No. 1777 of 2007 is by the Bombay Small Scale Industries Association and Petitioner
No. 2 is their President. The Membership of the Association as per the pleadings is open to all
individuals and associations of various categories. They contend that all through the existence of the
Sales Tax Laws since 1946 under Section 82(1) of the Act, persons specified in Clause (c) described
as Sales Tax Practitioners and also Advocates specified in Clause (b) have been guiding the trade in
giving due information of the ever changing sales tax laws, the implication of various claims and in
filing the returns and appearing in assessment and if necessary in appeals. There has been no
grievance made against the easily accessible and expert services of this class. Even under the present
enactment, the traders continue to be advised and guided by this class of sales tax practitioners and
advocates and their returns are being compiled by them on the basis of their records. The sales tax
practitioners and advocates have been giving commendable services to the industries at all stages of
sales tax proceedings. Their valuable guidance and help is easily accessible at affordable charges. By
the amendment what is sought to be done is to have the assessment of tax liability under the Act
assessed approved and certified as the correct liability of a dealer by a third agency who is described
as class of persons called Chartered Accountants. The work that the Chartered Accountant has to do
is to verify the return with full details and certify legality or otherwise of the claims in the returns.
This function of the assessment for the tax dues from a dealer under the MVT Act has already been
assigned and entrusted to the Commissioner or its delegates or officers appointed under the said
Act. The industries, therefore, it is contended would be obliged to engage services of Chartered
Accountants over and above their respective appointee from the class of class of sales tax
Practitioners or advocates. On account of this heavy financial burden would be cast on small scale
industries and such burden is a serious impediment to the trade and would cut into the net profit of
the respective industry. This action of the State is unreasonable and cannot be done even under its
exercise of ancillary legislation. The payments to be made to the Chartered Accountant is over and
above the payment for the services of a Sales Tax practitioner who keeps the dealer well informed
about the law and its changes, who undertakes the work of compiling and the filing of returns,
attending to assessments and like proceedings under the Act. This additional payment is in pith and
substance nothing but compulsory levy amounting to tax by the State. Such action offends Article
265 of the Constitution. For all the aforesaid reasons, it is contended that the impugned provision
under the enactment ought to be struck down.
5. Writ Petition No. 2000 of 2007 is by the Maharashtra State Tax Practitioner Associations
Federation which is an registered association. The impugned enactment, it is contended, is contrary
to Article 19(1)(g) of the Constitution since it prohibits the members of the Petitioners from
practicing their profession and trade of their choice without there being any valid reason. The
Petition is by the Association. No individual person has joined as Petitioner. As Petition seeks to
challenge also the constitutional validity of Section 61, being in violation of Article 19(1)(g) of the
Constitution of India, we do not propose to consider whether this petition would be maintainable in
the absence of a person. The other issues involved in this petition are also the subject matter of the
other petitions to which we have referred to earlier.
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The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
6. To understand the challenges, we may firstly reproduce some of the relevant provisions of the
MVAT Act. Section 61 read as under:
61. Accounts to be audited in certain cases:
(i) Every dealer liable to pay tax shall,
(a) if his turnover of sales or, as the case may be, of purchases exceed or exceeds rupees forty lakh in
any year, or
(b) a dealer or person, who holds, licence in,
(i) Form P.L.L. under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor
Rules, 1966, or
(ii) Form B.R.L. under the Maharashtra Manufacture of Beer and Wine Rules, 1966, or
(iii) Form E under the Special Permits and Licence Rules, 1952, or
(iv) Forms FL-I, FL-II, FL-III, FL-IV under the Bombay Foreign Liquor Rules, 1953, or (v) Forms
CL-I, CL-II, CL-III, CL/FL/TOD-III under the Maharashtra Country Liquor Rules, 1973 get his
accounts in respect of such year audited by an accountant within the prescribed period from the end
of that year and furnish within that period the report of such audit in the prescribed form duly
signed and verified by such accountant and setting forth such particulars and certificates as may be
prescribed.
Explanation : For the purposes of this section "Accountant" means a Chartered Accountant within
the meaning of the Chartered Accountants Act, 1949 or a Cost Accountant within the meaning of the
Cost and Works Accountants Act, 1959.
(2) If any dealer liable to get his accounts audited under Sub section (1) fails to furnish a copy of
such report within the time as aforesaid, the Commissioner may, after giving the dealer a reasonable
opportunity of being heard, impose on him, in addition to any tax payable, a sum by way of penalty
equal to one tenth per cent, of the total sales.
Provided that, if the dealer fails to furnish a copy or such report within the period prescribed under
Sub section (1), but files it within one month of the end of the said period, and the dealer proves to
the satisfaction of the Commissioner that the delay was on account of factors, beyond his
control,then no penalty under this sub section shall be imposed on him.
(3) Nothing in Sub sections (1) and (2) shall apply to Departments of the Union Government, any
Department of any State Government, local authorities, the Railway Administration as defined
under the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra
State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950.
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The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
The next relevant provision is Section 82(1) and (2) which read as under:
82. Appearance before any authority in proceeding:
(i) Any person, who is entitled or required to attend before any authority including the Tribunal in
connection with any proceeding under this Act, otherwise than when required to attend personally
for examination on oath or affirmation, may attend. -
(a) by a relative or a person regularly employed by him, or
(b) by a legal practitioner, Chartered Accountant or Cost Accountant who is not disqualified by or
under Sub section (2), or
(c) by a sales tax practitioner who possesses the prescribed qualifications and is entered in the list
which the Commissioner shall maintain in that behalf, and who is not disqualified by or under Sub
section (2), or
(d) any person, who, immediately before the commencement of this Act, was qualified by or under
Sub section (2), only if such relative, person employed, legal practitioner, Chartered Accountant,
Cost Accountant or sales tax practitioner is authorised by such person in the prescribed form, and
such authorisation may include the authority to act on behalf of such person in such proceedings.
Explanation : "A person regularly employed" means a person whose salary is regularly and
periodically debited and recorded in the books of account of the dealer.
(2) The Commissioner may, by order in writing and for reasons to be recorded therein, disqualify for
such period as is stated in the order from attending before any such authority, any legal practitioner,
Chartered Accountant, Cost Accountant or sales tax practitioner,-
(i) who has been removed or dismissed from Government service, or
(ii) who being a legal practitioner, a Chartered Accountant or a Cost Accountant is found guilty of
misconduct in connection with any proceedings under this Act by an authority, empowered to take
disciplinary action against the member of the profession to which he belongs, or
(iii) who, being a sales tax practitioner, is found guilty of such misconduct by the Commissioner....
7. The statement of objects and reasons as annexed to the Bill in so far as Section 61 is concerned,
reads as under:
Clauses 55 to 62 - A new provision is made for advance ruling by the tribunal on any question
relating to interpretation of the law. A new provision provides for compulsory audit to be made in
certain circumstances by qualified Accountants.
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142 Behind every successful business decision, there is always a CMA
The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
The State of Maharashtra by Maharashtra Act No. 25 of 2007 amended the M.V.A.T. Act. We are
concerned with the amendment to Section 61. The relevant portion reads as under:
17. In Section 61 of the Value Added Tax Act,-(l) in Sub section (l), in the Explanation, for the words
and figures "Accountants Act, 1949" the words and figures "Accountants Act, 1949 or a Cost
Accountant within the meaning of the Cost and Works Accountants Act, 1959", shall be substituted;
(2) in Sub section (2), the words "or as the case may be, purchases or a sum of one lakh rupees,
whichever is less" shall be deleted;
(3) after Sub section (2), the following sub section shall be added, namely:
(3) Nothing in Sub sections (1) and (2) shall apply to Departments of the Union Government, any
Department of any State Government, local authorities the Railway Administration as defined under
the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra State
Road Transport Corporation constituted under the Road Transport Corporation Act,1950.
Thus apart from the Chartered Accountants audit can now also be carried out by Cost Accountant.
No Petition has been amended by any of the Petitioners to challenge the amendment.
9. Section 82 of the Act permits Sales Tax Practitioners and others set out therein, the right of
appearance before any authority in proceedings under the Act. The right of appearance therefore,
has not been taken away. The right to appear subsists. The limited question is whether under
Section 61, the exercise of getting the accounts audited, can be said to be part of the right to appear
and plead before the courts or judicial forums and or getting the accounts audited is part of the right
conferred by Section 82 or in the alternative excluding other than Chartered Accountants and Cost
Accountants is arbitrary or violative of the rights of these excluded categories to carry on their trade
or profession.
10. Before we proceed further, we may look as to the meaning of the expression "audit" and
"auditor". In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition the "audit" has been
explained as under:
"Audit" As a verb : to draw up or present an account; to make an official investigation and
examination of accounts and vouchers.
As a noun : an examination of accounts in general; a formal or official examination and
authentication of accounts, setting of accounts; the process of auditing accounts; the hearing and
investigation had before an auditor.
In President, Councillors and Ratepayers of the Shire of Frankston and Hastings v. Cohen 102
C.L.R. 607 the High Court of Australia the expression "Audit" came up for consideration and it was
explained as under:
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But the word, "audit" is a well known English word, and the general nature of what constitutes an
audit seems plain enough. The Oxford English Dictionary defines the noun "audit" as "an official
examination of accounts with verification by reference to witnesses and vouchers". Mr. R.A. Irish in
his book "Practical Auditing" (p.1) says : "An audit may be said to be a skilled examination of such
books, accounts and vouchers as will enable the Auditor to verify the Balance Sheet. The main
objects of any audit are : (a) To certify to the correctness of the financial position as to shown in the
Balance sheet, and the accompanying revenue statements, (b) The detection of errors, (c) The
detection of fraud. The detection of fraud is generally regarded as being of primary importance.
Thus the word has a specific cannotation in the matter of examination, investigation and auditing of
Accounts, where detection of fraud is of primary importance.
11. The prayers as sought and noted earlier are to declare Section 61 of the M.V.A.T. Act, 2002 as
unconstitutional and ultra vires being violative of Articles 14, 19(1)(g), 254, 265 and 301 of the
Constitution of India or in the alternative to read down or interpret the impugned provisions i.e.
Section 61 so as to enable advocates and Sales Tax Practitioners to carry out the audit in terms of
Section 61. The challenge in a nutshell is to the exclusion of Advocates and Sales Tax practitioners
from doing the work of audit under Section 61 of the Act.
12. The challenge to the vires of the Section may now be summarized:
(a) The impugned provision is for certification of the veracity of statutory claims by the dealers
under the Act and to certify that the Sales and Purchases are correctly accounted by the dealers and
their claims are legally valid. The caption "Accounts to be audited in certain cases" is nothing but the
same judicial process of deciding the legality or otherwise of the claims of the dealers under the Act,
in case of dealers having turn over exceeding rupees forty lakh in any year, which includes turn over
of capital goods. This certificate has to be given by the Accountant to the exclusion of the Sales Tax
practitioner or Advocates though the said class of persons are specialized in sales tax laws and
practice. Under Section 61, what is to be done is not mathematical correctness but judicial
authenticity, legality or authenticity of the various claims under the Sales Tax Laws for which
verification and certification is required to be done by the Chartered Accountant. This is over and
above verification done under the returns by respective dealer while filing the return. This certificate
can only be given by the Chartered Accountant. Since, 1946, apart from Chartered Accountants, it
was open to all categories of persons described in Section 82, having sufficient expertise and
qualifications to do the accounts as also audit. The impugned Section 61, has resulted in divisive
exclusion of advocates and Sales Tax Practitioners, as the traders would not like to engage services
of Sales Tax Practitioners or advocates for certification. The result is that a large section of
Practitioners in mofusil area and small towns will be rendered out of the practice and consequently
adversely affecting their livelihood. As there is no reasonable basis for the exclusion, the provision is
arbitrary being violative of Article 14.
(b) The practice of Sales Tax Accounts was open to all including Chartered Accountants, advocates
and tax practitioners. The Chartered Accountants who happens to pass the examination and has no
expertise to adjudicate upon the legality or otherwise of the assessees claims of sales tax law can
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issue certificate. Similarly Chartered Accountants however, senior they may be, who have not
practiced sales tax law and who could not gather experience can issue certificate. There is no
relation with object of the enactment for such arbitrary selection of class without relation to their
authority, efficiency or otherwise. The sole object and purpose of Section 61(1) is that every dealer
who is covered by Sub section (a) and (b) should get their returns verified and get their tax liability
assessed by a Professional so as to enable them to provide the information required to furnish a
report under Rule 65 and to fill out Form 704. There is no other purpose behind Section 61. This
purpose and object completely exhausts the scope of Section 61. If this being so, the requirement of
C.A. alone for the certification in form 704 is wholly irrelevant and arbitrary. In any case, all
information contained in Form 704 is for assessment of tax liability by the expert professionals who
on the basis of same information are authorised to fill all types of returns in Form 221 to 225 and no
purpose is served by C.A.s certification of correctness under the garb of audit of books of accounts.
Reliance is placed in the judgment of Omprakash Sud and Ors. v. State of J. & K. and Ors. , in Suneel
Jetley and Ors. v. State of Haryana , Deepak Sibal v. Punjab University and Ors. and in Ahmedabad
Municipal Corpn. and Anr. v. Nilaybhai R. Thakore and Anr. . This, it is submitted, would result in
infraction of Article 14 of the Constitution of India.
(c) Section 61 creates artificial classification between persons entitled to practice. Section 82 of the
MVAT Act provides which categories of persons are entitled to practice under the said Act.
Explanation to Section 61 carves out a separate class which does not serve the object of Section 61.
Once the provisions of Section 82 have brought all practitioners in one class, creating a mini
classification by the explanation to Section 61, which does not appear to have any distinguishing
marks for subserving the object sought to be achieved, causes equals to be treated unequally. This
violates the equality right under article 14. See D.S. Nakara and Ors. v. Union of India .
(d) Section 22 provides for Audit. Its opening clause "With a view to promoting compliance with the
provisions of this Act" indicates the all encompassing nature of the section. Section 22(1)(a) to (e)
contemplates all situations which require audit. This audit is carried out by the Officers empowered
by the Commissioner or to whom powers have been delegated. Section 22 therefore, covers all
situations which require audit. This situation arises after the returns are filed. There is no indication
of any requirement of audit before filing of returns and as such Section 61 is directly in conflict with
Section 22 and is ultra vires the scope of Section 22. Section 22(3) permits the audit to be conducted
by an officer who may not be a Chartered Accountant. Section 61 which requires an audit only by a
Charted Accountant is therefore discriminatory. The audit under Section 22 concerns situations of
possible misfeasance or suppression or doubt, whereas Section 61 Audit is of routine nature. In that
sense, on a lower pedestal requiring no investigation, when compared to the Section 22 audit. If
Section 22 audit can be conducted by an officer who may not be a Chartered Accountant, then there
is no reason why Section 61 audit cannot also be conducted by a person who is not a Chartered
Accountant. Section 61 which requires Audit only by a Chartered Accountant, therefore, is
discriminatory. Reliance is placed on Municipal Corporation of Grater Bombay and Ors. v. Thukral
Anjali Deokumar and Ors. .
(e) Section 61 also suffers from arbitrariness as it violates Article 14 by being classificatory. Section
61(1)(a) and (b) creates two classes. If the object of the Section 61 is to create a class of tax-payers
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who would be liable to pay tax, then the classification with reference to turnover exceeding Rs. 40
lakhs is understandable. However, the creation of another class under Section 61(1)(b), namely
dealers in liquor, irrespective of their turn over is an arbitrary classification, having no nexus with
the object of Section 61 viz. to tax traders whose turnover exceeds Rs. 40 lakhs.
(f) Similarly, the advocates qualified are denied right of certification or correction or otherwise of
dealers' claims which require judicial background and expertise in the law. A perusal of the form
prescribed would show that it is nothing but certification of claims which is arrived at on the basis of
clarification of claims. The legal compliances under the law is administered by the Sales Tax Officers
who are not Chartered Accountants and yet they are entitled to check up the work of Audit which is
in the form of normal audit as also assessment in the same manner as required by the Chartered
Accountant. By denying to the Advocates and Sales Tax Practitioners, the right to certify under
Section 61, it has violated their right to carry on profession To the extent that such classification
prohibits advocates and Sales Tax Practitioners from practicing their profession, and as such
violative of Article 19(1)(g). Nor can it be saved by any reasonable restriction under Article 19(6).
Reliance is placed on B.P. Sharma v. Union of India and Ors. and M.P. Electricity Board v. Shiv
Narayan and Ors. .
In Writ Petition No. 1777 of 2007, the additional challenges may be summarized as under:
(g) The State Legislature under Entry 54 of the State List can enact law taxing sales. However, any
ancillary legislation or procedure must have nexus to the object of the Act. The mandatory
provisions of engaging services of C.A. are not based on any object of the Act and as such the
provision is not within the legislative competence of respondent state as an ancillary provision.
The ancillary provisions so far enacted by the State are those which give power to its employees or
delegates authority to audit but no legislation has so far given any power to a third party to be
delegated such power and assume any statutory jurisdiction of assessment whether provisional or
otherwise, so as to restrain the freedom of trade.
(h) The State Legislature by the impugned provisions has outsourced their statutory powers to
assess the tax to a third party. Such delegation of powers is destructive of basic tenet of law and its
enforcement. The action is inconsistent with any principles of good governance of any State law. It is
also opposed to any procedural law of administration of State Law. Such delegation is
impermissible.
(i) It is also submitted that the industries are already obliged to bear the cost of work of Income tax
audit to a specialised Chartered Accountant. There is now to be a separate C.A. for sales tax audit.
The industries also have to engage a Sales Tax Practitioner or Advocates for their sales tax returns
and day to day guidance. The audit charges to be paid to C.A. are perceptively heavy. The industry
will have to pay heavy burden by way of audit fees. This is direct impediment to trade and cuts into
their net profit. This additional compliance cost in terms of money and waste of time is an added
impediment. This additional payment to the C.A. would in pith and substance amount to
compulsory levy amounting to tax by the State in contravention of Article 265 of the Constitution of
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India.
(j) the provisions for punishment to a dealer for not engaging C.A. are highly penal and without any
cap. It is difficult to get a qualified C.A. to take up audit within a short time as provided in the Act
and the C.A. usually depends upon the Sales Tax Practitioner of the dealer for his audit. This creates
anxious time for the dealer and source of tension. The impugned provision does not serve any
purpose of revenue under M.V.A.T. The provisions are therefore, unreasonable and a restraint on
freedom of trade.
13. Before answering the issues, we may advert to the reply filed on behalf of the State Government
through Mr. Pandit Vitthal Khade, Deputy Commissioner of Sales Tax. Pointing to the history of
legislation, it is set out that the Government of Maharashtra decided to introduce VAT system with
effect from 1st April, 2005. At that time the Government decided to amend VAT Act, 2002 in terms
of the national consensus arrived at by the empowered committee of State Finance Ministers.
Accordingly a draft bill was prepared for submission to the Government and it was made open for
comments of the public. The amendment bill inter alia included a proposal on the request of
Advocates, Tax Practitioners and Cost Accountants to include them under Section 61 for tax audit
along with the Chartered Accountants having standing in profession for a period of 7 years or more.
But there was no assurance directly or impliedly that such proposal will be accepted by the
Government or enacted by the Legislature. Various aspects were considered including that under
the Companies Act, Section 211(c) of the Companies Act requires, that all companies in India must
prepare their annual accounts in accordance with the Accounting Standards and get those accounts
audited in accordance with the Auditing standards laid down by the Institute of Chartered
Accountants of India. The Government decided to continue the old provision of audit under MVAT
i.e. audit under Section 61 only by Chartered Accountants. Under the Companies Act, the Central
Government has also constituted a National Advisory Committee on Accounting Standards
(NACAS) which is required to recommend the Accounting and Auditing standards. However, the
Central Government did not issue any notification based on the recommendations of NACAS. The
Accounting and Auditing standards issued by the Institute of Chartered Accountants of India are
binding. Thus, no corporate entity can prepare its accounts by any method other than that provided
by ICAI. Similarly, no audit can be conducted without following Auditing and Assurance Standards
(AAS) issued by ICAI. The Accounting and Auditing Standards issued by the Institute of Chartered
Accountants of India are based upon the Accounting and Auditing standards issued by the
International Federation of Accountants (IFAC). Accounting standards Board of IFAC in the year
2002-2003 stands converted into independent Accounting Standards Board (ISAB). The Board to
start with, Adopted Accounting Standards (AAS) issued by IFAC and now is in the process of
revision of some of these standards. The AS are very complex and there are major variances in
respect of turnover of sales and purchases accounted as per AAS in the profit and Loss Account of
the enterprise and turn over of sales and purchases which is required to be considered for the
purpose of levy of tax under the Maharashtra Value Added Tax Act, 2002. Clear cut comments on
the major changes made by any firm in a given period in respect of accounting system, method of
valuation of stocks and business model etc. are required from the Auditor. These are complex
accounting and audit issues which Advocates, Sales Tax Practitioners' and Company Secretaries are
not professionally qualified to handle.
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Section 29 of the Advocates Act, 1961 provides that advocates would be the only class of persons to
"practice the profession of law". Section 33 of the Advocates Act bars any other professional to
practice in any court or before any authority etc. Section 49 of the Advocates Act gives general
powers to the Bar Council of India to make such rules. Under this power the Bar Council of India
has framed the rules which prohibits an advocate from engaging in any other profession other than
practising the profession of law. The requirement of Section 61 of MVAT Act is of auditing of the
books of accounts and giving a certificate of his conclusion after verification. This cannot be called
as "practice the profession of law". The area under Section 61 is practising in the field of
accountancy and auditing, which an advocate is not competent to undertake under the Rules framed
by the Bar Council of India under Section 49 of the Advocates Act, 1961. Parliament of the country
has framed the Chartered Accountants Act, 1949. Under Section 2(2) the area in which a member of
the Institute of Chartered Accounts of India (ICAI) can practice is defined. The practice of
accountancy and auditing can be carried out by the Chartered Accountants who are members of
ICAI and are holding a certificate of practice. If the advocates embark on practice in the area of
accountancy and auditing work then it would amount to practice in accounting and auditing and
thus will violate the provisions of Advocates Act, 1961 and the rules framed thereunder by the Bar
Council of India. Therefore, the Advocates cannot be allowed to carry out the function of an
accountant or of an auditor.
As regards Sales Tax Practitioners, they are not governed by any professional Act. Any graduate
having acquired a Diploma in Taxation or having passed specified accountancy examination and
acquired such qualifications as are prescribed by the Central Board of Revenue or having retired as
an officer from the Sales Tax Department can enroll with the Sales Tax Department as an Sales Tax
Practitioner. He is not required to be a qualified auditor nor is he governed by the strict discipline
and acceptability required under the Chartered Accountants Act, 1949 for any acts of omission and
commission in the conduct of audit. Hence, a Sales Tax Practitioner cannot be expected to provide
the level of assurance and creditability of the audit of the accounts of a VAT payer expected by the
Revenue. Hence, while a Sales Tax Practitioner is qualified to appear in proceedings, he cannot
conduct audit under Section 61.
All over India as per information available 30 states and Union Territories have introduced VAT
either in the year 2005-2006 or in the year 2006-2007. Information about audit provision in two
States i.e. Nagaland and Mizoram is not available. Out of the remaining 28 states, four States
(Haryana, Himachal Pradesh, Sikkim, West Bengal) have no provision for Audit from independent
professionals. Thirteen States and Union Territories have called for an Audit Report under the VAT
Act exclusively from Chartered Accountants. These states are (i) Auranachal Pradesh, (ii) Bihar, (iii)
Chattisgarh, (iv) Goa, (v)Madhya Pradesh, (vi) Maharasthra, (vii) Manipur, (viii) Meghalaya, (ix)
Punjab, (x) Rajasthan, (xi) Dadra and Nagar Haveli, (xii) Daman and Diu, (xii) Chandigarh. Another
7 States have called for Audit Report only from professionals who have knowledge in the field of
accountancy i.e. Chartered Accountants or Cost Accountants. In those states the Sales tax
practitioners or advocates are not authorised to give the Audit Report, though they are allowed to
represent before the authorities. These states are (i) Assam, (ii) Delhi, (iii) Kerala, (iv) Orissa, (v)
Tripura, (vi) Jammu and Kashmir, (vii) Uttranchal. Only four states have allowed other
professionals besides Chartered Accountant and Cost Accountant to conduct this audit. These states
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are (i) Andhara Pradesh, (ii) Gujarat, (iii) Jharkhand and (iv) Karnataka.
The C.A.s were included after consideration and analysis of the facts as to their expertise and
specialized training. The VAT is designed for the purpose of self assessment by certifying returns by
the C.A.s. The VAT is invoice based system and the deductions are based on certification. A true and
correct invoice of having paid Value Added Tax, in the treasury is required. It is therefore, necessary
ingredient of certification of data contained in Returns and encompasses entire sphere of
verification of accounts books and vouchers. It is submitted that the experience of the income tax
department shows that independent tax audit has improved the proper maintenance of books
accounts from the taxation point of view. The Empowered Committee had referred the issue to the
Group of Commissioners of Sales Tax to decide the necessary provisions for audit. It was
recommended by the said committee that the Audit of certification of the books of accounts should
be specified authority only.
14. Reply has also been field on behalf of the Institute of C.A.s by Mr. Mohamed Abdul Razak, the
Additional Director of the Institute of Chartered Accountants of India. It is their contention that
VAT is invoice based system and it is necessary to respect book keeping requirements. Under the
said Act, the major thrust is on self assessment of the tax liability by the dealer. Therefore, it is
necessary to ensure that the particulars furnished by the dealer are true and correct. Consequently,
in the interest of the State, the legislature has found it necessary to have the accounts to be audited.
Audit of accounts requires expertise. The Chartered Accountants being experts in the field of
accounting and auditing, the said Act provides that the accounts be audited only by Chartered
Accountants. The Audit it is submitted is a specialized subject and the same is required to be carried
out after detailed verification of the books of accounts applying the accounting and auditing
principles. The principles of accounting and auditing are undergoing drastic changes not only in
India but internationally. Thus, unless one knows the accounting and auditing standards it is
difficult to find out even after verification of books of accounts,the turn over which could be
subjected to tax. Reference is then made to various columns of Form 704 and it is explained as to
why it is only experts in the field of accounts and audit who can carry out the work to find out
whether the records have been correctly and completely maintained.
15. Though various judgments have been cited, it is only to the extent that they are required to be
considered, will they be considered as the challenge on the grounds of Article 14 and 19(1)(g) are
well settled and the tests are based on the objects of the Statute and the nature of the infraction
challenged. There is no direct challenge to "Accountant" within the meaning of the explanation to
Section 61 doing the work of audit and certification. The contention is to the exclusion of Advocates
and S.T.P.s from doing the work of audit and certification. The challenge to the reasonability of the
provision must be understood in tht context. The substantial challenge is to the classification.
16. To consider the challenges under Articles 14 and 19(1)(g), we may at once refer to Section 44AB
of the Income Tax Act. This provision as in the present case provides for audit of persons whose
total sales or turn over or gross receipts exceed forty lakhs per year. This provision was challenged
before various High Courts. The Supreme Court in an appeal before it, has upheld the legality of the
Section. Section 44AB of the Income Tax Act reads as under:
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Every person
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in
business exceed or exceeds forty lakh rupees in any previous year; or
(b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any
previous year; or
(c) carrying on the business shall, if the profits and gains from the business are deemed to be the
profits and gains of such person under Section 44AD or Section 44AE or Section 44AF (or Section
44BB or Section 44BBB) as the case may be, and he has claimed his income to be lower than the
profits or gains so deemed to be the profits and gains of his business, as the case may be, in any
previous year, get his accounts of such previous year, audited by an accountant before the specified
date and furnish by that date the report of such audit in the prescribed form duly signed and verified
by such accountant and setting forth such particulars as may be prescribed.
Provided that this section shall not apply to the person, who derives income of the nature referred to
in Section 44B or Section 44BBA, on and from the 1st day of April,1985 or, as the case may be, the
date on which the relevant section came into force, whichever is later.
Provided further that in a case where such person is required by or under any other law to get his
accounts audited, it shall be sufficient compliance with the provisions of this section if such person
gets the accounts of such business or profession audited under such law before the specified date
and furnishes by that date the report of the audit as required under such other law and a further
report by an accountant in the form proscribed under this section.
Explanation : For the purposes of this section:
(i) "accountant" shall have the same meaning as in the Explanation below Sub section (2) of Section
288.
(ii) "specified date", in relation to the accounts of the assessee of the previous year relevant to an
assessment year, means the 31st day of October of the assessment year.
Section 44AB thus also requires every person who carries on business and if his total sales, turn over
or gross receipts as the case may be, in business exceeds or exceeds forty lakh rupees in any previous
year or years relevant to the assessment year to get the accounts audited in the manner prescribed.
Explanation to Section 44AB provides that "accountant" shall have the same meaning as in the
Explanation below Sub section (2) of Section 288. Explanation to Section 288 defines "Accountant"
to mean the Chartered Accountant within the meaning of Chartered Accountants Act, 1949 and
includes by virtue of provisions of Sub Section 2 of Section 226 of the Companies Act any person
who is entitled to be appointed to act as auditor of companies registered in that State.
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Before the Madras High Court, the challenges were considered in the case of R. Sathya Moorthy and
Ors. v. Union of India and Ors. . This judgment came up for consideration before the Supreme Court
in an Appeal, in T.D. Venkata Rao v. Union of India . The challenge to the validity of the section
before the Madras High Court, the challenge made was on behalf of Income Tax Practitioners as also
an assessee, to contend that under Section 44AB, as compulsory audit was restricted to Chartered
accountants, it would result in excluding all authorised representatives other than Chartered
Accountants. Such a restriction was an oppressive restriction in the guise of an obligation and hence,
Section 44AB is violative of Article 14 of the Constitution of India. It was also submitted that
Advocate had a fundamental right to practise the profession. This was subject to a reasonable
restriction. The restriction was so arbitrary and unreasonable that it violates both, Articles 14 and 19
of the Constitution. The Petition was dismissed and an appeal was filed before the Supreme Court.
While dismissing the appeal, the Supreme Court held as under:
The Chartered Accountants by reasons of their training having special aptitude in the matters of
audits. It is reasonable that they, who form a class by themselves, should be required to audit the
accounts of businesses whose income exceeds Rs. 40 lakhs and professionals whose income exceeds
Rs. 10 lakhs in any given year. There is no material on record, and indeed, in our view, there cannot
be, that an income tax practitioner has the same expertise as chartered accountants in the matter of
accounts. For the same reasons, the challenge under article 19 must fail, and it must be pointed out
that these income tax practitioners are still entitled to be authorised representatives of assessees.
Once the Supreme Court has upheld the legality of Section 44AB of the Income Tax Act, where the
same terminology was used and which was also a provision pertaining to audit, in our opinion, and
considering the object of both the provisions which is prevention of evasion of tax dues, the
challenge by the Petitioners on the ground of infraction of Article 14 and 19 will have to be similarly
rejected. There are practically no distinguishing features. The only distinction, if any, is that,
whereas Section 44AB is for the purpose of ascertaining "total income", Section 61 is for certification
whether VAT had been correctly assessed, collected and paid.
17. A perusal of Section 61, would show as under:
(a) The concerned dealer shall get his accounts audited by an Accountant.
(b) Within the prescribed period.
(c) Furnish within the prescribed period the report of such audit.
(d) Such report to be submitted in the prescribed form.
(e) The form should be duly signed and verified by such Accountant.
(f) Such particulars and certificates as may be prescribed to be set forth.
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Rule 65 would demonstrate that the report of an audit is to be submitted in Form No. 704 and it is
not that an audit is to be conducted in Form No. 704.
18. The various submissions now made under Articles 14 and 19 in the challenge to Section 61 were
also advanced whilst challenging Section 44AB of the Income Tax Act before the various High
Courts. The Madras High Court had referred to judgments of various other High Courts which had
decided the challenge to Section 44AB. The judgments of the High Courts are Mohan Trading Co. v.
Union of India 196 ITR 134 (MP). Rajkot Engineering Association v. Union of India 164 I.T.R. 148
(Raj), A.S. Sharma v. Union of India (1985) 175 I.T.R. 254 (A.P.) and T.S. Natraj v. Union of India
(1981) 155 I.T.R. 81 (Kar.).
In Mohan Trading Company and Ors. (supra) the main contentions which were raised and rejected
by the learned Bench of the Madhya Pradesh High Court were:
There is no delegation to the Accountant or abdication of the assessing authority's function.
In a taxing statute, classification of assessees on the basis of turnover is a reasonable classification
and greater latitude is available to the Legislature for classification.
The classification on the very face of it is quite reasonable, since the impugned provisions have been
applied only to the bigger assesses in whose case a close scrutiny of their accounts to audit has been
considered necessary to check tax evasion and to locate and prevent the growth of black money.
There is no discrimination made between the legal practitioner and the accountant if the person is
clubbed with others as in Section 288 if on account of his qualifications he is able to perform other
functions in addition to the appearance as an authorised representative of the assessee no
discrimination can result from the discloth of others for want of qualification to perform additional
function, outside the ambit of Section 288 of the Act.
The provisions to Section 44AB do not place an onerous burden on the assessee and at any rate, they
are reasonable and saved by art. 19(6). The requirement of compulsory audit is for the purpose of
scrutinising the assessees version in the accounts and to facilitate the assessing authority in making
the assessment. This purpose cannot be served by depending only on the assessee's version. It is
therefore, not correct to say that the requirement of audit is unnecessary or is mere formality.
The numbers of Chartered Accountants in active practice can not be treated as insufficient to cater
to the needs of the bigger assessees whose accounts are required to be audited.
The requirement of forms indicate that the particulars required are material for proper scrutiny of
the accounts and to ensure that the books of accounts and other records are properly maintained
and faithfully reflect the true income of the assessee. The existence of other provisions do not mean
that further requirement of compulsory audit in the case of bigger assessees is unreasonable
restriction on the rights under Article 19(1)(g).
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In Rajkot Engineering Association and Ors. v. Union of India Ltd. 162 ITR 28 Gujarat, the Gujarat
High Court held Section 44AB of the Income Tax Act is a safeguard against tax evasion and tax
avoidance so as to ensure that the economic system does not result in concentration of wealth to the
common detriment. The report which an auditor has to submit containing the statement of
particulars as prescribed under Rule 6G(2)(a) in Form No. 3CD would certainly advance the
purpose of the statute.
The provisions are not unreasonable or arbitrary. Non Chartered Accountants from amongst the
authorised representatives would not be competent to discharge onerous responsibility cast upon
the Chartered Accountant having regard to the expertise achieved as a result of their academic
knowledge and practical experience. The Chartered Accountant by his very privileged status exposes
himself to the consequences of civil liability for negligence, specific statutory liabilities such as
misfeasance under the Companies Act, liability for professional misconduct in disciplinary
proceedings under the Chartered Accountants Act, 1949 and sometimes to criminal liability under
the Penal Code. It, therefore, cannot be said that Parliament, by selecting chartered accountants
from amongst various representative to act as tax auditors has given a preferential treatment to
them viz a viz the non-chartered accountants' segment of authorised representatives. These are two
distinct classes.
There is no restriction on the right of assessees to select as their authorised representatives
whomever they like, either the chartered accountants or other income tax practitioners.
In A.S. Sarma and Ors. v. Union of India 175 ITR 254, it was held that the qualification for eligibility
to be enrolled as income tax practitioner and advocate are entirely different from that of C.A. The
syllabus of subjects for the study of law is different and far removed from the subjects connected
with audit. The Chartered accountants constitute a distinct group and the income tax practitioners
and advocates cannot be equated with them in so far as audit is concerned and as such Section 44AB
is not violative of Article 14.
The great qualifying principle enshrined in Article 14 of the Constitution envisages equal treatment
of persons similarly situated and circumstanced. The article does not prevent reasonable
classification founded upon rational distinction having nexus with the object of the Act.
In T.S. Natraj (supra) the Karnataka High Court held that Section 44AB is not violative of the
constitution and the classification is not arbitrary and it satisfies the twin conditions.
(2) The provisions also do not infringe Article 19(1)(g). The right of the Income tax Practitioners
assuming that to be a right and not a privilege to practice their profession, is not an absolute right
but is subject to laws made from time to time. If the law made with due regard to the prevailing
conditions excludes the ITPs in the bigger cases or with reference to bigger assesses, it can not be
said that the fundamental right of the ITPs is infringed.
In so far as the assessee is concerned, even if the provision infringes their fundamental right, it is a
reasonable restriction and is saved by art. 19(6). The interest of public revenue and the advantages
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derived thereby far outweigh the inconvenience and hardship, if any, caused to the tax payers.
19. From these conclusions and considering the contentions advanced, the challenge based on
Article 14 is to be rejected on the following grounds:
(i) Chartered Accountants by reason of their training have special aptitude in the matter of audit. An
Income Tax Practitioner does not have the same expertise as the Chartered Accountants in the
matter of accounts. The argument therefore, that the effect of such a provision will be to exclude all
other categories of authorized representatives except the Chartered Accountants from carrying on
their profession is liable to be rejected, as they constitute two distinct class having a nexus with the
object of the provisions, which is evasion of tax dues.
(ii) The contention that such a provision brings in an oppressive restriction is also liable to be
rejected as Auditing accounts is a specialized job. It may be true that some Income Tax Practitioners
may also acquire that skill by sheer practice without passing the necessary examination. But that
does not preclude Parliament from prescribing special qualifications with reference to the auditing
of accounts.
(iii) Legal Practitioners and Chartered Accountants are equal for the purpose of representation of
assesses before Assessing Authority but they are not equals for the purpose of compulsory audit. The
preferential treatment given to the Chartered Accountants for the purpose of compulsory audit does
not militate against the rule of equality under Article 14 of the Constitution. The terms "audit",
"auditing" and the "functions of auditor" clearly bring about the difference between the Chartered
Accountants and others. The object and purpose in providing compulsory audit is to facilitate the
prevention of evasion of taxes, administrative convenience in quick and proper completion of
assessments etc. In the light of this object, Chartered Accountants and others cannot be said to be
similarly situate. The qualifications and eligibility to be enrolled as Income Tax Practitioners are
entirely different from that of Chartered Accountants from the point of view of auditing.
(iv) Merely because apart from dealers whose turn over is more than 40 lacs. dealers dealing in
liquor trade have also to get their accounts audited does not make the provision arbitrary. Such
dealers are a class by themselves as they are carrying on a trade which is res extra commercium.
They constitute a class by themselves and if the Legislature in its wisdom has provided that their
accounts should be audited, it is neither unreasonable nor treating them as a class arbitrary.
The classification in the instant case, is reasonable and has a nexus with the object which is to direct
a class of dealers getting their accounts audited by a specialized agency so that there is no tax
evasion.
On behalf of the Petitioners, a distinction was sought to be made in certification under Income Tax
Act and under the V.A.T. Act. In our opinion, the legality of the provisions or its non-arbitrariness is
not dependent on the manner in which the form has to be filled, the contents thereof and the
procedure. What is relevant is to consider the object of the Act and in selecting the class of
professionals whether the legislature has acted unreasonably or has imposed unreasonable
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restrictions on the right of the assessee and or income tax practitioners to carry on their occupation
or profession. It must be noted that the chartered accountant can not certify the correctness and
completeness of the sales tax returns unless they audit the accounts of the dealer as maintained in
the first part of Section 61. After audit Chartered Accountant has to certify the various items in Part I
of Form No. 704. These items are subject to audited chartered Accountant's observations and
comments about the non-compliance, shortcomings, deficiencies, in the return filed by the dealer.
There are various other requirements. Suffice it to say that it is a specialized job which can only be
undertaken by the person professionally competent and trained to audit. Advocates are not qualified
as observed by the Supreme Court in T.D. Venkatarao v. Union of India 237 ITR 315. The other sales
tax Practitioner and retired employees definitely not.
20. The settled law on the subject is that as long as the twin tests of reasonableness of the
classification and nexus with the object are satisfied, wisdom of legislation cannot be substituted.
The State Legislature is free to decide in its wisdom as to how best to safeguard the State revenue.
Different States may adopt different standards and policy of one legislature may not be adopted by
another legislature as the matter lies in the domain of policy making. Because some States have
permitted Sales Tax Practitioners to carry on audit need not necessarily mean that as the Legislature
of the State of Maharashtra has not so provided, that would be arbitrary or that the classification
considering the nexus of the object is arbitrary. It is for the State Legislature to decide how to
protect its revenue and this is more true with regard to economic legislation. See R.K. Garg v. Union
of India and Ors. SC as also the observations of the Supreme Court in Para 16 in Directorate of Film
Festivals and Ors. v. Gaurav Ashwin Jain and Ors. . The court observed as under:
16. ...Courts cannot interfere with policy either on the ground that it is erroneous or on the ground
that a better, fairer or wiser alternative is available. Legality of the policy, and not the wisdom or
soundness of the policy, is the subject of judicial review....
21. The Maharashtra Value Added Tax was enacted pursuant to a decision to introduce VAT system
in the country. An empowered committee of Finance Ministers was appointed. As noted by the
Supreme Court there can be no denial of the fact that Chartered Accountants have the expertise in
the matter of accounts. What Section 61 requires is that the dealer must get the accounts audited
and produce the report of such audit alongwith the certifications that may be prescribed. This
certificate has nothing to do with the provisions of Section 22 of the Act. Section 22 is a special
power conferred on the Commissioner for selection of dealers for audit. The entire object of the Act
is maintenance of proper accounts by the dealers and certification of the accounts so that the books
are in order and there is no fraud considering what is required by form 704. Inspite of certificate
issued by the Accountant, Section 22 empowers the Commissioner to carry out special audit. It is
not that on obtaining certificate under Section 61 the authorities are precluded from going through
the Accounts. Under Section 22, it can still order an audit and arrive at the conclusion that the
accounts have not been properly maintained. The scheme of the Act requires the dealer to maintain
accounts under Section 63. These accounts have to be kept by every dealer liable to pay tax under
this Act. There is no restriction as to who can write these accounts. Next is Section 61 as now
amended and the explanation. This requires audit to be done and the certificate to be issued only by
a Chartered Accountant and or Cost Accountant. Section 22 is a special power in the Commissioner
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to direct an audit even if an audit was earlier done and certified by a Chartered Accountant or a Cost
Accountant.
In Andhra Sales Tax Practitioners and Consultants Association and Ors. v. Commissioner of
Commercial Taxes and Anr. 127 STC 177, the constitutional validity of Sub-rule 5A of Rule 17 of the
Andhra Pradesh General Sales Tax Rules, 1957 had come up for challenge. The rule required that
any dealer whose total turn over is not less than 40 lakhs of rupees, shall get the accounts
maintained by him for any year, audited by a Chartered Accountant within the meaning of the
Chartered Accountants Act, 1949 and shall furnish to the assessing authority, a certificate of such
audit in form XXXVII and a statement in form XXXVII along with the statements in forms A.R.I.,
A.R.II, and A.R. IV. The challenge made was that the rule is unreasonable and violative of the right
to carry on a profession under Article 19(1)(g). The challenge was rejected. No doubt what was
considered there was an exercise in subordinate legislation.
22. We may consider the challenge under Article 19(1)(g). Does Section 61 prohibit the Petitioner
from carrying on their profession or does it amount to an unreasonable restriction not protected by
Article 19(6). In so far as lawyers are concerned, the Supreme Court in V. Sasidharan v. Peter and
Karunakar has held that traditionally lawyers do not carry on trade or business or do they render
"services" to clients. When can a law be said to amount to a total prohibition. Gainful reference can
be made to the judgment of the Supreme Court in State of Gujarat v. Mirzapur Moti Kureshi Kassab
Jamat and Ors. . It was therein sought to be contended that the impugned legislation amounts to
total prohibition on carrying on their trade, profession or business. The Supreme Court was
considering as to what is the meaning of word restriction. The court held that three propositions are
well settled (i) "restriction" or "regulation" includes "prohibition" and in order to determine whether
total prohibition would be reasonable, the Court has to balance the direct impact on the
fundamental right of the citizens against the greater public or social interest sought to be
safeguarded; (ii) the standard for judging reasonability of restriction or restriction amounting to
prohibition remains the same, excepting that a total prohibition must also satisfy the test that a
lesser alternative would be inadequate; and (iii) whether a restriction in effect amounts to a total
prohibition is a question of fact which shall have to be determined with regard to the facts and
circumstances of each case, the ambit of the right and the effect of the restriction upon the exercise
of that right. The court went on to observe that the ban is total with regard to the slaughter of one
particular class of cattle. The ban is not on the total activity of butchers. They are left free to
slaughter cattle other than cow progeny and carry on their business activity. Then the court
observed as under;:
We hold that though it is permissible to place a total ban amounting to prohibition on any
profession, occupation, trade or business subject to satisfying the test of being reasonable in the
interest of the general public, yet, in the present case, banning slaughter of cow progeny is not a
prohibition but only a restriction.
It will thus be clear that in the instant case considering Section 82 of the VAT Act, the category of
persons who are excluded from the ambit of explanation of Section 61 are not denied their right of
appearance before the Authorities under the Act. In other words, they are not prohibited from
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The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
carrying on their profession. In Fertilizer Corporation Kamgar Union v. Union of India AIR 1981 SC
344 one of the contention raised was that sale by the company of its assets would affect their
fundamental right under Article 19(1)(g). The Court held that closure of an establishment does not
infringe his fundamental right to carry on an occupation or the fact that some workers may
eventually be retrenched. At the highest, it will only amount to a restriction. Such restriction can be
imposed considering Article 19(6) of the Constitution of India which provides that it is open to the
State in the interest of general public to impose reasonable restrictions on the exercise of right
conferred on such class. Apart from that it is further provided that nothing in Sub clause (6) shall
prevent the State from making any law relating to professional or technical qualification necessary
for practicing the profession, trade or business as the case may be. In other words, apart from the
power conferred on the State to impose reasonable restrictions under Article 19(6), there is a further
power conferred under Article 19(6) of laying down professional or technical qualifications
necessary for practicing the profession as in the instant case. Considering the tests laid down in
MRF Ltd. v. Inspector, Kerala Government and Ors. to judge the reasonableness of the restriction,
can the provision which requires the audit to be done only by Accountant as explained, amount to an
unreasonable restriction. In the matter of carrying out audit the State has chosen to confer that right
only on a class of persons having expertise in the field. This cannot be said to be arbitrary or
excessive in nature so as to go beyond the requirement of the interest of the general public. That
would be yet another reason as to why the challenge under Article 19(1)(g) must fail.
23. We may also refer to the Petition filed on behalf of the Bar Council of Maharashtra and Goa.
When a Sales tax Practitioner applied to be enrolled with the Bar Council, the same was rejected.
See L.M. Mahurkar v. Bar Council of Maharashtra 1996 101 STC 541. The Supreme Court in an
appeal by the Sales Tax Practitioners, observed as under:
It may also be pointed out that the construction suggested by the appellant will lead to anomaly and
must be avoided. After passing of the Advocates Act, only one class of persons entitled to practice
the profession of law, namely, advocates. If the phrase "practice the profession of law" is equated to
appearance before the sales tax authority, in that event, a chartered accountant or a cost accountant
or even a relative or an employee of an assessee will not be entitled to appear before a sales tax
authority after the Advocates Act came into force. Not only that, if the contention of the appellant is
accepted, after the appointed date the sales tax practitioner who does not have a degree in law will
not be entitled to be enrolled as an advocate, will not be able to practice the profession of law and
consequently will not be able to appear before any sales tax authority notwithstanding the
provisions of Section 71 of the Bombay Sales Tax Act.
We may only point out that Section 29 of the Advocates Act till date has not been brought into force.
Apart from that one fails to understand the stand of the Bar Council after the decision of the
Supreme Court in T.D. Venkatrao (supra) where the Supreme Court has accepted the fact that
Chartered Accountants by the reason of their training have special aptitude in the matter of audit.
The act of maintaining accounts is neither pleading, practice nor acting. For the reasons already
discussed, we find that the challenge to the Constitutional validity of the Legislation under Articles
14 and 19 at the instance of the Bar Council will also have to be rejected.
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The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
24. That leaves us with the additional submission made in Writ Petition No. 1777 of 2007. The issue
of competence of the State Legislature. The Petitioner does not dispute that in the matter of enacting
the law pertaining to recovery of sales tax, the same clearly falls within entry 54 of the State List. If
in the process of making legislation, the legislature in its wisdom provides for the procedure in the
manner in which tax has to be levied, maintenance of books, procedure for checking correctness or
verification of books, we fail to see as to how the same amounts to ancillary legislation or procedure
not falling within the competence of the State Legislature under Entry 54. The Act requires that the
dealer has to maintain books and the books have to be audited and required to be certified by a
Chartered Accountant. That will not result in the legislation falling outside the competence of the
State Legislature. The Legislation in pith and substance is relatable to imposition of sales Tax which
is within the competence of the State legislature. The courts examine and ascertain the pith and
substance on scrutiny of the true character of the enactment. See E.V. Chinnaiah v. State of A.P. and
Ors. (2005) 1 SCC 294. It is so in the instant case. The burden where such a challenge is raised is
always on the Petitioner who attacks the competency of the State Legislature. The normal
presumption is that the State Legislature does not exceed its jurisdiction. See Welfare Association
A.R.P, Maharashtra and Anr. v. Ranjit P. Gohil and Ors. .
25. We also fail to understand how in such a case audit by a Chartered Accountant will amount to
outsourcing the statutory power as is sought to be contended by the Petitioners to the third party.
The Legislature can always delegate its powers as long as such delegation does not amount to
abdication of its essential legislative functions. In the instant case, there is no abdication of the
essential legislative functions. All that the section requires is that the Accountant has to audit the
accounts and to issue certificate that the dealer has maintained the books as required to be
maintained under the Act and rules. The dealer has to file his accounts then audited with the
certificate. This neither amounts to abdication nor excessive delegation. Such an exercise also does
not amount to conferring on the Accountant a power to determine the correct tax liability of the
dealer. The power to accept returns is of the Authorities under the Act. Even after the certificate is
issued, that the dealer has maintained books, it is always open to the Commissioner under Section
20 to ascertain whether the return is correct and complete or order an audit under Section 22 to get
the accounts audited by the Officers of the Department. A certificate therefore, is not determinative
but to enable the department to consider that the person having knowledge of audit and subject to
the disciplinary control of its parent body has certified that the accounts are properly maintained.
This is to aid the officers in discharging their statutory duties.
This challenge therefore, has to be rejected.
26. The last challenge is that under Section 61, the dealer will also have to engage a Chartered
Accountant apart from engaging Advocate or Sales Tax Practitioner and their financial liability
would increase and by such increase in their financial liability, the same will affect their trade by
cutting into their profits and that it is in fact in pith and substance compulsory levy amounting to
tax and in contravention of Article 265 of the Constitution. We are unable to see merit in this
argument. It is for the dealer to decide whose services the dealer seeks to obtain for appearance
before Sales Tax Authorities or getting the accounts audited. Under Section 82, there are a class of
persons from whom a dealer can obtain services for being represented before the authorities under
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158 Behind every successful business decision, there is always a CMA
The Sales Tax Practitioners' ... vs The State Of Maharashtra Through ... on 28 March, 2008
the Act. Under Section 61, he is bound to select one of the class of accountants also. This is for a
category of dealers whose turn over is more than 40 lakhs. The amount of fee which has to be paid is
the amount to be decided between the dealer and that person, whom he selects from amongst the
accountants that are available. This cannot be said to amount of compulsory levy amounting to tax.
That being the case, the challenge under Article 265 must also fail.
27. Similarly, the question of Article 301 being attracted, does not arise. The challenge on that count
also has to be rejected as the right claimed by the Petitioner or their members or by the dealer is that
Advocate and Sales Tax Practitioner can not carry out audit in terms of Section 61 in the State of
Maharashtra. The enactment is pursuant to the power of the State Legislation to make law within its
competence. This does not attract Article 301. For all the aforesaid reasons, in our opinion, there is
no merit in any of the Petitions and consequently rule discharged in all the petitions. In the
circumstances of the case, each party to bear their own costs.
The learned Counsel pray that the time to file Form 704 be extended. Considering that time was
granted earlier by this Court and extended from time to time, time to file Form 704 is extended upto
30/06/2008 for the accounting year 2005-06 and 2006-07.
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