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Faceless tax assessment creating chaos and legal log jam, alleges industry

Nov 17, 2023 

Tax experts in a recent representation to CBDT shared that faceless complex tax assessment procedures in India have resulted in taxpayers facing difficulties due to ad-hoc additions and lack of human interface to resolve notices.

In a bid to ensure the effective implementation of a faceless tax assessment facility of the Income Tax Department, the industry has approached the Central Board of Direct Taxes (CBDT) to create additions in the system to reduce "chaos and legal log jam".

Tax experts in a recent representation to CBDT shared that faceless complex tax assessment procedures in India have resulted in taxpayers facing difficulties due to ad-hoc additions and a lack of human interface to resolve notices.

Empower India, a public policy think-tank, recently wrote to the CBDT, highlighting concerns faced by taxpayers and sharing their recommendations to improve the assessment process.

Ajay Rotti, founder and CEO of Tax Compaas, while sharing the hardships faced by the industry said the requirement for detailed turnover reconciliations between GST and income-tax returns poses several challenges, including short deadlines, excessive documentation, and partial understanding of GST laws.

"This often results in unwarranted adjustments despite comprehensive explanations and documentation provided by taxpayers," Rotti said.

"The government's initiative, aimed at fostering transparency and tackling corruption, introduced a well-meaning scheme. Previously, in IT assessments, there existed a system where officers were identified, allowing face-to-face interactions for clarifications. The shift to faceless assessments curtailed corruption by eliminating direct interactions and officer identification, establishing a comprehensive trail of proceedings," Rotti added.

Industry alleges that income tax offices have also been observed making arbitrary disallowances, burdening taxpayers, particularly those with complex financial records during peak tax filing periods.

Moreover, the effectiveness of the income tax insight portal, which is instrumental in tax compliance, is contingent upon data reported by other taxpayers. Any inaccuracies in this data can also lead to ad-hoc additions, posing substantial challenges for taxpayers who are further aggravated by stringent submission timelines.

Expressing similar sentiments, Shriram Subramanian, managing director of InGovern, said, "Taxpayers must proactively ensure meticulous records, allocate ample resources, both in systems and skilled professionals, and seek guidance from qualified tax advisors. Discrepancies between reported turnovers demand a closer inspection and alignment between GST filings and income tax declarations."

Subramanian added that tax authorities must elevate their efforts by establishing a comprehensive understanding of ERP systems and bolstering training programmes to enhance the knowledge of the officers. The authorities must empower taxpayers with responsibilities while concurrently establishing a system allowing post-refund claims, ensuring an equitable and streamlined procedure.

Giri, secretary general of Empower India, said, "The current regime has introduced a host of mechanisms that have helped in the collection of taxes. However, the faceless assessment needs to improve to be able to live up to the vision of the finance minister of the country. The recommendations are a step towards creating a more efficient and taxpayer-friendly assessment process, ultimately contributing to India's competitiveness on the global stage."

The Income Tax Department introduced the faceless income tax assessment scheme in 2020, aligned with its Digital India initiative. However, the industry claims that challenges persist due to the lack of uniformity and standardisation in ground-level assessments and the absence of direct interaction between assessors and tax authorities, resulting in complications with adjudications and audit adjustments.

The representation has made recommendations including, "Establishing guidelines for a standardised GST and income tax reconciliation template to streamline assessments. Including turnover reconciliation in tax audit reports for added assurance and focused assessments."

Other suggestions include:

  1. Request information on significant items upfront, reducing reliance on show-cause notices and aiding taxpayer preparation.
  2. Provide specialised training and updated databases for tax officers handling international transactions.
  3. Obtain higher authority approval for adjustments beyond a specified threshold to ensure thorough review.
  4. Grant taxpayers a minimum response time to show-cause notices, considering data complexity and volume.
  5. Prescribe conditions for taxpayers to opt for manual assessment by Jurisdictional Assessing Officers when necessary.
  6. Make video conference recordings easily downloadable from the income tax website, extending accessibility to at least three years.

India's direct tax collections rose 21.82% year-on-year (YoY) at ₹9.57 lakh crore in the current fiscal (2023-24) till October 9, 2023, according to the CBDT. The government has also issued refunds totaling ₹1,21,944 crore for FY 23-24 until September 16, 2023.


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