Faceless Assessment: Concerns and Recommendations for Seamless Digital Integration
On 13th of August, 2020, Hon’ble Prime Minister Shri. Narendra Modi rolled out the scheme of faceless assessment, faceless appeal and tax-payer charter. The scheme for ‘e-assessment’ was already notified in 2019, which has now been modified by amending the original scheme and renamed as ‘faceless assessment’. Undoubtedly, the move is a step towards transparent taxation and honoring the Honest taxpayers. The intent behind the introduction of this scheme, as it appears, is to create a unified taxation system; wherein no particular officer shall have power to interpret and implement the law based on his own understanding of law, which, at times, may not be the intention of the Legislature.
In fact, the interpretation and implementation of law shall now be based on set of instructions, Standard Operating Procedures, the decision will be subject to review before the same is finalized in the form of passing order. This will bring more certainty and uniformity in the way law is interpreted and implemented across the country and thus, will boost the confidence of the taxpayer.
Historically, it has been observed that any measures / scheme launched by the Government fails not due to flaw in the system but due to various factors such as – the way a scheme is implemented, the lack of necessary infrastructure, lack of flexibility required during transitional phrase, lack of guidance and support required for implementation, lack of timely measures to resolve the unforeseen issues which may arise after implementation.
Like any other scheme, the faceless assessment and faceless appeal may also face the above constraints. Further, the lack of timely measures to resolve these constraints could possibly create panic and hardship to the taxpayer. Thus, the purpose of the scheme may not be served in its letter and spirt, if remedial actions are not taken, wherever necessary.
Considering that the faceless assessment is still in the nascent stage, there could possibly be few teething problems that might be faced by taxpayer. Following are few problems:
To arrive at the correct interpretation of law, expertise in related subject and experience are both equally important. In other words, before we look at the law, we should first understand the nature of business and nature of transaction in its true sense. New business models are evolving at much faster pace than before and becoming more complex in nature. Even, in face to face hearings, the tax officials have, at certain times, faced issues to comprehend the nature of businesses and transactions in true spirit and this could haunt the taxpayer due to incorrect application of law. The question arises how the same tax officials will now be able to comprehend the nature of businesses and transactions by just reading the submissions of the taxpayers. For example, even the expert tax professionals require meeting with clients and briefings to arrive at a particular conclusion. This is an inherent limitation of faceless scheme. Therefore, to achieve the noble vision of the Government, the officials in the Finance Ministry must find a viable solution so that a complex issue of law and fact is not lost in the wilderness and thereby, increasing the litigations in higher courts.
As discussed above, the success of any scheme depends on the way it is implemented. The faceless assessment and faceless appeal will require robust infrastructure in the form of IT equipment’s, internet connection with good bandwidth, software to transform the data in size and form in which the same is desired by system, technical guidance, good drafting skills, etc.
The notices issued by the department, at times, contains numerous details, and the responses for which runs into many box files. It might be not practicable to scan all those documents and upload the same on the portal. Even in e-assessment era, the taxpayers were submitting such data in hardcopy form due to technical difficulty. However, with faceless assessment, the taxpayer will have no choice but to scan all the data and transform the data in reduced size and form. Therefore, a robust infrastructure is imperative.
The help desk / customer care staff deployed to resolve the taxpayer’s issues does not have necessary skills and technical knowledge about the problems faced by the taxpayers. They are not even aware of the ground reality. Further, there is no co-ordination between the help desk/ customer care staff and the person handling the assessment to arrive at the possible solutions. Considering the faceless scheme, the decision makers in the Ministry should have relook at the framework for proper coordination.
In faceless assessment, more weightage has been given to assessment based on set of instructions and SOP’s. This method has its own limitations as it cannot encompass all possible business scenarios. The tax officer may in order to comply with the set of instructions and SOP’s and to avoid audit risk on them, may follow the instructions and SOP’s in rigid manner without any flexibility in deserving cases too. Though set of instructions and SOP’s will lead to same conclusion, the same is not warranted in each and every case. A middle solution should be found for these problems to mitigate the probability of increased litigations.
Though the scheme provides for issuance of multiple show cause notices before making addition and the proposed addition will be reviewed by the other units, however, the psychology within the department could remain the same that the addition has been proposed by our department officials only and should, therefore, sustain. The entire efforts of various units might then move towards sustaining the addition rather than reviewing it independently and arriving at correct decision. The mishaps of the Dispute Resolution Panel (‘DRP’) of sustaining additions due to the clipping of Revenue’s powers in 2015 to appeal against order of DRP, should be avoided. The concerned officers should be trained to have an open mind to look at the issues objectively.
With the implementation of the taxpayer charter, the small taxpayers shall also be required to maintain a robust IT systems and have dedicated IT staff to work on real-time issues.
To conclude, following are a few recommendation which the policy makers may consider:
The scheme should have been implemented in phrase manner, with option to opt for voluntarily for certain time, to know the challenges faced in implementation of the scheme rather than blanket implementation on all taxpayer at the same time. The challenges faced in phrased manner could be improved upon before final implementation so that the problems faced by the taxpayers’s are minimal and that there is seamless transition.
The taxpayer should be accorded right to personal hearing when the taxpayer so desires and should not be made optional based on discretion of e-assessment center. As tax payer knows the fact which he desires to communicate to the department and in such cases how the e-assessment center will decide whether to hear particular tax-payer or not. Denial of personal hearing desired by the taxpayer may be against the principle of natural justice. In fact, the Faceless Appeal Scheme is contrary to sections 250(1), 250(2) and 250(5) of the Act, which specifically state that right of hearing shall be granted to taxpayer at the appeal stage. The Scheme has been challenged before the Hon’ble Delhi High Court and the matter is presently sub judice.
The taxpayer should also be communicated on the action taken by the department, though internally, against the grievances filed by him for any issue. This will increase the confidence amongst the taxpayer that the accountability for action taken by the department is in effect established.
Considering MOUs have been signed by the Finance Ministry with SEBI and various ministries like MCA, etc., the taxpayer need not be requested to to submit the copies of shipping bills, bills of entry and many similar records, which can also be gathered online with the help of reference number provide by the taxpayer. In such cases, the department shall only ask taxpayer to submit the reference numbers from which the details can be extracted.