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Home >Opinion >Views >Opinion | Faceless income tax tribunal: Whether the face can be done away with

With the new world order of physical distancing and the need to transition to a digital environment sooner than later, the Indian government has taken several steps in the recent past to introduce a digital interface at the direct tax administration level. The faceless assessment and the appeal scheme were introduced along with the faceless penalty mechanism.

The Finance Bill, 2021, proposes to make the Income Tax Appellate Tribunal (ITAT) faceless. The move will reduce cost of compliance for taxpayers, increase transparency while disposing appeals, and help achieve even work distribution in different benches with optimum utilisation.

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The Budget Speech spoke about personal hearings to be conducted through videoconferencing, wherever needed. It is necessary to highlight that in most cases, submissions, being lengthy, may run into several hundred pages and thus need to be well articulated well to ensure explaining the taxpayer's point of view.

The Tribunal being a final fact-finding authority, a personal hearing will afford members a better understanding of the perspective of the taxpayer to appreciate the finer nuances of the tax law and its applicability to a case. The Appellate forum, not being a mere extension of the assessment proceedings, is responsible for a detailed scrutiny of the issue at hand and a reconciliation of the factual matrix with the applicable tax laws.

In such a situation, a personal hearing will be the basic steppingstone in the process of delivering a well-reasoned and a judicious ruling. The Supreme Court in the case of Rajesh Kumar vs. DCIT 157 Taxman 168 (SC) {As approved by the SC in the case of Sahara India (Firm) v. CIT [2008] 300 ITR 403} has laid emphasis on the principles of natural justice which are based on two basic pillars, (i) Nobody shall be condemned unheard (audi alteram partem) (ii) Nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa).

The Supreme Court in the case of P.N. Eswara Iyer vs. Registrar, SC, (1980) SCR (2) 889 has also emphasized on the importance of oral hearing and has observed that ‘audi alteram partem’ is a basic value of our judicial system and is too deeply embedded in our constitutional order. It is not just judicial orders but also administrative orders that may require an appropriate hearing, as held by the Supreme Court in the case of S.L. Kapoor vs. Jagmohan & Ors. 1981 AIR 136 while relying on the decision in the case of State of Orissa vs. Dr. Miss Binapani Dei AIR 1967 SC 1269 where it was held that “…..even an administrative order which involves civil consequences, must be made consistently with the rules of natural justice….".

Thus, a personal hearing on a need basis at the tax administration level as stated in the Budget Speech may not be correctly aligned with ‘natural justice’, more particularly at the ITAT proceedings stage.

In the context of the faceless appeal scheme, notified in September 2020, a writ petition was filed with regard to the right of being heard (through VC) being discretionary under the scheme. It is our understanding that the Delhi high court has issued a notice to the government for hearing the matter and the ruling in that regard is awaited. Though the fine print of the ITAT scheme is still awaited, in case the issue pertaining to hearing (personal/virtual) is not addressed, we may see increase in litigation. Therefore, it is imperative to have clarity about ‘opportunity to hear’ (physical or through VC) in every case which raises a question whether ITAT can be faceless?

While the digitalization wave is yet to have a wider impact across all sections in our country, perhaps, it would have been apt to draw experience from the earlier schemes launched and address various bottlenecks such as infrastructure in various forms in different cities, etc.

Though, an announcement has been made regarding the faceless ITAT scheme, with the fine print yet to be a part of the statute, one will have to wait and watch to see the finer details of the scheme. There is also a mention of the introduction of an appellate system with a dynamic jurisdiction. What the dynamic jurisdiction means and if that would mean operational as one national body would only be known once the scheme is rolled out. One may also have to ponder on the need for a harmonious integration of entire ITAT forum into a dynamic jurisdiction in all respects to achieve the objective of a simple tax administration, ease of compliance, and reduction in litigation.

(Sanjiv K.Chaudhary is a chartered accountant)

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