Ansh Kumar and Arunabh Rajan

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Introduction

On 13 August 2020 the Hon’ble Prime Minister Shri Narendra Modi announced the National faceless Assessment scheme originally designated for Faceless Appeals . The CBDT then by an amendment  (under sub section 3A of section 143 of Income Tax Act) bought National E-assessment centers which were replaced by National Faceless Centers by Notification issued on 31^st March 2021. The cumulative effect of this being that it made the whole process of Tax assessment faceless and online. In the present article we shall see how the faceless scheme works and what are the some of the challenges it faces or might face.

PROCESS OF FACELESS ASSESMENT

Originally Under this scheme the National E-assessment center (Now National Faceless assessment center ) are set up along with regional E-assessment center which will be headed by a principal chief commissioner, moreover there would be an Assessment unit whose main function will be to identify the issue as mentioned under section 143 (2) of the Income Tax Act, 1961, once this is done a  notice is issued to the tax payer who has to respond to the same within 15 days.

Upon receiving the response the National E-assessment center shall allot the case for the purposes of E-assessment  to a specific assessment unit in any regional E-Assessment Centre through an automated allocation system the jurisdiction of which would depend on the notification by the CBDT which has the power to decide its own jurisdiction for the purpose of tax assessment under section 120 of the Income tax act. 

A notice would then be sent to the registered email id of the tax payer on requirement of any further information as and when sufficient.. However on failure by the assessee to respond to the notice, the assessor can levy penalty on the assessee for non compliance under section 144 of the Income tax act.  

Process of Appeal

Faceless Appeal centers were made by amendment to  Sub Section 6 of section 250 which states as follows:-

“(6B) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of disposal of appeal by Commissioner (Appeals), so as to impart greater efficiency, transparency and accountability by— 

(a) eliminating the interface between the Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent technologically feasible; 

(b) optimising utilisation of the resources through economies of scale and functional specialisation;

 (c) introducing an appellate system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner (Appeals). 

(6C) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (6B), by notification in the Official Gazette, direct that any of the provisions of this Act relating to jurisdiction and procedure for disposal of appeals by Commissioner (Appeals) shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification.”

The above mentioned provision became operational from 25^th September 2020 wherein now face-to-face interaction between assessee’s and the Income Tax Officers  has been eliminated, and all appeals been made online. Under this system, everything from filling our returns, issuing notices, and allocating appeal centers will be done online along with  the orders and notifications issued by the Center to be given a Document Identification Number  (DIN). Also Under the dynamic jurisdiction, an order will be made in one location and then evaluated by another officer at another location, which may be anywhere in India.

Moreover under this scheme if a tax payer wants a face to face meeting with the person who is assessing the case then the tax payer has to write to the Principle Commissioner of Income Tax (PCIT) for such a meeting which would happen through a video conferencing however this is not a right of person and it would be at discretion of the PCIT making it an arbitrary decision depending on the whims and fancies of the PCIT, since no guidelines for the same have been laid down, and the same is based on their application of mind.

Assessment and Appeal scheme against the Principles of Natural Justice.

Natural justice is a common law notion that entails fairness, reason, equality, and equity. The ‘Principle of Natural Justice’ has constitutional support in India, thanks to Articles 14 and 21 of the Indian Constitution. The Supreme Court in Maneka Gandhi vs. Union of India has clearly established that every person should be treated equally, according to Article 14 and as per Article 21, the law and method must be fair, just, and reasonable. 

The Latin maxim ‘Audi alteram partem’ has been accorded absolute respect in Indian Income Tax Laws, and our Indian equivalent to this Latin term is “Suitable or Reasonable Opportunity of Being Heard.”

In the case of  Manikrao Anchule vs State of Maharashtra & Ors, the Hon’ble Supreme Court held that the adjudicatory process must be in accordance with the doctrines of audi alteram partem, i.e., no one should be condemned without being heard, and nemo debet esse judex in propriacausa sua, i.e., no one should be judge in.

Nature of Income Tax Assessment being Quasi-Judicial. 

A reasoned order speaks for itself. It embodies in itself the principles of natural justice. In the matter of Asstt. Commissioner Commercial Tax Department, Works Contract and Leasing Quota v. Shukla & Brothers. The Supreme Court observed that it shall be obligatory on the part of the judicial or quasi-judicial authority to pass a reasoned order while exercising statutory jurisdiction. It is a well settled principle of law that the nature of duties performed by an assessing officer falls under the ambit of  quasi judicial authority, the P&H High court in the matter of Commissioner Of Income-Tax vs L. Rajeswar Parshad examining the same held as follows –

“The proceedings concerning the assessment of tax are undoubtedly quasi-judicial proceedings as the rights and liabilities of the assessee are determined on a consideration of certain facts and the law applicable to those facts.”

Furthermore the ITAT cochin in the matter of Parisons Milling Co (P) Ltd. vs. A.C.I.T while scrutinizing the assessment order by the assessing officer observed in the following words –

“In view of the above, it is necessary on the part of the assessing officer to give reasons in the assessment order for taking a particular decision. The reasons recorded in the assessment order should ensure fairness in the process of decision making. Furthermore, the assessing officer being a quasi judicial authority should indicate the application of mind in the assessment order. The reasons contained in the assessment order would definitely facilitate the exercise of jurisdiction by the appellate/revisional authority.”

It is pertinent to note that the principles of natural justice is no more confined to the judicial proceedings and the courts have in catena of judgments observed that the principles of natural justice are also applicable to quasi-judicial Bodies and administrative actions as well. In the light of this let us apply these principles to check if the new scheme complies with the same? 

How is the scheme Against the Basic ingredients of Audi alteram Partem?

The two basic and essential ingredients of the Rule of Audi Alteram Partem are a) Notice and b) hearing

Assessee’s or their authorized representatives are unable to meet with the concerned income tax adjudicating authority and make verbal or oral face-to-face representations in all three components of the faceless tax administration regime, namely faceless assessments, faceless appeals, and faceless penalties. The sole way to interact with the system is by electronic means, such as uploading written responses and submissions, as well as supporting documents and records, through the e-Proceedings utility in the registered account on the income-tax department’s website’s e-filing portal.

The Show Cause Notice (SCN) is issued to the Assessee only after the Assessment Unit in the Regional Faceless Assessment Centre has passed the Draft Assessment Order in the new Faceless Assessment Scheme for 2019. Furthermore, the Assessee does not have a “by-default” right to a personal hearing, and can only seek one through video conferencing/telephony if they disagree with the additions/disallowances indicated in the draught assessment order. If the Chief Commissioner or the Director General, Regional E-Assessment Centres, believes the case fits under the list of specific circumstances as announced by CBDT, he or she may authorize the request for a personal hearing. Wherein in the old In the former E-Assessment Scheme, 2019, the Assessee was entitled to a personal hearing through video conferencing/telephony in all assessment cases if they disagreed with the additions/disallowances proposed in the draft assessment order, as a result of a right vested in the scheme.

Furthermore, under the current structure, the assessee may be given a personal hearing only after the assessment unit at the Regional e-Assessment Centres has passed the draft assessment order, not before. To make this right of personal hearing more effective and relevant, the Assessee should be given this opportunity of a fair hearing before the draft assessment order is passed.

The Tough way Forward, What’s Next?

Although the primary goal of the faceless tax administration is to eliminate physical interface, physical visits and meetings between the assessee and the assessing authority cannot be allowed, and no one should ask for them, that goal can still be met by inserting an enabling legislative provision granting a by-default right of personal hearing to the assessee. At present the future of the present scheme seems bleak as the recent judicial pronouncements are acknowledging the same issue, for instance the Honorable HC Of Delhi in K L Trading Corporation vs. National e-assessment centre, Delhi & Anr.  has noted that the petitioner has been able to set up a prima facie case for issuance of notice and grant of an interim order contending that provisions of Faceless Assessment (1st Amendment) Scheme, 2021 has not been adhered to which requires the National e-assessment centre to provide an opportunity to the assessee. In a similar matter of DJ Surfactants vs. National e-assessment centre, New Delhi & Ors the Hon’ble Delhi High Court quashed the impugned assessment order on the grounds of bRegional e-Assessment Centresh of the principles of natural justice. Further the Hon Telangana HC in Axis Wind Farms (Anantapur) Private Limited vs. Union of India noted that The impugned assessment order was passed without providing a personal hearing and without considering the documentary evidence furnished by the assessee. The kerala HC in the matter of  Manickan Ravichandran vs. National e-assessment centre, Delhi admitted the matter on the ground that impugned order prima facie suffers from perversity as well as non-compliance with principles of natural justice. Recently the madras high court in the matter of Magick Woods Exports Private Limited vs. National e-assessment centre set-aside the impugned order and directed the assessee to comply with the show cause notice within 3 weeks and also directed the revenue to enable the portal so that the assessee can file its objections. Making this the first such decision in this respect  wherein the order was set-side and the revenue was directed to hear the assessee. It would be interesting to note how the Honourable SC views the scheme and gives its interpretation.