The Central Government introduced the Faceless Assessment Scheme to provide greater transparency, efficiency and accountability in Income Tax assessments.
All provisions introduced under Faceless Assessment, under the Income Tax Act, 1961, are introduced to-
(a) Eliminate the interface between the Assessing Officer and the assessee during the course of proceedings, to the extent that is technologically feasible;
(b) Optimize the utilization of resources through the economies of scale and functional specialization; and
(c) introduce a team-based determination of arm’s length price with dynamic jurisdiction.
Also Read:Faceless Assessment – A Step Way Forward or Way Backward | PART II
Without going deep into the legalities and issues of Faceless Assessment, some of the Rulings of Honorable Courts are listed below:
1. PRAFUL SHAH VS NEAC, DELHI (Bombay High Court) Writ Petition (L) No. 11143 of 2021
The Hon Bombay HC observed the following:
1. The impugned order is passed without jurisdiction and in gross violation of principles of natural justice and so bad in law.
2. Any further action based on the order shall be kept in abeyance until the next date (10th June, 2021)
The Hon’ble Delhi HC noted the following:
1. A breach of the principles of natural justice, and therefore, the impugned assessment order deserves to be quashed
2. The AO has not taken into account the explanation and the material placed before him by the petitioner, along with its reply dated 12.03.2021
3. There shall be a stay on the operation of the impugned assessment order till further orders of the Court.
4. List the matter on 02.06.2021
The Hon’ble Delhi HC noted the following:
1. The petitioner has been able to set up a prima facie case for issuance of notice and grant of an interim order.
2. Variation made to Declared Income, without issue of Show Cause Notice
3. So the operation of the assessment order dated 31.03.2021 shall remain stayed till the next date of hearing (21st May 2021)
4. M/S SAS FININVEST LLP vs. NeAC, DELHI (Delhi High Court) (W.P.(C) 5087/2021)
The Hon’ble Delhi HC noted the following:
1. No show-cause notice was issued to the petitioner-assessee.
2. In the meanwhile, there shall be a stay on the operation of the impugned assessment order dated 31.03.2021
3. List the matter on 10.08.2021.
The Hon’ble Madras HC noted the following:
1. The impugned order has been passed before the time prescribed for filing the reply, it is evident that the impugned order has been passed with pre-set mind.
2. The impugned order stands quashed and
3. The case is remitted back to the second respondent to pass a speaking order on merits in accordance with law after considering the reply filed by the petitioner on 15.03.2021.
6. Cuttack Tax Bar Association Vs. Union Bank of India (Orissa High Court) W.P.(C) No. 33457 of 2020
1. The Cuttack Tax Bar Association (Life Member of AIFTP) filed the Writ Petition against the Notification of Union Government for Faceless Appeal Schemewhich was listed for hearingon 09/03/2021.
2. The notice has been issued to the opposite parties to file their reply. The matter will come on 17/05/2021for hearing before the said Bench.
7. Lakshya Budhiraja Vs Union of India (Delhi High Court) W.P.(C) No. 8044/2020
1. Within three weeks of its launch, Faceless Income Tax Appeal Scheme is under judicial scrutiny as Delhi High Court has allowed a petition challenging the scheme.
2. The aforesaid mechanism is discriminatory and is against the settled principles of law and in violation of the Article 14 of the Constitution of India.
3. He further submits that the right to provide or not to provide a hearing in the matter is also against the principle of audi alteram partem i.e. no person should be judged without a fair hearing in which each party is given an opportunity to respond to the evidence against them.
In the recent order by the Apex Court, very important points and concepts were put in the order favoring the principles of natural justice, citizens right to know and well structuring of the judicial proceedings —
The concept of an open court requires that information relating to a court proceeding must be available in the public domain. Citizens have a right to know about what transpires in the course of judicial proceedings. The dialogue in a court indicates the manner in which a judicial proceeding is structured. Oral arguments are postulated on an open exchange of ideas. It is through such an exchange that legal arguments are tested and analyzed. Arguments addressed before the court, the response of opposing counsel and issues raised by the court are matters on which citizens have a legitimate right to be informed. An open court proceeding ensures that the judicial process is subject to public scrutiny. Public scrutiny is crucial to maintaining transparency and accountability. Transparency in the functioning of democratic institutions is crucial to establish the public‘s faith in them.
Open Court case operates as a wholesome check upon judicial behaviour as well as upon the conduct of the contending parties and their witnesses.
Further, Hon’ble Supreme Court in the case of Rajesh Kumar v. DCIT [2006] 287 ITR 91 (SC) has re-iterated based on Section 136 of the Income-tax Act, 1961, that proceedings before Income-tax Authorities are judicial proceedings. The restriction on the right to be heard therefore is a serious violation of the fundamentals rights of the Assessee and is prima-facie unconstitutional.
The author wants to make a point here while concluding this article; that with this new tax reform:
1. That the quality of the order will be the deciding and game changing factor here. The same was envisaged through reflection of the contents of the central action plan for the financial year 2018-19 that sought to incentivize ‘quality’ orders passed by the Commissioner of Income-tax in their capacity as the first appellate authority. Quality orders were defined as those orders that either enhanced assessment, strengthen the orders of the assessing officer or levy penalty under Section 271(1)(c).
The Bombay High Court had quashed this offending part of the central action plan in order to preserve the independence of the Commissioner of Income Tax (appeals) in Chamber of Tax Consultants v. CBDT [2019] 416 ITR 21 (Bom). If quality of orders is to be gauged by how pro-department the order is, then the new processes as laid down by the faceless schemes have the potential to be less taxpayer friendly than the current process.
2. That the assessing officer has to see the interests of the revenue and the assessee with a rational and a balanced approach. This will be treading a tightrope which needs the molding and a soft humane approach to meet the real objectives of this innovative scheme.
3. The assessing officer acts in the capacity of an agent of the Govt safeguarding the revenue but the taxpayer’s interest and confidence should not be at risk.
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