Faceless assessment: Taxpayers seek redress from courts over thorny issues | Business Standard News

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Experts says that the system is a mixed bag of experiences for the taxpayer, but agree that it largely circumvents the principle of natural justice


Prime Minister Narendra Modi had launched the faceless scheme on August 13 last year, to lend transparency to the process of assessments and appeals under the income tax. While the scheme amended its earlier avtar of e-assessment and was introduced the very same day, faceless appeal came into force over a month later, on September 25, 2020.

The move sought to eliminate the physical interface between an assessee and the tax officer to the extent technologically feasible. At least 3,500 posts of assessment officers across the country were diverted to the national e-assessment centre and regional centres, in two sets of orders issued barely hours after the announcement.

Under the faceless assessment, NeAC is the top body to send all notices and communication electronically. Under it are the regional e-assessment centres (ReACs) in cities such as Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bengaluru and Hyderabad.

These centres would have four units—technical, review, assessment and verification. The assessment unit would identify issues, seek information and analyse material to frame draft assessment orders.

The verification unit would conduct inquiries, examine books of account, examine witnesses and record statements via video conferencing. The technical unit would provide advice on legal, accounting, forensic, information technology, valuation, transfer pricing, and data analytics. The review unit would review the draft assessment order and explore whether or not material evidence is brought on record, points of facts and law are incorporated, application of judicial decisions is considered and the arithmetic correctness.

NeAC would assign cases to the assessment unit, verification unit and technical unit through an automated allocation system. It would then select draft assessment orders for review and allocate them to the review unit through an automated allocation system.

NeAC would provide an opportunity to the taxpayer before finalising the order. After finalising the assessment order, it would transfer all electronic records to the jurisdictional assessing officer for post-assessment work such as collecting penalties.

A mixed bag of experiences

However, several issues have cropped up over a year after e-assessment was converted to faceless assessment.

Sandeep Sehgal, director-tax and regulatory, AKM Global, a tax and consulting firm, said, “In some cases, it has been seen that assessment has been completed without issuing show-cause notice or draft assessment order which, apart from contravening the provisions of faceless assessment, also violates the principles of natural justice.”

Further, in most of the cases, draft assessment orders have more or less turned out to be final assessment orders, as the objections and submissions filed by the assesses in response to such orders have been altogether ignored and disregarded by the faceless income tax authorities, Sehgal said.

The opportunity of personal appearance through video conferencing has been sparingly granted till now, Sehgal said.

“Mostly, such requests for personal appearance have been denied or completely ignored. Refusal to grant personal appearance again is a violation of the basic rights of the assessee, which provides them an opportunity of being heard before any adverse order is passed in their case.

This also goes against the values enshrined in the Taxpayers’ Charter,” he said.

Om Rajpurohit, Director (Corporate & International Tax) with AMRG & Associates, has a word of praise for the faceless assessment system.

“Indeed, the faceless assessment mechanism has resulted in significant time and energy savings for the taxpayers in general, and it is proving to be a plausible move by the government to some extent in achieving its objective of bringing transparency and credibility.”

However, he said every reform has certain hindrances and shortcomings at the implementation level, which must be addressed quickly in order to build the necessary trust among taxpayers. This can be achieved by offering an appropriate and reasonable opportunity to the taxpayer to be heard and by following the principle of natural justice.

Sehgal said another niggling issue is the lack of time afforded to the taxpayer to respond to notices during assessments. No more than a day’s time has been provided to respond to show-cause notices and the assessee’s requests for adjournments have often been ignored.

“There have been instances where taxpayers’ submissions have been ignored or not taken into account or missed out during faceless assessment,” he said.

Besides, there are long-standing and recurring technical glitches, issues related to the e-portal server, difficulty in uploading data, VC links not working, and many others, Sehgal said.

Rajpurohit cited technical issues such as notice reflecting after the expiry of hearing, link of video conferencing not working, and assessees being unable to upload ZIP version of files to segregate the annexures.

He said digital verification through digital signature certificate (DSC) is mandatory for each submission, which causes difficulties for authorised representatives.

Himanshu Parekh, partner-tax at KPMG in India said the faceless assessment cycle was a mixed bag of experience for taxpayers.

“While in several cases, taxpayers had fair and pragmatic orders being issued by the tax department, in some cases, the assessment orders were passed without giving adequate time to respond to notices/opportunity for personal hearing or without issuing draft orders, thereby vitiating the principles of natural justice and mandate of law. This prompted taxpayers to challenge the validity of the assessment orders by filing writ petitions in the high courts,” he said.

Sehgal said faceless appeals had issues similar to faceless assessment. “The process flow is quite similar in the appeals scheme compared to the assessment scheme. However, the faceless appeals scheme requires a thorough review to make it successful and above all, to inspire confidence in the taxpayers, including aspects like constitutional validity of the scheme and the granting of an oral hearing being discretionary, etc,” he said.

The limited opportunity of personal hearing through video-teleconferencing may lead to unnecessary stumbling blocks for the appellants to present their case, especially in complex matters, which affects their right to be heard effectively, Sehgal said.

Rajan D Gupta, co-founder, Alpha Rajan & Partners, said tax assessments and appeals have been properly closed with all due justice to assessees in so many cases.

However, the most important issue is that often the tax officials working behind this system try to follow the tech system blindly and fail to adhere to the principles of natural justice though adequate mechanisms do exist to take care of such aspects, Gupta said.

“This haste in confirming the tax demands without following due process and unintended functioning of technicalities of the portals vitiates the proceedings. I hope that the government will definitely set things right very soon,” he said.

The response of the courts

Due to all these issues, various courts have set aside or stayed the assessment orders.

For instance, the Delhi High Court recently ruled that tax authorities have to grant a personal hearing to an assessee if he insists, before passing an order to raise additional demand under faceless assessment. In a case related to Umkal Healthcare Ltd versus National Faceless Assessment Centre, the court set aside the demand notice issued by tax authorities to the company as the request of personal hearing was not accepted. The court remanded back the matter to the assessing officer.

The Madras High Court recently issued a notice to the union government on a writ petition challenging the constitutional validity of the faceless assessment system under the Income Tax Act. The court restrained the tax department from recovering additional demand. The petition challenged the faceless assessment regime as manifestly arbitrary, opaque, contrary to the settled principles of natural justice and administrative law in general and violative of provisions of the equality before law among others in the Constitution. The petition challenged faceless assessments on grounds like discretionary personal hearing, opaque risk management strategy, and no statutory basis for automated allocation of cases.

The Bombay High Court set aside an order given through the faceless assessment system as it kept the draft order intact and did not take into cognizance the modifications sought by the petitioner.

Organisational structure and functioning of faceless assessment

At the top is the National e-Assessment Centre (NeAC), which facilitates and centrally controls the e-assessment.

All communication between the units mentioned below for the purpose of making an assessment is through NeAC.

Regional e-Assessment Centres come under the jurisdiction of the regional principal chief commissioner for making assessment.

Assessment units determine any liability, analysing information, and such other functions.

Verification units make inquiries, conduct cross verification, examine books of accounts and witnesses, and record statements.

Technical units offer services such as advice on legal, accounting, forensic, information technology, etc.

Review units check whether or not the facts, relevant evidence and law and judicial decisions have been considered in the draft order.

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