What is Faceless Assessment of Taxpayer? Here is all You Need to Know

By Manish Parmar, Senior Associate, Aureus Law Partners

Income tax assessments is revamped and it is now faceless. There will be no physical interaction between the taxpayer or their counsel and income tax assessing officer. Even if the need arises it will be a faceless interaction chosen by a centralised computer system and randomly attaching a taxpayer case to an officer functioning from any different location.

On 13th August, 2020,  Prime Minister Narendra Modi unveiled the ‘Transparent Taxation – Honouring the Honest’ scheme and this was the first step towards giving the honest taxpayers a tax system which would not coerce them.  Three focus areas of this scheme are faceless assessment, faceless appeals and taxpayer charter.

What is ‘assessment’ under Income Tax?

When you file your income tax returns and pay your taxes the jurisdictional officer of Income Tax i.e. Assessing Officer examines the return filed in order to assess the income of the taxpayer. Under the Income Tax law, the assessment may be of following types:

1. Self-assessment – Where the taxpayer calculates the income tax by himself

2. Summary assessment – Preliminary examination by the Assessing Officer, and in case of discrepancy, a comparative chart is shared with the taxpayer for acceptance and / or explanation

3. Scrutiny assessment – Enquiry is conducted to ascertain whether the return filed is correct, and an opportunity is given to the taxpayer

4. Best judgment assessment – Assessment to be carried out by the Assessing Officer basis his best judgment in accordance with the applicable laws.

5. Re-assessment or income – escaping assessment – Where there is a reason for the Assessing Officer to believe that the income chargeable to tax has escaped assessment.

Need for faceless assessment

Till now assessment meant that the taxpayer or his representative had to appear before the prescribed officer, and submit explanation/information. This has led to many difficulties and in some cases harassment as well as corrupt practices. In a bid to make assessment experience seamless and painless, the government is making a move towards the faceless assessment system. With e-filing of IT returns income tax has already achieved a paperless work-flow and now with faceless assessment in place they are moving on to the next level. The biggest outcome of this system is that the taxpayer will not have to now visit any jurisdiction or office or assessment office instead will be assessed through an electronic assessment scheme with no human interface.

How will Faceless Assessment work?

There will be 3 important departments which will make this happen

1. National E-Assessment Center(NeAC) headed by Principal Chief Commissioner of Income Tax

2. Regional E-Assessment Centers (ReACs) across 20 cities including at Delhi, Mumbai, Chennai, Kolkata Ahmedabad, Pune, Bengaluru and Hyderabad

3. ReACs to be comprised of Assessment unit, Review unit, Technical unit and Verification units

Cases for the specified work shall be assigned by the NeAC to different units by way of automated allocation system. The National E-Assessment Center(NeAC) will send a notice to the assessee/taxpayer specifying the reason why the particular case has been picked up for assessment. Taxpayers have to file a response only via an electronic mode  within 15 days. Every notice that will be sent out by NeAC will have a document identification number(DIN).  Once NeAc receives taxpayers response case will be assigned to ReAC. The ReAC will take help of its  technical and verification unit  to go through the response and then finally draft an order. All this while ReAc will never contact the taxpayer. Taxpayers will always be informed by the NeAc. There could be certain cases wherein the incharge of ReAc could ask for a personal hearing depending upon the merits of the case. This hearing will be conducted through a video conferencing. Upon receiving of show cause notice even taxpayers have the right to ask for a hearing.

Conclusion

As the Scheme seeks to eliminate interface between the taxpayer and taxman, it becomes important that the taxpayer submits well drafted response, and the same is properly understood by the taxman. Also, in cases where the taxpayer requests for personal hearing, the NeAC and ReACs have the power to either accept or refuse such requests. This may lead to more litigation as such orders may be challenged before courts by contending that no opportunity of hearing has been given to the taxpayer.

While the Scheme aims to give the taxpayer a seamless, painless and faceless experience in assessment procedure, its quality implementation and requirement of simplifying the tax procedures shall be focus areas.

Given the current prevailing situation and businesses / professionals shifting from brick mortar offices to virtual rooms, implementation of the Scheme may prove to be beneficial for all stakeholders involved. For this, it is also important that the tax laws and procedures are simplified in order to enable the taxpayer more wherewithal in terms of self-assessing his income correctly.