Faceless Assessments: Will The New SOP Address Taxpayers' Woes?

Tax department lays down detailed procedure for faceless assessments. Experts weigh in if the revised SOP is litigation proof.

<div class="paragraphs"><p>Source: (Reuters)</p></div>
Source: (Reuters)

The tax department's Faceless Assessment Scheme has got a makeover. Amid widespread litigation and glaring lapses, the National Faceless Assessment Centre has notified a new standard operating procedure to mitigate the shortcomings, impracticalities in the 2019 scheme.

Faceless assessment was introduced three years ago in an effort to encourage contactless tax filing and dispute resolution. It had run into a wall owing to various difficulties raised by tax payers. The scheme has been subjected to constitutional scrutiny, accused of procedural impropriety and natural justice violations prompting several changes in the framework via the Finance Act, 2022.

The new SOP might not reduce litigation but is likely to ensure that there is a proper record of notices and replies, Ajinkya Mishra, partner at Luthra and Luthra Law Offices, told BQ Prime.

The new SOP will ensure speedy disposal of cases. However, if the cases are technical in nature, faceless assessment does not really allow you to submit certain arguments. That's possible only during personal hearings.
Ajinkya Gunjan Mishra, Partner, Luthra and Luthra Law Offices

A feature that was made mandatory via the Finance Act, 2022. Prior to the amendment, chief commissioner or the director general in charge of the regional e-assessment centre had discretionary powers vis-à-vis requests of personal hearings by a taxpayer. The new SOP said requests for personal hearings must be granted within two-three days.

The new SOP Is definitely an improvement within the confines of the existing scheme, said Himanshu Sinha, partner at Trilegal. Structured timelines and personal hearing are bound to reduce taxpayers' woes, he said.

Some of the key improvements in the current framework include:

Demarcation of Functions

Functions of various units—assessment unit, verification unit, technical unit, review unit—have been clearly demarcated as per the new SOP. This will help in reducing functional overlaps and increases overall efficiency, experts said.

For instance, under the new SOP, cases can be referred to verification units only if the assessee has no digital footprint or hasn't responded to the notice by Assessment Unit or if the case requires physical verification.

Similarly, reference to the technical unit can be made on specific issues, namely transfer pricing, valuation of properly, withdrawal of exemption etc. The unit will have to account for court rulings on the issue at hand and in the absence of a Supreme Court verdict, the decision of the high court or tax tribunal have jurisdiction over the location of PAN will prevail, the SOP specified.

Assignment Of Cases

The new framework provides clarity on cases that can be referred to the Assessment unit.

Cases are now classified as—computer assisted scrutiny selection, compulsory scrutiny cases, reopened cases and set aside cases.

In reopened cases, through the initial questionnaire, the assessment unit can seek information related to grounds that led to its reopening . The questionnaire in a set aside case would delve into the grounds that led to case being set aside. In compulsory scrutiny cases, specific information arising from the return or any other information available on record that led to compulsory scrutiny would be sought.

This is against the earlier classification of limited scrutiny cases, non-responsive cases and untraceable cases. Red-flagging of untraceable cases has been done away with in the light of change in classification.

Legally speaking, the change in classification of cases doesn't make any difference as all cases except Central charges and International Tax charges are subjected to faceless assessment, said Sandeep Bagmar, advocate at Madras High Court. However, practically speaking, it helps in identifying cases that need to be assessed on a recurring basis, he added.

Further, unlike the earlier framework, the assessment unit will need to do a preliminary examination to determine if the case has been correctly assigned for faceless assessment. If found unsuitable for consideration, such cases shall be referred back to the centre for reference to appropriate authority.

Centralised Communication of Notice

Centralised communication of notice, a feature retained from earlier framework, has seen an improvement in the form of insertion of SMS messaging. This was introduced after several taxpayers failed to appear, represent their on account of inadequate notice or no notice. This will addresses issues posed by incorrect or dormant email ids.

The proof of service of notice through email is still a gray area under the Information Technology Act. Tax authorities will find it challenging to prove receipt and acknowledgement of notice by the assessees. Same with text messages. Assessees can always take the defence of no receipt of notice.
Sandeep Bagmar, Advocate, Madras High Court

It is going to be a legal impediment for the tax department, Bagmar said.

Timelines For Each Step

Detailed timelines have been in provided in the SOP for each step. However, most of these are shorter than the ones provided in the previous framework.

For instance, after an assessment notice is issued, an assessee can seek an adjournment for up to seven days. Earlier, it could be more than this. Suo moto adjournment by the assessment unit, which was not time-bound earlier, also faces the same deadline.

According to Mishra, the underlying reason behind this restriction is to prevent case pileup before tax authorities considering the backlog of cases during the pandemic.

But, for certain actions, the SOP has reduced the statutory timelines under the income tax law. For instance, the SOP says, the assessee should respond to an initial notice within fifteen days. But the Income Tax Act provides 30 days to do so.

Timelines provided under the SOP cannot circumvent the limitation provided under the Act, Himanshu Sinha, partner at Trilegal, said. It is a demarcation intended to effect time-bound disposal of case and should not ideally affect the rights of taxpayer, he said.

Final Assessment Order

An assessment order shall be comprehensive and must include clear description of issues, details as to notice issued, replies of the taxpayer, information collected against the taxpayer, response to questionnaires, submissions during physical hearing, and penalty imposed. Due care shall be taken to ensure that a taxpayer gets sufficient opportunities to present his case.

Taxpayers will also get an opportunity to object to the draft assessment order prior to issue of final assessment order.

The requirement to record the submissions of the assessee under new SOP, if properly implemented, can ensure that the assessing officer is at least receptive to the submissions. However, without proper checks that the submissions are rightfully recorded, the problems might subsist.
Sandeep Bagmar, Advocate, Madras High Court.

On paper, the new SOP attempts to address some of the blatant shortcomings of the earlier framework. The jury is out on its implementation and efficacy.