The Faceless Assessments have been implemented from August 13, 2020 whereas Faceless Appeal shall be allowed from September 25, 2020. Finance Act 2021 also proposes to have faceless ITAT proceedings. So India is making rapid strides in bringing about a sea change in it tax administration – mainly in the field of direct taxation.
For the purpose of this scheme, the board may set-up the following centres and specify their respective jurisdiction:
(a) National e-Assessment Centre;
(b) Regional e-Assessment Centres;
(c) Assessment Units;
(d) Verification Units;
(e) Technical Units; and
(f) Review Units
The purpose of this centre is to facilitate the conduct of e-assessment proceedings in a centralized manner, which shall be vested with the jurisdiction to make the assessment in accordance with the provisions of this scheme.
All communication among the other units or with the assessee or any other person with respect to the information or documents or evidence or any other details, as may be necessary for the purposes of making an assessment under this scheme shall be through the National e- Assessment Centre.
Its major function is to facilitate the conduct of e-assessment proceedings in the cadre controlling region of a Principal Chief Commissioner, which shall be vested with the jurisdiction to make the assessment in accordance with the provisions of this scheme
It shall perform the function of making assessment, which includes identification of points or issuing material for the determination of any liability (including refund) under the Act, seeking information or clarification on points or issues so identified, analysis of the material furnished by the assessee or any other person, and such other functions as may be required for the purposes of making assessment.
It shall perform the function of verification, which includes enquiry, cross verification, examination of books of accounts, examination of witnesses and recording of statements, and such other functions as may be required for the purposes of verification
It shall perform the function of providing technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, audit, transfer pricing, data analytics, management or any other technical matter which may be required in a particular case or a class of cases, under this scheme.
It shall perform the function of review of the draft assessment order, which includes checking the following:
(a) Whether the relevant and material evidence has been brought on record;
(b) Whether the relevant points of fact and law have been duly incorporated in the draft order;
(c) Whether the issues on which addition or disallowance should be made have been discussed in the draft order;
(d) Whether the applicable judicial decisions have been considered and dealt with in the draft order;
(e) Arithmetical correctness of modifications proposed, if any; and
(f) Any other functions required for the purposes of review.
So within a very short span there is radical change in which the tax administration used to operate. The process would be more process driven and possibly the content could be missing This poses lot of challenges for the Assessee.
The scheme under paragraph 5 of the notification provides for 15 days to the assessee within which the assessee has to respond to the notice issued u/s 143(2) by the NeC initiating the assessment u/s. 143(3) or S-144. The notification fails to provide any clause where this time period could be extended beyond 15 days. This rigid approach could lead to unnecessary difficulties for the assessee. There is no provision for extension of this time limit. What happens if the notice is received either when the Assessee is hospitalized or when he is travelling or is busy in a social event like marriage in the family?
Situations can arise where the Assessee would be put to tremendous hardship if AU is not able to either understand the business of the assessee or the accounting. The situation becomes critical as personal hearing facility is provided to the assessee only during the final stage of obtaining the assessee’s comments on the show cause notice (SCN), sent along with the draft assessment order, where the assessee’s liability is proposed to be raised or penalty imposed, and not at any earlier stage of the assessment.
AU, due to lack of communication will proceed on his judgment until the draft assessment order stage is reached. Neither the assessee nor the AU will know, till the stage the draft assessment order is served on the assessee and objections received, whether the AU has understood the assessee’s business, submissions made and basis on which the income has been computed in the return filed by the assessee
This could actually result in a substantial waste of time and effort by the assessee and the AU, due to lack of adequate communication.
(a) Anticipate list of transactions which could come up for scrutiny. Possible issues could be:
1. Issues in dispute during the earlier Assessment year/s.
2. Issues which on which are broadly agitated in other cases e.g. in respect of disallowance under section 14A where the assessee has earned exempt income, Forex losses in respect of unsettled forward positions, etc
3. Transactions involving significant amount of capital gain or transactions which in relation to business restructuring or financial structuring e.g. issue of debentures, issue of shares, etc.
4. Transactions which are exceptional in nature during the year.
(b)Be ready with all the documentary evidences in support of the facts of the issues identified above.
(c) Be prepared with legal positions on the matters which maybe disputed. In fact this should form a part of SOP while entering into key transactions.
(d) The submissions when made should be crisp and all material facts should be submitted at one go. The issue should be explained with particular requirement of the business. Don’t assume that the officer on the other side knows the business.
(e) The submissions in response to show cause notice should be crisp setting out the facts and the legal decisions relied upon and most importantly highlighting the how the facts of the decisions relied upon and assessee’s facts are similar and consequently how the decision should be applicable. No point referred to in the show cause notice should be left unaddressed.Initially, there would be some teething problems as the department will also be in the state of learning and adapting to the new system. For all the years the AO was used to having loads of documents for his satisfaction as well as to serve a firewall in case of any audit query. The loads of information would then help AO argue that there was due diligence while framing the Assessment order. But over a period of time this will reduce litigation and the businessmen would be able to spend more time on business rather than handling prolonged assessments.
About the Author: Mr. Dhrunal Bhatt is a Chartered Accountant having experience of over 25 years in corporate tax. The views expressed by the author are expressly his personal. Neither the author nor the organisation is liable in any way, to the reader who acts on the basis of this article
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Kenjay Law Offices Pvt. Ltd. (Kenjay) is founded in India and the USA by Kenny Bhatt, Esq., (Ph.D.) in Law. Kenny Bhatt holds the law practice license from Illinois USA since 2012 and from Gujarat India since 2000. She has been actively practicing in India and the USA since then. She practices General Law in India and Illinois, USA, and Immigration practice in India and all 52 States of USA.