Budget 2022-23 : What’s changed with faceless assessments

Budget 2022 has not changed things much for individual taxpayers, who were expecting relief on tax rates or additional tax deductions.

However, the Budget is path breaking, considering certain other measures introduced to make compliance easier - the tweaks made to the faceless assessment scheme, being a case in point.

Learnings from litigation

Last year saw lot of litigation between income tax department and taxpayers, where taxpayers challenged the assessment orders passed by Income tax department , for not following the proper procedure as prescribed under the Income tax law for Faceless Assessments. It was the first full cycle of Faceless assessments completed by Income Tax department and there were procedural lapses in various cases, be it non-issuance of show cause notice or making adjustments in the assessment order without providing adequate opportunity of hearing. These assessments were challenged by taxpayers in writ petitions before various High Courts, and even the High Courts found lacunae in completion of faceless assessments, etting aside the assessment orders passed under Faceless scheme.

With a commitment to make the Faceless Assessment scheme more effective and to address the grievance of taxpayers, the Government has proposed various changes in Budget 2022 to the Faceless income tax assessment scheme.

Better opportunity of being heard

Even under Faceless scheme, lot of taxpayers demand an opportunity of personal hearing, in order to explain their business and transactions better, which is sometimes not very effective in written submissions. Earlier, it was discretionary for the Income tax department to grant personal hearing to taxpayers, even if the taxpayer requested for it. Thus, in lot of cases, taxpayers were disappointed for not being granted personal hearing and felt, it is denial of natural justice and fair opportunity to them to express their submissions.

Budget 2022 improves upon this lacunae and makes it mandatory for tax authorities to grant personal hearing through video conferencing/ video telephony to all the taxpayers, who have demanded a personal hearing. 

Further, earlier, taxpayers were required to comply with assessment notice issued by tax authorities within 15 days from date of issuance of notice. Sometimes, considering the nature of the case, this time limit was found inadequate by the taxpayers. Now, the compliance has to be made within so much time, as prescribed by tax authorities in the notice, which they feel adequate as per nature of the case.

Procedural lapses would not make Assessments void

At the same time, considering request of tax authorities and to mitigate litigation on this account, the Budget seeks to remove the provision from scheme of Faceless Assessments, which earlier provided that in case of any procedural lapse in following the procedure laid out under the scheme, the assessment would be rendered void.

Considering the large number of cases and different tax officers handling such assessments, the Income tax department has realized that some procedural lapses are bound to happen. But, it should not render the entire exercise of Faceless Assessment void. Thus, corresponding provision has been removed from the Faceless Assessments scheme.

Deferral of other Faceless schemes

Considering that Faceless assessments itself is facing the teething issues and taking some time for the process to be settled, Budget 2022 seeks to defer the provisions for implementation of other Faceless proceedings, be it, Faceless Transfer Pricing Assessment, Faceless DRP or Faceless ITAT.

This will allow additional time, both to the tax authorities as well as taxpayers to understand the Faceless system, allowing Government to setup necessary Information technology infrastructure and also to frame the other Faceless schemes, taking learnings from implementation of the Faceless Assessment scheme.

Indeed long road lies ahead, both for taxpayers as well as the Income tax authorities, to get used to and successfully implement the Faceless Assessment scheme, with inherent limitations of information technology as well as the human tendency to take some time to accept any change. With use of information technology and advent of pandemic, this process has definitely become faster and taxpayers being used to the new normal of performing their business as usual, without much personal interaction. We can hope, that the new system does give fair opportunity and instills confidence amongst taxpayers for a fair assessment under the new scheme of faceless assessment.

The writer is Partner, Nangia Andersen India

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