Author: Gitika Wadhwani, IV year of B.B.A.,LL.B.(Hons.) from Jagran Lakecity University Bhopal
The government of India with an aim to reduce the physical interaction between tax officials and taxpayers and avoid complexities and time constraints has introduced the faceless assessment scheme in India. This Scheme was introduced on 13th August 2020. The goal is to ensure an effective tax system in the country that is transparent and efficient and to reduce the burden of taxpayers by simplifying the compliance procedures. This scheme provides for conducting all assessment proceedings electronically between tax officials and taxpayers. All the documents are required to be submitted online by the taxpayer. These documents and information are reviewed by the tax officials who then pass the assessment order electronically. India is very popular for its e-governance initiative and faceless assessment is one such initiative. The concept of faceless assessment is based on the idea of seamless assessment. It eliminates unnecessary physical interaction, reduces costs, and increases efficiency in tax filing. But there are several advantages and disadvantages of the faceless assessment scheme. It has a certain impact on the economy discussed further in this Article.
ADVANTAGES OF FACELESS ASSESSMENT
Faceless assessment is the newly evolved method used for conducting tax audits in India. The following are the advantages of this scheme:
This method of conducting audits electronically reduces the human interface and the possibilities of corruption are therefore less.
It helps in the speedy disposal of cases as no lengthy procedures and paper are involved in physical format so all the hearings are done spontaneously through virtual mode.
There is more efficiency in the assessment of cases as cases are allocated to tax officials across the country randomly, with no jurisdiction barriers.
It helps in making the compliance procedure convenient for taxpayers and reduces the chances of tax evasion.
The process of tax assessment is more transparent and certain.
There is no prejudice or biases involved.
It reduces the chances of fraud and human errors.
It reduces the costs of the entire assessment process.
DISADVANTAGES OF FACELESS ASSESSMENT
Technology and online methods provide more convenience and are efficient but it has its disadvantages also. The following are the disadvantages of Faceless Assessment:
Faceless assessment lacks human interaction which in often cases leads to ambiguity and misunderstandings, creates anxiety, and affects the overall assessment.
It might be unreliable and unsecured at times.
It increases the chances of fraud and cyber scams.
No or minimum scope of presenting in person for any clarification.
FEATURES OF FACELESS ASSESSMENT
No limitation of territorial jurisdiction.
Allocation of cases on a random basis.
No human interface.
Use of Artificial Intelligence for the selection of cases.
Electronically handles the process for filing and response.
Use of unique Document Identification Number (DIN) for centralised issue of notice.
Assessments and reviews are team-based.
Functional specialisation.
The common point for faceless contact.
It has dynamic jurisdiction.
Uniformity in the application of the law.
Easier compliance.
STRUCTURE OF INCOME TAX AUTHORITY
National Faceless Assessment Centre
1. The National Faceless Assessment Centre is a centralised centre for proceedings on the PAN India level.
2. The Principal Chief Commissioner of Income Tax or Principal Director General of Income Tax is the person in charge of NFAC.
3. Every communication is processed through NFAC. It sends notices and receives responses from the assessee through online mode and transfers the documents to the required units for assessment.
Assessment Unit
Assessment Unit or AU is the unit that performs the functions of making faceless assessments:
1. It identifies the material issues for determining any liability or material referred for assessment.
2. It analyses the material presented by the Assessee for the assessment.
3. It seeks information and any clarification required on issues identified.
Verification Unit
This unit verifies the faceless assessment:
It conducts inquiries, cross verification, and examines the book of accounts and any response in the form of data given by the assessee.
Examining the witness and recording statements for faceless assessment.
Technical Unit
The technical unit provides technical assistance for the process of faceless assessment:
It gives advice on legal accounting, transfer pricing, and valuation of property.
It undertakes forensic analysis in the area of information technology to support the technical necessities in conducting faceless assessments.
It provides data analysis and legal technical reports for assessments.
Review Unit
Review unit review the determination proposal before finalisation the order:
It reviews material evidence.
Review the facts and the law incorporated for the process.
It determines whether any addition is required in the issues.
Verify the incorporation of disallowance.
FACELESS ASSESSMENT PROCEDURE
Assignment
The selected case for the faceless assessment is allocated to the specified assessing unit officer by the NFAC. The assessee is informed through SMS or email that the assessee has been selected for the assessment.
2. Sending Notice to the assessee
A notice is sent by the NFAC to the assessee on his registered login ID for the Faceless assessment. A response may be filed to the notice within a specified time by the assessee. This reply is forwarded to the assessing unit.
3. Further information from the assessee
The Assessment Unit may call for additional information, evidence, or documents from the assessee through NFAC. NFAC serves the notice to the assessee for obtaining such information.
4. Inquiry by Verification Unit
If any cross-examination or verification of books of accounts or recorded statements, or witnesses are required by the AU, then a request is made to the NFAC by AU for conducting verification or inquiry by VU. VU is allocated by NFAC through an automated allocation system.
5. Inquiry by Technical Unit
If any technical aid or verification is required a request is made to TU for determining the arm’s length price, valuation of property, withdrawal of registration or approval, exemption, or any other technical matter.
6. Determination of Income
AU prepares an income or loss determination proposal in writing after receiving replies from the assessee.
In case of no variation, AU may send it to the NFAC for the further process of faceless assessment.
In case of variation, notice is served to the assessee, stating variations proposed to be made in the income of the assessee. Assessee is called upon to submit why the proposed variation should not be made.
7. Issue show cause notice to Assessee
In case where assessee fails to comply with the notice by NFAC for submitting information or any previous notice, NFAC shall intimate to the AU. AU through NFAC serves a show cause notice to the assessee giving an opportunity to him to explain the reason or justification. Assessee shall file his response to the show cause notice within the specified time to the NFAC which forwards the same to the AU.
8. Response by Assessee
The reply to the show cause notice must be filed by the assessee within the specified time and date. If the assessee fails to give a response within a specified period AU shall be intimated by NFAC. After considering the response of the assessee or intimation of failure and all relevant material available on record, the AU shall prepare an Income or loss determination proposal and send it to the NFAC.
9. Draft Order and Review
NFAC after receiving the income or loss determination proposal, it may convey to AU to prepare a draft order in accordance with such proposal. AU shall prepare a draft order or assign the proposal to the RU which shall conduct a review of such order and a review report is to be prepared and sent to the NFAC.
10. Review Report
The review report received by RU shall be forwarded by NFAC to the AU which has proposed the determination proposal. AU may either accept or reject all such modifications proposed in the review report and prepare a draft and send it to the NFAC. The reasons for rejecting the proposed modification must be stated by AU.
11. Completion of Assessment
The completion of the faceless assessment must be conveyed to the assessee following the draft order and a final assessment order must be passed if any penalty proceedings are there they must be initiated and sent to NFAC. NFAC serves the Final Assessment order notice for initiation of penalty proceedings and Demand notice specifying the sum payable to the assessee based on a such assessment to the assessee.
EXCEPTIONS TO FACELESS ASSESSMENT
The faceless assessment scheme excludes assessments made by International Taxation Jurisdiction. Also, the assessments following income tax searches and cases assigned to central charges are excluded.