Faceless schemes of direct taxes creating more problems than resolutions

The government’s Faceless Assessment Scheme (FAS) for direct taxes seems to be creating more problems than resolutions.

“The scheme was launched with good intentions, but now that aim appears to be going off the track,” said Vinod Jain, a chartered account and Member of Finance Ministry’s High Powered Committee to Simplify Income Tax Law, and also one of the architects of FAS.

He told BusinessLine that denial of opportunity to be heard is against the principle of natural justice, especially when decisions are not in favour of assessees.

Jain is not alone in highlighting the issues related to faceless schemes.

As part of ‘Transparent Taxation – Honoring the Honest’, Prime Minister Narendra Modi unveiled FAS for all assesses on August 13 this year. Later, on September 25, the Faceless Appeal scheme was launched.

Faceless assessment is a jurisdiction-free assessment where the taxpayer will not know who is assessing his tax return. Faceless appeal refers to a mechanism where an appeal against an action of the Tax Department can be filed online and can be disposed of online itself.

Ill-thought-out

“The faceless scheme was supposed to be a post office through which one sends a letter and gets response, but even the process of getting response from assesses is not so simple,” said Ved Jain, former President of Institute of Chartered Accountants of India (ICAI).

“Questionnaires are being prepared without application of mind. So many details are being asked which are not required,” he said, explaining that there is no need to seek Tax Deduced at Source from every assessee.

Lacking personal touch

While CAs have their own set of challenges working in FAS, the Income Tax Separtment has its problems in implementing it. Tax is a complicated matter and everything can not be understood on the basis of documents, said an official. There is a need for personal hearing.

Amit Maheshwari, Tax Partner at AKM Global, said a tax officer might not be able to appreciate deep intricacies around the case just over e-mails. Also, there is less time given to respond to a taxpayer for notices due to communication gaps, he said. “Though an opportunity is given to have a face-to-face interaction, it is given at the time of issuing a show-cause notice. By then, the officer must have made up his mind and a face-to-face interaction may not be of much use.”

Further, in the case of faceless appeal proceedings, per se, most discussions generally happen electronically without any personal interaction, which may complicate the issue further.

Another tax official said random selection of assessment officers may not be good. “There are cases of pick and choose,” he said, while indicating manipulations at DG (Director General) system. He also explained that tax jurisdictions are spread from Mumbai to Kolkata and from Jammu & Kashmir to Tamil Nadu, and asking an officer to verify some documents of an assessee located in another part of the country might not be easy.

Ved Jain said the issue is also whether documents are just being verified or investigated. “Verification and investigations are two different things,” he said. Another key concern here is demand for documents. He said that fulfilling demand of providing all purchase vouchers is a difficult task.

Peer review

Tax officials said law should be given due respect and administrative power should not be over principles defined under the law. Ved Jain feels convenience should not overtake merit, while Vinod Jain said the system of peer review needs to be reorganised.

“An officer doing peer review may not go against the ruling given by another officer, fearing vigilance enquiry at a later stage. So, peer review should be done by independent panels of tax experts,” he suggested.

According to Maheswari, in an effort to mitigate the above challenges, taxpayers should be given a reasonable time to respond to a notice as the quality of questionnaire has improved a lot in the faceless assessment scheme. “Communication gaps should be resolved and a certain threshold should be introduced for personal hearings in case of complex issues.”

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