Income Tax Faceless Assessment in India- The Journey So Far
The Government introduced the faceless Income tax assessment with the intention to make the whole assessment process faceless, paperless and on electronic mode. The main objective behind its inclusion in the Indian tax system was to reduce the face to face interaction or human interface between the tax department and the taxpayer or assessee.
It came as a fresh breadth of air for taxpayers especially in crucial times of COVID-19 pandemic where social distance and being at home is the key to be protected from the deadly disease. It also helped in removing the fraudulent activities or any corruption in between by the involved parties due to its whole online procedure with utmost transparency.
But with time, it became clearer that shifting the Income Tax assessment process from manual mode to the online mode can only be backed when there is a shift in the tax authority’s attitude. The recent cases and writ petitions filed by various taxpayers in different courts around the country, in a way states that we need a more positivity in the attitude of the taxation department for making the process a success and not mere an example of a step taken towards digitizing the process.
The principle of natural justice has always existed in the judicial parlance and with the Income tax faceless assessment, this principle has got even more strength. If the rights of the taxpayer are denied during any given point of time in the Income Tax assessment, they can seek a remedy by approaching the court or appellate bodies for better judgments.
In this article, we will be bringing out some issues related to the faceless Income tax assessment as discussed by various courts.
These appeals and orders have also provided a better clarity on how the whole Income Tax assessment process must be done and the main purpose behind it should be fishing out any fraud transaction or detail and not to make the assesses guilty.
No Show Cause Notice (SCN) or draft assessment order issued before passing the order:
As per the provisions of the Income Tax Act, the taxpayer to be assessed by the taxation authority must be provided an Income Tax notice to inform or intimate them about the proposing any addition or any disallowance if any from the assessment.. Also, before the final Income Tax assessment order is being passed by the Assessing Officer (AO) it is their duty to consider any submissions made by the assessee.
In order dated 21st September, 2021 in the case of ChanderArjandasManwani – Writ Petition No.3195/2021, the court held and set aside the assessment order issued by the AO just because the process of the issuing of Show Cause Notice and final draft assessment order was not properly followed.
In this case, the AO passed the order without providing any SCN, however, the assessee had already furnished the required details required for the Income Tax faceless tax assessment when the same were asked to be furnished through a notice by the department. The tax department gave reasons that the notice issued for furnishing documents by the taxpayer was itself the SCN but the court held that it was not as the SCN is totally different from the one for calling details and information. Some similar cases with orders are-
- A similar matter was observed in Delhi High Court in RMSI Private Ltd. Vs. National E-Assessment Center W.P. (C) 6482/2021.
- SHL (India) private Limited Vs. UOI and others W.P. (L) No.11293/2021.
Insufficient time provided for replying to the SCN:
In the case of Suresh Kumar Lakhotiya- Writ Petition No.2848/2021, the High Court of Mumbai noted and decided on 8th September, 2021, where the assessment order was quashed due to the time period of only 30 hours was provided in the SCN for the taxpayer to reply the same and that too covered the weekend.
It is to be noted that as per the natural justice principle, one must be given adequate time period to furnish the required details. The time period is not mentioned in the Income Tax Act, however it must be rational enough taking in account the information that is required.
Virtual hearing not granted even on request:
One of the features of the Faceless Income Tax Assessment scheme is that assessee can ask for and must be provided with an opportunity of virtual hearing as and when they desire.
The Act does states that it’s totally up to the taxation authority where it deems necessary or fit to compel to such demands and grant a hearing but it is not mandatory.
But in certain cases, it was observed that in matters where the granting of virtual hearing should have been granted to the assessee and the process was not followed.
The matters in which courts held the same and quashed the assessment orders sue to the reason of being violating of this natural justice principle are as follows-
- ChanderArjandasManwani- Writ Petition No.3195/2021- Order was passed on 21st September, 2021.
- NeerajaRateriaWPO No.969/2021- Order was passed on 5th October, 2021.
- Naresh Kumar GoyalVs. NFAC W.P. No. 6245/2021 and CM Appeals No.19753-54/2021: Order was passed on 12th July, 2021.
Submissions not considered:
In the case of Mantra Industries Limited W.P. No.1625/2021, the court ordered on 11th October, 2021 strictures against the Assessing Officer and asked the Ministry of Finance to look into this matter. The case highlighted the issues of not considering the submissions made by the taxpayer for the Faceless Income Tax Assessment, not granting the virtual personal hearing on request and filing a wrong affidavit by the taxation authority. The Mumbai High Court held this case as a gross violation of the rights provided to assessee.
Order passed before date of Compliance as per SCN:
In the case Antony Alphonse Kevin W.P. No.8379, 8932, 8934/2021 the Madras High Court held that the assessment order was passed before time period provided to the assessee for filing the reply. Therefore, an order dated 29th December, 2015 was passed by the bench to quash the assessment order that was considered as impugned for not considering the submitted materials and matter by the taxpayer.
Submission could not be filed due to tax department’s portal server down:
The Income Tax portal has recently been changed and upgraded with all sorts of software for making it more viable for taxpayers. Due to continuous up-gradation the taxpayers do face a lot of challenges to upload or open the website from time to time.
One such issue is the non-working of the portal on the last date of submission filing, which made it more difficult for some assessee to not submit the responses. The department ignored this issue and passed the orders without considering the same. In such instances the court held the department responsible.
As in the Fariq Chand Vs. National E-Assessment Center, Delhi bearing W.P. No. 8054/2021, where the court ordered on 9th August, 2021 and directed the department to issue a fresh assessment order to the assessee after taking all his submissions into consideration, which he couldn’t file due to crashed tax portal.
Assessment order passed before date of compliance:
The assessee have been facing the issue of assessment order passed before the due date for replying to the SCN or draft assessment order expires. This problem has become often in the new faceless Income tax assessment. In the following cases the respective courts reversed the same and held the department for issuing such orders way before the actual time-
- Ekambaram Sukumaran bearing WP. No.10433, 11029 and 11032/2019: The order was passed on 27th April, 2021 by the Madras High Court.
- Antony Alphonse Kevin W.P. No.8379, 8932, 8934/2021.
Thus, it may be inferred from above, that although the intention behind introduction of faceless income tax Assessment was to increase transparency and decrease the harassment of honest tax payers, however, till date, the purpose has not been achieved to its fullest. However, still it is early days and the government along with CBDT will definitely work out a mechanism to remove all the lacunas and anomaly’s so that desired purpose of transparent and faceless Income Tax Assessment can be achieved.