Faceless assessment is a tax evaluation process in which there is no in-person interaction with the tax officers and was started to counter harassment complaints.
However, individuals and companies started filing petitions in the courts after they received notices and summons, alleging that they were not given an opportunity to reply and submit their responses.
Bombay High Court and Delhi High Court have intervened in at least three such instances and stayed the notices, assessment orders and penalties. They even directed the tax department to not take any “coercive” action. Aggrieved parties have also approached the Kerala High Court.
“It’s a positive sign that the high courts have taken cognisance of the pitfalls in the faceless assessment schemes,” said Yashesh Ashar, a partner at Bhuta Shah & Co., a tax advisory firm. “However, the major smoothing of the process will be achieved only if, following the HC rulings, fresh guidelines are issued by the CBDT (Central Board of Direct Taxes) to the officers waiving the requirement of 20% payment of demand for granting stay.”
Experts said many large companies, high net-worth individuals and even foreign funds that received notices under the faceless assessment mechanism are contemplating approaching the courts.
By the end of the month, at least half a dozen major companies could individually or together file a writ petition in the courts in this regard, a senior lawyer told ET.
Experts said the problem has become acute because taxpayers are unable to operate normally or even make appointments due to the Covid-19 pandemic and travel restrictions.
ET reported on May 7 that Delhi High Court had granted a stay order over a faceless show-cause notice issued by the revenue department after the taxpayer claimed there was a breach of the “principles of natural justice.”
Bombay High Court has intervened in two other cases.
After the faceless assessment process was introduced in the 2020 budget, it focussed on smaller amounts. This year onwards, some complicated cases have been taken up.
“The fact that HCs have taken note that the taxpayer was not granted hearing even when requested should pave the way for guidelines on personal hearing from CBDT, which are long pending. The CBDT should provide these guidelines to clearly set the expectations of the taxpayers in terms of personal hearings,” said Ashar.
Tax experts said that while faceless assessment is a great mechanism in simple and routine matters, it could create many challenges for taxpayers in more complicated matters.
In the FY22 budget, the finance minister said that starting in the next financial year, all communication between the Income Tax Appellate Tribunal and the taxpayer or appellant will be electronic unless a personal hearing is needed. In such cases, video conferencing could be explored, the finance minister said.