Knowledge & Opinions
19 Nov 2020

India: Faceless Assessment Scheme introduced to simplify the process of tax proceedings

India has been gradually moving up the ladder in the ease of doing business index from 134 in 2013 to 63 in 2020 thanks predominantly to a spate of e-governance initiatives including SPICe for company incorporation, electronic MOA and AOA, single platform for reporting under FEMA, online IEC application for cross border trade, computerization of Government departments and several other state reforms. As a measure of easing compliance and rewarding honest taxpayers, Central Government has brought in faceless assessment scheme to simplify the process of tax proceedings. MSI's Chennai accounting member DVS Advisors LLP provides further insight.

The case for faceless assessment is probably the single most prominent initiative, post GST, which has the potential to completely change the perception about tax enforcement machinery in the country. Structure of the scheme
  • A National Faceless Assessment Centre (NFAC) in New Delhi, headed by Principal Chief Commissioner or Principal Director General of Income Tax, would be set up acting as a single point of contact for assessees and assessment units
  • Eight Regional Faceless Assessment Centres (RFAC) would be set up at Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bengaluru and Hyderabad
  • Each RFAC would comprise of assessment unit (AU), review unit, technical unit and verification unit
  • NFAC would issue notices and allocate the case to any Assessment Unit in RFAC through an automated allocation system
  • Any request for additional documents/evidence, search and enquiry shall be made by AU only through the NFAC and not directly to the assessee
  • Replies would be sent to AU, which shall prepare the draft assessment order to be sent to NFAC and ultimately to the assessee
  • NFAC shall send the draft order to a review unit. In case of any modification is proposed, the NFAC shall assign the case to another AU (other than the erstwhile AU), which shall consider the modifications and finalise the assessment order
 Merits of the scheme Apart from the obvious perks such as savings in time, cost and energy, 24x7 active infrastructure, going green and ensuring social distancing, the following tangible advantages can be envisaged:
  1. The scheme marks a shift from territorial jurisdiction to dynamic jurisdiction preventing nexus between participants which augment corruption
  2. The case for frivolous high-pitched assessments is significantly reduced owing to collective decision making
  3. Elimination of physical interface between tax authorities and the assessees provide ease of compliance and speedy completion of proceedings
  4. As digitalisation being the new normal, the tax-bureaucracy would perceive a plausible transformation with the advent of new scheme
Future of proceedings and departmental functions With the passage of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“the Act”), the Central Government proposes various amendments and introduction of new provisions in the Income Tax Act, 1961 to auger faceless assessment for various departmental functions like vesting of jurisdiction, collection of information, enquiry, valuations, transfer pricing assessments, income escaping assessment, issuance of notice, revisions and rectifications, etc., apart from normal scrutiny assessment. Hence, the future of income tax proceedings is expected to be made predominantly online and simplified to provide ease of compliance to assessees.   Conclusion Transparency in fiscal enforcement is the need of the hour in a developing economy intending to attract foreign capital. Tax enforcement was one of the main sources of corruption in the country and this, coupled with country’s fiscal laws, was being considered as a serious impediment in attracting foreign investors to invest in the country. Despite the challenges, the Government has come up with such a bold and transformative initiative, the first of its kind globally of this scale, which has the potential to transform regulatory enforcement environment in this country.  

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