With an intent to bring transparency and minimum government - maximum governance, the Faceless Assessment Scheme, 2019 was introduced. Soon thereafter, the Faceless Assessment Scheme, 20201 was introduced. Faceless Assessment has changed the way in which tax audits are being carried on. With team-based and technology driven tax audit, the faceless assessment has itself brought in a new set of challenges for the taxpayers. Taxpayers are facing issues such as lack of infrastructure to respond, lack of personal hearing, difficulty in explaining the nature of transaction in absence of personal interaction, etc. While the Faceless Assessment Scheme has provisions for virtual hearing and passing of a draft assessment order for taxpayer’s response and thereafter finalising the assessment order based on the taxpayer’s response, taxpayers have filed writ before High Courts as the orders were passed without giving proper opportunity to the taxpayer.
Recently, the Madras High Court2 have delved on a writ challenging the order passed under faceless assessment scheme.
We, at BDO in India, have summarised the ruling of the Madras High Court and provided our comments on the impact of this decision hereunder:
Facts of the case
The taxpayer filed a writ petition before the HC praying to quash the order passed under section 143(3) read with sections 143(3A) and 143(3B) of the Income-tax Act, 1961 (IT Act) i.e., under the Faceless Assessment Scheme. Under the Faceless Assessment Scheme, a show-cause notice accompanied with draft assessment order dated 10 March 2021 was issued. The taxpayer had sought an adjournment for the purpose of collating materials necessary to substantiate its stand. However, the order was passed without taking note of the request of the taxpayer for adjournment. The adjournment request was neither rejected nor duly intimated to the taxpayer. Thus, the taxpayer had assailed the abovesaid order on the ground that it was passed contrary to the principles of natural justice.
High Court order
The HC set aside the impugned order as there was an apparent violation of principles of Natural Justice. Further, the HC ruled:
- The taxpayer will comply with the directions in show-cause notice dated 10 March 2021 and intimate the Tax Officer accordingly within three weeks.
- The Revenue Authorities must facilitate receipt of such reply by enabling the portal to receive the objections of taxpayer.
- Upon receipt of objections, the Revenue Authorities will hear the taxpayer and take forward the assessment and complete the same in accordance with law.
This Ruling brings into fore the challenges pertaining to inadequate time given for responding, not taking cognizance of adjournment requests etc. Recently, there have been instances wherein taxpayers were not given an opportunity to be heard over video conferencing even after requests were made. This ruling will help those taxpayers in whose case the principle of natural justice was compromised. Also, recently in case of KBB Nuts Private Limited3, the Delhi HC has set aside the order passed under faceless assessment scheme as the tax officer had not considered the submission made by the taxpayer and thereby principle of natural justice was not followed.
It is also pertinent to note that apart from Madras HC and the Delhi HC, the Telangana and Bombay HCs also had occasions to delve on similar issues. In the case of Shelf Drilling Offshore Services (India)4, the Bombay HC stayed the operation and implementation of the impugned order as it observed that the order was passed in stark violation of principles of natural justice. The hearing is now scheduled on 21 June 2021.
In another case of Axis Wind Farms (Anantpur) Private Limited5, before the Telangana HC, the taxpayer submitted that the assessment order was passed without providing a personal hearing and without considering the documentary evidence. The HC observed that allegations made by the taxpayer were true because in spite of specific requests made by the taxpayer for personal hearing, the Revenue Authority did not provide the same and the documentary evidence does not appear to have been considered while passing the order. Therefore, the HC granted interim stay as prayed by taxpayer. The matter is listed on 20 July 2021.
It is also pertinent to note that post the introduction of the Faceless Assessment Scheme, the Faceless Penalty Scheme6 and Faceless Appeal Scheme7 were also introduced. With the glitches being faced at the assessment level, one needs to wait and watch how the entire gamut of Faceless Litigation pans out in India.
1Our alert on Faceless Assessment Scheme, 2020 can be read at https://www.bdo.in/en-gb/insights/alerts-updates/direct-tax-alert-lok-sabha-passes-taxation-and-other-laws-(relaxation-and-amendment-of-certain-prov
2Magick Woods Exports Private Limited vs ACIT(NeAC) (Writ Petition No 10693 of 2021)
3KBB Nuts Private Limited vs National Faceless Assessment Centre & Anr [WP (C) 5234/2021, CM Nos 16065-67/2021]
4Shelf Drilling Offshore Services (India) vs DCIT [Writ Petition (L) No 10949 of 2021]
5Axis Wind Farms (Anantpur) Private Limited vs Union of India and Others (IA No 1 of 2021 and WP No 11812 of 2021)