Faceless Tax Assessments: Off To A Rocky Start
As the first cycle of faceless assessments comes to a close, experts point to 3 issues that the government needs to address.
The idea of faceless income tax assessments was first mooted by Finance Minister Nirmala Sitharaman in 2019. In August last year, the government introduced the Faceless Assessment Scheme 2020 with the promise of transparent and efficient assessments.
While the scheme should have been a boon in pandemic times, implementational challenges have resulted in a rocky start. Until March 10, a total of 82,072 assessment cases were completed in a faceless manner, according to a written response in Rajya Sabha by Anurag Thakur, Union Minister of State for Finance & Corporate Affairs.
The faceless assessment is definitely a path-breaking reform requiring appropriate implementation at the ground level, Sandeep Bhalla, partner at Dhruva Advisors, said. Appropriate training should be provided to the income tax authorities on both technological and procedural aspects of the scheme, he said.
According to Vikas Vasal, national managing partner of the tax vertical at Grant Thornton Bharat, teething troubles apart, on an overall basis, the Faceless Assessment Scheme has largely been successful in achieving the objectives of transparency and efficiency. “Digitisation of the proceedings has led to significant time savings and smooth handling of assessments in these Covid times.”
But three key challenges need to be addressed by the government to make the scheme a success: ensure a robust infrastructure, curb the excessive information being demanded by tax officers, and enable an inclusive regime for virtual hearings.
What Does The Scheme Do?
It makes physical interactions between taxpayers and the revenue department a thing of the past. Territorial jurisdiction of assessing officers has ceased and income tax returns of one taxpayer may be scrutinized by an officer sitting in another city. The allotment of cases is random and automated.
The cases are assigned to tax officers by the national and regional e-assessment centers. And that kicks off a multi-level assessment process.
The assessment unit is tasked with seeking information from the taxpayer selected for assessment ; the verification unit then checks it against the taxpayer’s books of accounts and earlier records; the technical unit provides assistance on legal and accounting matters and finally, the review unit looks at the draft assessment order before it is issued to the taxpayer.
The draft assessment order has to account for previous judicial decisions on the issues involved and ensure that all the relevant facts, evidence has been considered.
The provision regarding the draft assessment order being issued prior to the final order is a welcome step, Bhalla told BloombergQuint. It helps to gauge the perspective of the assessing officer who is proposing an addition, he said.
In absence of a physical interface, this is a critical aspect and helps to respond appropriately and justify your case. In our experience, we have also seen proposed adjustments being dropped after appropriately responding to the draft assessment orders.Sandeep Bhalla, Partner, Dhruva Advisors
Faceless Assessments: Key Challenges
Most experts BloombergQuint spoke with pointed to the IT infrastructure as an overarching concern. Excessive and irrelevant information being demanded and discretion exercised by the department in granting a virtual hearing are some of the other pain points which taxpayers are facing.
The success of this scheme depends largely on a robust IT infrastructure, something which both taxpayers and the revenue department need to invest in. Perhaps why, small- and medium-sized businesses are finding it difficult to cope with the new regime.
The technology gaps at the revenue department’s end are proving to be problematic for large and small businesses alike.
First, taxpayers are constrained to compress all the information asked for in a 100 MB file, with each file not exceeding 10 MB in size. This becomes a huge challenge especially since voluminous data is being sought from taxpayers at the draft assessment stage. Queries are often generic, repetitive, and not adequately customised to the taxpayer’s business, experts told BloombergQuint.
Given the infrastructure constraints, information could be contextualised keeping in mind the size of a taxpayer’s business, as well as its eventual relevance from that particular assessment’s perspective. For instance, there is no point in asking for detailed evidence to support items already covered in tax audit reports.Sameer Gupta, Partner, EY India
Stability of the portal and connectivity issues further compounds this problem.
And finally, the draft-assessment orders are often sent to defunct email IDs, which then lead to ex-parte final orders.
“Such notices, which weren’t received in the assessee’s email, are then posted on the portal. This led to delays in responding to the department’s notices which wasn’t the case during physical hearings,” Bhalla said.
As per the scheme, taxpayers are entitled to seek personal e-hearings once a show cause notice for assessment is issued. But the SoP issued by the revenue department says that the video conferencing facility be used sparingly.
This is specifically problematic in complex cases and high value transactions which may need elaborate explanations and may not be easy to explain in written submissions alone. The likelihood of evidence not being fully appreciated is also higher in this case since lengthy submissions run the risk of not being read fully.
The video conferencing facility is available only after issuance of draft order and moreover on a discretionary basis. Practically, the requests for video conferencing by the assessees are rarely accepted.Sandeep Bhalla, Partner, Dhruva Advisors
This approach of the tax department is now facing a judicial challenge.
The scheme has been challenged before the Delhi High Court as discriminatory, arbitrary and illegal to the extent it provides a virtual hearing not in all cases but only at the discretion of the assessing officer. The high court has issued notice to the tax department.
Finally, the faceless assessment scheme’s goal of weeding out corruption has run into a language problem. Since allocation of cases is geography agnostic, often written submissions pose a huge challenge. And the deadline of 15 days to submit responses compounds this problem.
To the relief of taxpayers, last month, the Delhi High Court granted a stay in four cases where assessment orders were issued without giving taxpayers an adequate opportunity to submit their responses.