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Faceless appeal scheme a paradigm shift in tax appellate system

The three main features of the platform are faceless assessments, faceless appeals, and taxpayer’s charter

To eliminate human interface from the Indian tax scrutiny (revenue audits) and first appellate system, the finance minister had made necessary amendments in the Income-tax Act, 1961, during Union budget 2020. This was followed by the Prime Minister unveiling the ‘Transparent Taxation–Honouring the honest’ platform on 13 August 2020.

The three main features of the platform are faceless assessments, faceless appeals, and taxpayer’s charter. While faceless assessments scheme and the taxpayer’s charter were released on 13 August 2020, the faceless appeals scheme has been notified on 25 September 2020.

Once this scheme is fully operational, it will radically change the way the first appellate process works in India. Broadly, this scheme complements the faceless assessment scheme notified earlier.

The framework

The Central Board of Direct Taxes (CBDT) will set up the following centres/units for the purpose of facilitating faceless appeals in a centralised manner:

· National Faceless Appeal Centre (NFAC)

·Regional Faceless Appeal Centre (RFAC)

·Appeal Unit (AU)

The NFAC will facilitate the conduct of e-appeal proceedings in a centralised manner and will act as the nodal point i.e. single point of contact, for communication among the taxpayer, AU and the National Faceless Assessment Centre (NFAsC), which is the nodal agency for faceless assessments/Assessing Officer (AO).

Accordingly, all communication with respect to information, documents, evidence, or any other details relating to appeal proceedings will be routed through the NFAC. The NFAC will assign appeal to an AU, in any one RFAC, through an automated allocation system.

The RFAC will also facilitate the conduct of e-appeal proceedings. Each RFAC will consist of various AUs.

The AU comprising of one or more senior tax officials will perform the function of disposing of the appeal. Its main functions include admitting additional grounds / evidence, directing the NFAsC / AO to make further inquiries, providing an opportunity to the tax payers of being heard, and analysis of material furnished. It is pertinent to note that the AU will not directly interact with the taxpayer and all the interactions will be done through the NFAC.

Exceptions to the scheme

The CBDT will notify the cases that will not be covered under the scheme. It has, however, been clarified that appeals relating to serious frauds, major tax evasion, sensitive and search matters, international tax cases and black money will not be covered within the ambit of this scheme at present and would continue to be handled by the appellate authorities, as earlier.

System of internal review

One of the important features of the scheme is the internal review of the draft appeal order by different AUs before it is finalized and passed by the NFAC. The procedure to be adopted is as follows:

· Cases where aggregate amount of tax, penalty, interest or fee payable in respect of disputed issues exceeds a specified amount, the draft order passed by the AU will be sent by the NFAC to another AU (i.e. other than the AU which has passed the draft order), which will again be selected through an automatic allocation system. If the other AU upon review of the draft order suggests further changes / variations to the order, the NFAC will again assign the appeal to another AU (other than the AU which prepared or reviewed the draft order) for review.

This is a significant change in comparison to the earlier process and should bring in consistency in the positions taken by the tax authorities and help reduce litigation.

· In other cases, decision to send draft order for review will be taken on the basis of risk management strategy to be specified by the CBDT.

Once the draft order is finalized, NFAC will share it electronically with the taxpayer and NFAsC/AO.

Hearing via video conferencing

The scheme provides that a taxpayer may request for personal hearing to explain its position. The designated authorities in such case will approve the request if the taxpayer’s situation falls within the permissible categories, to be notified. However, even in such cases, hearing will be conducted only through video conferencing or video telephony. Thus, this eliminates the current process of physical in-person hearings.

The way forward

This scheme is yet another positive milestone towards tax transparency in India. Automated allocation of cases and additional review of the appellate orders by different units, besides the respective AU, should ensure well-reasoned orders. There is, however, an apprehension that this inbuilt system of multiple reviews could lead to delay in conclusion of appellate proceedings. CBDT has, however, indicated that it will release certain standard operating procedures for the efficient operation of the scheme, which could take care of taxpayer’s concerns. It would be good if timelines are fixed for passing the orders and completing the process.

In a nutshell, once effectively implemented, this scheme should lead to consistent tax positions and ultimately help reduce litigation especially on repetitive issues. This should in-turn help further in Ease of Doing Business, which India has been untiringly working towards over the past few years.

Richa Sawhney and Vedika Kedia contributed to this article.

Vikas Vasal is national managing partner -Tax at Grant Thornton Bharat LLP.

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