Recently, the Prime Minister, while addressing a conference of senior tax officials, asked for a push to e-assessment in income tax proceedings, and anonymity of proceedings using technology, so that vested interests do not impede the due course of law. He also suggested that human interface be kept to a minimum in the tax administration’s dealings.
Most notices received during the current year for assessment state that the response and details should be given by uploading the details after logging into the taxpayer’s income tax e-filing website account. Though the notices do not state so, a taxpayer has an option, when he logs in, to opt for personal attendance instead of e-assessment. What are the advantages and disadvantages of e-assessment? Is it really the answer to all assessment procedure related problems, as it is made out to be?
One of the significant advantages of e-assessment is the time saved. A taxpayer need not travel to the income tax office, and await his turn in the corridor to meet the tax officer (at times, that wait would stretch to a few hours). Even if one is not in the same city, one can still respond to the notices.
The second significant advantage is that the taxpayer is no longer subject to the potential corruption of a tax officer, with threats to make additions to the income unless one pays up. This is indeed a big relief for honest taxpayers, and which is what the Prime Minster has been stressing on.
There are, however, very significant disadvantages as well to the current system of e-assessment. Often, certain documents such as property purchase or sale agreements are called for, and these need to be uploaded. The site capacity for uploading documents under e-assessment proceedings is limited to only 20MB of data. In many cases, the size of the soft copy of such bulky documents exceeds this limit. The taxpayer then has no alternative but to opt out of e-assessment.
The other significant disadvantage is the lack of understanding of commercial transactions on the part of tax officers. Almost all tax officers are career bureaucrats, and have never worked in the private sector (in fact, they have worked only with the tax department). They are, therefore, not exposed to how commercial transactions are carried out, and have little understanding of the commercial reasons for a transaction being structured in a particular manner. Often, this lack of understanding culminates in their seeking to make an addition to the returned income.
Currently, during the course of assessment hearings, one is able to explain to the tax officer the commercial rationale, and is able to clear his doubts about a transaction. Most tax practitioners would testify to the fact that tax officers do not get convinced merely by written submissions, however eloquent they may be, but when the same issue is explained to such officers orally in a manner which they can understand, the issue is understood much better. Tax officers’ arguments can be countered on the spot, clearing their misgivings.
That is why the courts have held that the right to be heard is one of the fundamental principles of natural justice to be followed in assessment proceedings, which are quasi-judicial proceedings. If such right of hearing is not granted, serious injustice may be caused to a taxpayer.
At times, one also receives an e-mail from tax officers, again asking for information that has already been uploaded. On enquiry, one is told that the tax officer has recently changed, and that the new officer has not yet been granted access to login to the system of his new charge. One finally ends up e-mailing the information once again to the new tax officer.
While the idea of e-assessment is in principle an excellent one, the systems and procedures need to be tweaked a little to ensure that it does not result in injustice to taxpayers in the form of unjustified additions in the assessments. The space limit for uploading documents needs to be increased, and on change of tax officers, login access to the system has to be granted to the new officers immediately. Also, tax officers need to be given adequate training regarding trade practices and procedures in different industries, and for different types of transactions. Ideally, they need to be deputed for a year or two to a public sector entity, to understand commercial realities.
E-assessments need to be monitored by a Commissioner. Wherever any addition is proposed by the tax officer, a show cause notice needs to be given to the taxpayer, that too only after seeking approval of the Commissioner. At that stage, the taxpayer needs to be given an option to either e-file his reply, or seek an appointment for attendance and reply in person. The scope for corruption can be reduced by a requirement of seeking approval of the Commissioner for every addition, and a right to the taxpayer to appear before the Commissioner to explain his case before grant of such approval.
It is only then perhaps that the process of e-assessment will really live up to its true potential, and taxpayers as well as the tax department will reap the benefits that it is supposed to provide.
Gautam Nayak is a chartered accountant.