Tax Talk: Challenges in faceless income tax assessment scheme

September 28, 2020 5:15 AM

Circumstances under which an assessee is eligible for personal hearing via video conferencing need to be clearer

While the Faceless Scheme is an inexorable march towards transparency through digital means, it may face some teething troubles, unless necessary clarifications are issued in a timely manner.While the Faceless Scheme is an inexorable march towards transparency through digital means, it may face some teething troubles, unless necessary clarifications are issued in a timely manner.

By Neha Malhotra

The government has launched the new Faceless Assessment and Appeals Scheme for all taxpayers under the campaign of ‘Transparent Taxation’ in August this year. While faceless assessments became effective from August 13 itself, faceless appeals shall be effective from September 25, 2020.

The Faceless Scheme has now formally found its way to the statute vide Taxation (Relaxation and Amendment) Bill that was passed in the Lok Sabha last week. The Bill has optimistically expanded the faceless and team-based process to majority of the proceedings under the Act, i.e., transfer pricing proceedings, DRP proceedings, rectification proceedings, re-assessment and revisions, appeal effects, collection/ recovery of taxes, etc. Notably, detailed structures defining procedure and conduct are yet to be notified in this regard.

The challenges and road ahead
While the Faceless Scheme is an inexorable march towards transparency through digital means, it may face some teething troubles, unless necessary clarifications are issued in a timely manner.

The insertion of enabling provisions in the Taxation Bill has removed ambiguity regarding the coverage of the scheme to a certain extent. It has been explained that matters pertaining to search, seizure and international tax charges shall be kept outside the purview of the scheme. However, the department shall still have to clarify matters such as circumstances under which the assessee shall be eligible for personal hearing through video conferencing, whether the hearing would be recorded and if yes, whether it would be made available to the assessee for future reference.

Further, while it has been made clear that proceedings under DRP shall be conducted in a faceless manner, it is still being deliberated upon as to how the DRP would exercise its power of making further enquiry. Further, it is doubtful as to how tax clearance certificates (under Section 281) will be issued and whether it would form a part of the section governing faceless approval and registration process.

Another grey area is while the law lays down the recommendation of initiation of penalty proceedings by any unit, it does not pronounce a procedure for the conduct of proceedings. The question arises that while almost all proceedings have gone the digital way, why have penalty proceedings been kept out.

While we await clarity on dubious issues, both the taxpayer as well as the department must brace themselves and make sincere efforts for successful implementation of the scheme. Taxpayers should now maintain robust documentation in relation to potential and legacy issues, prepare self-explanatory and concise written submissions, update their contact information on the e-filing portal and respond to the notices timely. Likewise, the department must adopt a non-adversarial approach, grant reasonable time for response, issue clarifications wherever necessary and give time to adjust to the new mechanism.

The writer is director, Nangia Andersen LLP. Inputs from Vasudha Arora

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