For the first time in the history of India, the Finance Minister presented a paperless Union Budget for FY 2021-22 through a Made in India tablet. The government also launched a Union Budget app for accessing the budget documents, showing that the Indian government is clearly taking various measures to go digital as much as feasible.

Digitisation in taxation ensures that the taxpayer’s experience in dealing with tax authorities is transparent and painless. For ease of compliance and to reduce discretion, taxation processes are being made faceless. Recently, the Prime Minister launched the Faceless Assessment and Taxpayers’ Charter as part of “Transparent Taxation – Honoring the Honest” programme. Pursuant to the announcement made by the Prime Minister, the Central Board of Direct Taxes (‘CBDT’) rolled out the Faceless Assessment and Faceless Appeal Scheme. In Budget 2021, the government has taken the following steps for minimising litigation:

– Constitution of Dispute Resolution Committee for small and medium taxpayers

– Reduction in time limit for reopening assessments

– Existing Authority for Advance Ruling scrapped and proposed to constitute Board for Advance Ruling

– Faceless proceedings before the Income Tax Appellate Tribunal

I. Dispute Resolution Committee:

For reducing litigation and to give an impetus to dispute resolution for small taxpayers, a new voluntary mechanism – Dispute Resolution Committee (‘DRC’) is proposed to be constituted. The purpose of introducing the DRC is to provide early tax certainty to small and medium taxpayers and to prevent new disputes and for settling the issue at the initial stage itself.

The new scheme is proposed to have the following features:

– Only those disputes where the returned income is INR 50 lakh or less (if return is filed) and the aggregate amount of variation proposed in specified order is INR 10 lakh or less, shall only be eligible to be considered by the DRC.

– The government may constitute one or more DRC.

– The assessee shall have the option to opt or not opt for the dispute resolution through the DRC.

– The orders passed pursuant to search or survey proceedings or pursuant to information received under an agreement referred to in section 90 or section 90A shall be excluded for the purpose of this mechanism.

– An assessee would not be eligible for this resolution process if there is detention, prosecution or conviction under various laws as specified.

– Other conditions shall also be specified in due course which will need to be satisfied for being eligible under this provision.

– Apart from the dispute resolution, the DRC, subject to such conditions as may be prescribed, shall have the powers to reduce or waive any penalty imposable under this Act or grant immunity from prosecution for any offence under this Act in case of person whose dispute is resolved under this provision.

II. Faceless proceedings before the Income Tax Appellate Tribunal

After the introduction of faceless assessment and appeal, it has now been proposed in the Budget to launch a faceless scheme for Income Tax Appellate Tribunal (‘ITAT’) proceedings on similar lines as faceless appeal scheme. It is proposed that all communication shall be electronic to ensure optimisation of resources and to achieve functional specialisation.

Such faceless scheme may be notified on or before 31 March 2023 to bring in increased efficiency, transparency and accountability. The implementation of the faceless ITAT proceedings would have to be examined in detail once the scheme is notified by the government. It would be interesting to see how the government manages the principle of natural justice of being heard while it launches the faceless ITAT proceedings scheme.

III. Existing Authority for Advance Ruling to be scrapped and Board for Advance Ruling to be set up

The Authority for Advance Ruling (‘AAR’) was non-functional for a substantial time due to non-availability of eligible persons to fill the post of Chairman and Vice Chairman. This hampered the working of the AAR and the government believes that there is a need to look for alternative method of providing timely advance ruling to taxpayers. Accordingly, it is proposed to constitute one or more Boards for Advance Ruling (‘BFAR’) as under:

– The existing AAR will cease to operate with effect from such date, as may be notified by the Central Government in the Official Gazette.

– The BFAR shall comprise of two members not below the rank of Chief Commissioner.

– The government has retained an option to allow faceless functioning of BFAR.

IV. Reduction in time limit for assessments / reassessments

– One of the significant proposals is the reduction in time limit for reopening assessments to 3 years (10 years for tax evasion related cases subject to conditions).

– Proposal to reduce the time limit of assessment to 9 months from the end of the financial year in which the return of income is filed.

The government’s intent is clear on reducing litigation and of providing a robust tax administration structure to taxpayers. The government has also taken measures to reduce litigation and even reduce the uncertainty of the taxpayers. The question is – Will the new dispute resolution mechanisms help to reduce litigation?

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Author Details:

Ashesh R. Safi is Partner with Deloitte Haskins and Sells LLP.

Jigar Shah is a Senior Manager with Deloitte Haskins and Sells LLP.

Vidhi Shah is Deputy Manager with Deloitte Haskins and Sells LLP.

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