By Akhilesh Ranjan
The goal of every tax administration is to foster voluntary compliance with the tax law, and it seeks to accomplish this through a mix of measures directed at rendering high-quality service to the taxpayers, putting in place a fair and responsive administration and establishing a strong system of deterrence that makes it clear that non-compliance will be detected and effectively penalised. An important component of this ecosystem is the proper identification of cases that pose tax risks, followed by an effective system of scrutiny, investigation and assessment that not only ensures the collection of legitimate taxes but also provides for commensurate penalties that serve as a warning against future non-compliance.
Over a period of time, it became increasingly apparent to the Indian tax administration that the disposal of assessments had become an end in itself, with scant regard to the quality of output or to the very purpose of the assessment system. Numerous instances of arbitrariness in decision-making were noted, along with a tendency to err on the side of revenue exemplified in the making of high-pitched assessments. The steady decline in the quality of assessment work led to avoidable litigation, public grievances and uncollectible tax demands on the one hand and a justifiable perception of inefficiency and ineffectiveness of the assessment system on the other.
Faceless assessment scheme
Based on the recommendations of a 13-member task force set up by the Central Board of Direct Taxes CBDT in June 2017, the law was amended in 2018 to provide for a team-based e-environment assessment system with dynamic jurisdiction and the CBDT was empowered to come out with a detailed scheme in this regard.
The CBDT duly notified the E- Assessment Scheme, 2019 (later revamped as the ‘Faceless assessment Scheme’), which sought to impart greater efficiency, transparency and accountability by eliminating the interface between the assessee and the tax authority, and by introducing a team-based assessment system built around technology-driven processes and functional specialisation. Subsequently, the scheme was codified by the insertion of section 144B in the Income-tax Act vide the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, with effect from 1 April 2021.
Budget 2022 proposals
However, the manner of implementation of the new assessment system left much to be desired, with several instances of quashing of assessments by the courts, often accompanied with adverse and sometimes harsh observations from the judiciary.
Considering the difficulties faced by the administration and the taxpayers in the operation of the faceless assessment procedure, the Finance Bill, 2022, has proposed amendments to existing provisions of Section 144B with the objective to streamline the process and address the various legal and procedural issues raised. While the entire section is proposed to be substituted, some very significant changes are:
(a) The role and function of the Technical Unit has now been clearly stated. This should bring out the element of functional specialisation and contribution of the unit in the making of high-quality and team-based assessments.
(b) The report of the Review Unit will now be sent back to the same Assessment Unit that had originally proposed the income-determination statement. This underscores the accountability of a particular Assessment Unit in respect of a particular assessment.
(c) Opportunity of filing a specific response to any proposed variation in the income or loss shall be allowed at a stage much earlier to the making of a draft assessment order. Further, a request for personal hearing will necessarily be granted, without the requirement of any approval from a higher authority and will be conducted by the concerned Assessment Unit. These changes should ensure better compliance with the principles of natural justice.
These proposed changes will hopefully enable a more efficient and effective assessment system, both for the tax administration as well as the taxpayer. However, the new system may not fully achieve its potential benefits till certain fundamental organisational issues are resolved. The anonymised assessment process leads to the absence of a sense of ownership and consequent lack of motivation to deliver quality output. This could be remedied to a large extent by restricting the anonymity to within the regions of respective principal chief commissioners of income tax, with the entire regional set-up, including the assessment units, etc, as well as the jurisdictional offices functioning as a team that is ‘in charge’ of all cases falling in that jurisdiction. Also, the positioning of the new system as primarily an anti-corruption measure has led to a loss of morale among the departmental officers. The CBDT leadership should undertake specific programmes to replace this perception by a more positive identification with technical excellence and societal respect.
(Views expressed are personal, the writer is advisor on tax policy, Price Waterhouse & Co LLP, and former CBDT member)
