Faceless evaluation: A paradigm shift in Indian income audits

Modus operandi

Faceless evaluation is run by way of separate models inside the tax division every of which has particular and essential position within the course of, viz evaluation models, verification models, technical models and assessment models. All these models work intently with the National e-assessment Centre (NeAC) and Regional e-assessment Centre (ReAC).

Single level contact for taxpayers

The NeAC is the important thing interface primarily answerable for all communications with taxpayers and facilitates conduct of the proceedings in a centralized method and act as ‘single point of contact’ between the taxpayers and the completely different models within the tax division. The segregation of obligations throughout groups seeks to attain the target of team-based evaluation, and collective choice making as in opposition to one officer making use of discretion to determine on a matter within the earlier regime.

In phrases of the method of faceless evaluation, broadly talking, the tax division’s IT system selects instances for scrutiny evaluation utilizing risk-based standards recognized by way of information analytics. NeAC points notices initiating evaluation proceedings and in search of info from the taxpayers.

Internal mechanics in tax dept

The response furnished by the taxpayer is handed on to a selected Assessment Unit in anyone ReAC, allotted to a selected case by way of an automatic allocation system. The Assessment Unit requests NeAC to acquire info / paperwork from the taxpayer, or to conduct additional enquiry / verification by the Verification Unit, or to hunt technical help from the Technical Unit.

Considering the main points furnished by the taxpayer, the Assessment Unit shares a draft evaluation order with NeAC. In sure instances, the NeAC may assign the draft evaluation order to a Review Unit in anyone ReAC for reviewing the identical.

In case no variation within the revenue of the taxpayer is proposed by the Review Unit, the NeAC will finalize the order and difficulty to the taxpayer on the net Income Tax portal. In case the Review Unit proposes any adjustment to the taxable revenue, the NeAC will present a remaining alternative to the taxpayer to current its case by issuing a present trigger discover, which can comprise a draft of the evaluation order.

The draft order (along with the present trigger discover) gives readability on the view of the tax authorities in a selected a case/ difficulty.

Video convention facility

While responding to the present trigger discover, the taxpayer may request for a private listening to by way of video conferencing. From expertise and to take care of the faceless nature of the proceedings, the tax officer is usually not seen on video convention, whereas they will see the taxpayer and their approved representatives.

In our expertise, requests for private listening to by way of vide convention are typically accepted by NeAC. There can be an choice to add paperwork on the portal on which reliance is positioned through the course of video convention to facilitate an interactive dialogue.

However, in some instances, the submissions filed by taxpayers weren’t thought of whereas finalizing the order, and the request for a videoconference was additionally not accredited. Representations have been made to the tax authorities to contemplate some instances on video convention mode solely. In sure instances, being aggrieved by the orders of the NeAC, some taxpayers have additionally approached courts on the ideas of pure justice

Notice

The initiation of evaluation proceedings is thru the problem of discover to the taxpayer. It has been noticed that the questionnaire issued by NeAC to the taxpayers to provoke the faceless evaluation is sort of particular to a selected enterprise and that the tax division has taken under consideration the monetary statements, the income-tax returns, tax audit report, and so forth. furnished by the taxpayers.

Usually, the time allowed within the preliminary discover issued beneath faceless evaluation scheme is cheap and gives enough alternative to the taxpayers to submit their response. The timelines, nevertheless, gave the impression to be comparatively extra stringent specifically in the direction of the top of the proceedings. Nevertheless, this being preliminary stage of implementing the faceless evaluation proceedings, course of is prone to get extra streamlined for each the taxpayer and the tax division.

Online submissions

Currently, the Income Tax portal has limitations by way of measurement of information that might be uploaded, thereby requiring a number of uploads in case of voluminous submissions by the taxpayer.

The means of taxpayers to clarify advanced transactions and voluminous particulars solely by way of written submissions typically poses a problem beneath the faceless evaluation scheme. This additionally requires the taxpayer to draft exact and reader-friendly submissions, in order that it may be simply understood by tax authorities.

It is anticipated that the add restrict shall be enhanced step by step to allow the taxpayers to make applicable submissions and facilitate easy closure of evaluation proceedings.

Adjournments

There are enough provisions for in search of an adjournment beneath the faceless evaluation scheme. However, at occasions, it turns into a bit difficult activity in sure conditions specifically the place very strict timelines are set to reply to questions. Taxpayers ought to plan prematurely the place they need to search an adjournment. Better planning might assist to handle such considerations and avoiding unintended problems in evaluation order resulting in additional litigation.

Taxpayers’ accountability

Digitization of tax proceedings requires companies to gear as much as meet the dynamic wants of this necessary change. Not solely paperwork/ info needs to be electronically saved for well timed retrieval, again up for tax changes made in any explicit monetary 12 months must also be maintained to make sure well timed submission. It is essential for taxpayers to maintain their credentials up to date on the revenue tax portal in order that the notices and different correspondences reaches the designated recipient.

Way ahead

The first 12 months of faceless evaluation scheme has been fairly fruitful in keeping with its general goal to usher in extra transparency and consistency within the income audit course of. Further, the introduction of the scheme has additionally supported tax authorities and taxpayers throughout covid occasions when nose to nose interactions weren’t attainable.

Being within the transition part, taxpayers would have felt the necessity for face-to-face interplay with tax division to raised clarify the info and authorized submissions particularly in advanced issues. The stakeholders are hopeful that the expertise gained through the current income audits would additional assist streamline the method.

The scheme has caused better flexibility for taxpayers and professionals representing earlier than tax authorities. It has resulted in substantial time financial savings on account of journey to tax workplace, ready time over there, and so forth.

Also, on-line submission of responses exterior of standard workplace hours has helped the taxpayers and their representatives in higher time administration.

In a nutshell, the faceless evaluation scheme is a major tax reform and a step in the proper course to attain ease of doing enterprise and bringing in additional transparency and certainty in tax issues. Success of this scheme is the joint accountability of either side and with elevated collaboration between tax authorities and taxpayers, the scheme may end up in higher high quality assessments in future.

Consistency in tax positions on industry-wide points would assist present certainty for taxpayers and keep away from pointless disputes and litigation.

Sujay Paul and Archana Kumar contributed to this text

Vikas Vasal is nationwide chief, tax–Grant Thornton Bharat LLP

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