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ACCOUNTING watchdog Institute of Chartered Accountants of India (ICAI), which regulates auditors, is currently facing the prospect of meeting an income-tax penalty of Rs 16 crore after the I-T department withdrew exemptions on the institute.

It is also understood that the I-T department has written to the institute’s banks to freeze the regulator’s accounts till the time the institute pays the penalty, according to persons familiar with the development.

ICAI’s newly-elected president Amarjit Chopra confirmed the development, but played down the issue saying that the institute is contesting the assessment. The move comes at a time when the government is exploring the feasibility of having an independent regulator for auditors, a proposal that has been opposed by ICAI as it could significantly prune the current role of the institute.

Under Section 10 (23C) of the I-T Act of 1961, the ICAI, which was formed through an Act of Parliament, is exempted from paying income tax as it had been established for the purpose of education and for advancement of projects of general public utility.

The income tax department’s contention is that the fee earned from training can be construed as business income. A tax assessment panel is also understood to have said that ICAI allegedly failed to get accounts signed by auditors and of allegedly providing loans to partners without guarantee and interest, said people connected with the development. ICAI’s Amarjit Chopra said since the matter is sub judice, he can’t comment on the topic. When contacted, RK Sinha, director exemptions at the income tax department, also declined to comment on the issue. I-T department’s demand has come at a time when ICAI, the nodal body for chartered accountants, is struggling in the aftermath of the fraud at Satyam Computer, where apart from the firm’s chairman and top management, two auditors from PwC have been arrested for their alleged involvement. The Satyam fraud raised concerns in government circles and among companies on whether ICAI has been lax in enforcing controls.

The need for an independent regulator in India has been doing the rounds in the government, especially in the ministry of corporate affairs. Recently, the Asian Corporate Governance Association—an independent organisation that works with investors, companies and regulators in implementing corporate governance practices—suggested the formation of a new independent regulator. The ACGA also indicated that while ICAI has progressed in developing educational courses, it hasn’t been strict on errant companies.

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