The government had introduced the faceless assessment regime in 2018. Suitable amendments were made in the Income-tax Act, 1961 (Act), authorising the government to set up an internet-based, independent, centralised communication centre for the issuance of e-notices to taxpayers, thus doing away with the need for traditional face to face appearances before the Income Tax Department.
These preliminary steps finally culminated in the launch of the Faceless Assessment Scheme, 2019. In keeping with its intentions of conducting proceedings under the Act in a faceless manner, vide Finance Act, 2020, the Faceless Appeal Scheme, 2020 had also been introduced making the appellate proceedings before the Commissioner of Income-tax (Appeals) faceless.
Faceless Scheme challenges
Though the underlying intent of the faceless assessment scheme is undoubtedly a step in the right direction, taxpayers have been facing multiple issues.
"The most common issue faced recently is of orders being passed out without following due processes prescribed under the Act. It was noticed that in several cases assessment orders had been passed without the issuance of a show cause notice or draft assessment order or any other procedural infirmities resulting in the violation of the principles of natural justice. This has led to an increase in the litigation cost in the hands of taxpayers.
Recently, the Hon’ble Delhi High Court in the case of Bharat Aluminium held that even under the faceless assessment scheme, a taxpayer has a vested right to a personal hearing and the same must be given by the tax department if a taxpayer asks for it, irrespective of the facts of each case.
The other challenges include lack of adequate infrastructure for uploading data, limitations on file size, number of documents, difficulties in explaining complex facts, business structures, intricate legal aspects etc.
Also, the erstwhile practice of leaving selective questions in a notice unanswered and resorting to opportunities for giving explanations to tax officers verbally is not available now in the faceless regime and therefore, taxpayers need to address every query raised in a notice, and the submissions should be self-explanatory substantiated by proper documentation and evidence.
With the Union Budget 2022-23 approaching, it would be a welcome move if suitable amendments are made to explicitly make personal hearing mandatory in faceless assessments.
Last year, the Finance Act, 2021 had brought amendments to notify a scheme for the disposal of appeals before the Income Tax Appellate Tribunal (ITAT) in a faceless manner by 31 March 2023.
'The Finance Minister in her Budget Speech had clarified that a National Faceless Income Tax Appellate Tribunal Centre would be established and all communication between the ITAT and the taxpayer would be made electronically and wherever a personal hearing is needed, it shall be done through videoconferencing. A detailed scheme is yet to be notified in this regard.
The ITAT is the final fact-finding authority, which implies that a finding of fact arrived at by ITAT is final and conclusive and the subsequent appellate authorities such as the High Court/ Supreme Court cannot reappreciate the factual evidence and substitute their factual findings for the finding recorded by the ITAT.
Therefore, the appellate proceedings carried on at the ITAT level form a very crucial part of the overall appeal process under the Act. The disavowal of a hearing at the last stage of the fact-finding level may lead to adverse impacts on taxpayers given the fact that in most cases, the submissions are lengthy and run in hundreds of pages and deal with the issue from a factual standpoint.
The presiding members of the ITAT Bench are in a better position to appreciate facts in a personal hearing with the taxpayer and the tax authorities to understand the prespective.
When introduced, the ITAT faceless scheme will go a long way in reducing cost, bringing in transparency, speedy disposal of cases, eliminating physical interface. At the same time, due care must be taken while implementing the scheme; a hybrid structure wherein both the physical and virtual system of granting personal hearings would be available to the taxpayer as and when necessary, would be effective.