Taxpayer charter, faceless assessment may not always reduce torment: Expert

Unreasonable collection targets, mainly towards year end, often prompt tax official to make aggressive demands; in case of disputes, the official may favour the dept's view

Taxpayers’ charter unveiled by Prime Minister Narendra Modi on Thursday is designed to build trust between the income tax department and taxpayers but the government needs to carry out reforms in administration to make it really work, say experts.

Faceless assessment, which was expanded to the entire country by Modi, is likely to reduce litigation in general, but it would work otherwise in complex cases.

The charter has several good points such as treating every taxpayer as honest unless there is a reason to believe otherwise, providing fair, courteous and reasonable treatment etc. However, these are statements of intent and unless reforms are taken to change the behaviour of the officials on the ground, not much will change. Also, these officials have been tasked with unreasonable collection targets, mainly towards the end of the year. And that is when the task of making aggressive demand begins.

One of the things which the charter talks about is that the department would be accountable to the taxpayers.

“However, we have seen on several occasions that high-pitched assessments are quashed by courts with absolutely no implication on the tax officer who made an unsustainable tax demand in the first place,” Amit Maheshwari, tax partner at AKM Global, said.

On the other hand, he said taxpayers lose precious time and money in litigation.

While there are many taxpayers’ rights in the charter, one thing missing is the taxpayers' right to negotiate a settlement with the tax office of pay the outstanding tax demands in easy installments. “Many a times, taxpayers face genuine liquidity issues and such enforcement of tax demands impacts their business activity,” Maheshwari said.

Another important right missing from the charter is a provision that protects taxpayer from retrospective taxation, the tax consultant said.  

So far as expansion of faceless assessment across the country is concerned, tax experts said that while it will reduce normal tax litigation, complex ones that require better understanding and interaction with taxpayers may see a rise in disputes. A tax expert said prior to issuing show cause notice, there cannot be any face-to-face interaction between the tax official and the assessee concerned, and once a show-cause notice has been issued, the officer concerned may have made up his mind not to listen to taxpayer.

Kapil Rana, founder and chairman of HostBooks Limited, said faceless assessment may not change the friction related to law and procedures laid down under various provisions of the Income Tax Act. “Of course while there will be partial reduction in litigation as the system will bring anonymity in the process, the ones directly related to contravention of law or in contention of the law will remain,” he said.

However, Naveen Wadhwa, tax expert at Taxmann, said faceless assessment would reduce the corruption and harassment of taxpayers.

Abhishek Rastogi, partner at Khaitan & Co, said while faceless assessment would reduce harassment, it may not do so in case of litigation as the assessing officer is likely to be in favour of the revenue department's stance.

The government changed some aspects of the existing faceless assessment scheme which was operating in eight jurisdictions. The most important aspect of the new procedure is the coverage of "best judgment assessment" in case of a non-cooperating assessee.  

The earlier faceless scheme did not have this provision. And in the normal assessment process, it could only be done by the jurisdictional assessing officer. Jurisdictional officers may sometimes be familiar with taxpayers and contact and convince them to cooperate with assessment proceedings, especially in cases where taxpayers misses the notices inadvertently. 

Now, even in these cases, assessment can be done on instructions of the national e-assessment centre (NeAC).

"Thus, taxpayers would need to be extra careful to comply with the notices issues by the NeAC as missing of notices may result in issuance of adverse best-judgement orders, without the tax officer contacting, convincing them to complete the proceedings," said Shailesh Kumar, partner at Nangia & Co LLP. End 

According to a report on direct taxes by the Comptroller and Auditor General of India (CAG), the arrears of demand rose from  Rs 10.4 trillion  in FY 2016-17 to Rs 11.1 trillion in FY 2017-18. The tax department indicated that more than 98.2 per cent of uncollected demand would be difficult to recover. 

The report said the number of appeals pending with the chief commission of income tax  (Appeals) rose from 290,000 in FY 2016-17 to 300,000 in FY 2017-18. The amount locked up in these cases was Rs 5.2 trillion in FY 2017-18. The amount locked up at higher levels (Income Tax Appellate Tribunal /High Court/Supreme Court) increased from Rs 4.40 trillion (82,806 cases) in FY 2016-17 to Rs 4.43 trillion (82,643 cases) in FY 2017-18.

According to the Economic Survey of 2017-18, just 0.2 per cent of the cases pending in ITAT, high courts and the supreme court constituted nearly 56 per cent of the total demand value.

The success rate of the tax department at all three levels of appeal was under 30 per cent for both direct and indirect taxes, it said, adding in some cases it is as low as 12 per cent.  The department unambiguously loses 65 per cent of the cases.

A tax expert said that raising of demand by the tax officer concerned and upholding of it by the judiciary should be linked to his promotion. That will do much in changing the behavior of tax officials, he said.

Last year, the Central Board of Direct Taxes had raised the monetary limits for filing appeals by the income tax department so that  litigation is reduced and only  high value disputes are appealed. The monetary limit for an appeal before the ITAT was raised to Rs 50 lakh from earlier Rs 20 lakh, that before the high courts to Rs one crore from Rs 50 lakh and that before the supreme court to Rs two crore from Rs one crore.