The opposition has described it as a conflict of interest.
Sharma handled several defence acquisitions and the government has given no reason for appointing him as CAG.
The Supreme Court will now hear the matter in July.
Bharatiya Janata Party leader Arun Jaitley said he was not making remark about the individual but it was an "institutional conflict of interest".
Jaitley, who is Leader of Opposition in the Rajya Sabha, said a substantial part of budget was spent on defence procurement. "He will audit it himself. Is it appropriate?" Jaitley asked.
Defence Secretary Shashi Kant Sharma has handled several defence acquisitions during his decade long stint in the ministry.
--ANI (Posted on 23-05-2013)