Faceless Tax Audit creating chaos and legal log jam

Mumbai, Nov 17: Faceless complex tax assessment procedure in India has resulted in taxpayers facing difficulties due to ad-hoc additions and lack of human interface to resolve notices. Empower India, a leading public policy think-tank, recently wrote to the Central Board of Direct Taxes (CBDT), highlighting the said concerns with recommendations to improve the assessment process. This was followed by a virtual briefing moderated by Ms. Shreya Suri, Partner, IndusLaw, with a tax expert and a corporate governance and advisory expert to deep dive into the challenges and solutions for the same.

Ajay Rotti, Founder and CEO, Tax Compaas, said that the requirement for detailed turnover reconciliations between GST and income-tax returns pose several challenges, including short deadlines, excessive documentation, and partial understanding of GST laws. “This often results in unwarranted adjustments despite comprehensive explanations and documentation provided by taxpayers.” He also said, “The government's initiative, aimed at fostering transparency and tackling corruption, introduced a well-meaning scheme. Previously, in IT audits, there existed a system where officers were identified, allowing face-to-face interactions for clarifications. The shift to faceless assessments curtailed corruption by eliminating direct interactions and officer identification, establishing a comprehensive trail of proceedings.”

ITOs have also been observed making arbitrary disallowances, burdening taxpayers, particularly those with complex financial records during peak tax filing periods. Moreover, the effectiveness of the Income Tax Insight Portal, which is instrumental in tax compliance, is contingent upon data reported by other taxpayers. Any inaccuracies in this data can also lead to ad-hoc additions, posing substantial challenges for taxpayers who are further aggravated by stringent submission timelines.

Shriram Subramanian, Managing Director, InGovern, said, “Taxpayers must proactively ensure meticulous records, allocate ample resources, both in systems and skilled professionals, and seek guidance from qualified tax advisors. Discrepancies between reported turnovers demand a closer inspection and alignment between GST filings and income tax declarations." He also added, “Tax authorities must elevate their efforts by establishing a comprehensive understanding of ERP systems, bolstering training programs to enhance the knowledge of the officers. The authorities must empower taxpayers with responsibilities while concurrently establishing a system allowing post-refund claims, ensuring an equitable and streamlined procedure."

K Giri, Secretary General, Empower India, said, “The current regime has introduced a host of mechanisms that have helped in collection of taxes. However, the faceless audit needs to improve to be able to live up to the vision of the Finance Minister of the country. The recommendations are a step towards creating a more efficient and taxpayer-friendly assessment process, ultimately contributing to India's competitiveness on the global stage."

Suri opined "While the introduction of the faceless income tax audit scheme in 2020, aligned with its Digital India initiative, stands as a significant reform, challenges persist due to the lack of uniformity and standardization in ground-level assessments and the absence of direct interaction between assessors and tax authorities, resulting in complications with adjudications and audit adjustments."

India's direct tax collections rose 21.82 percent year-on-year (YoY) at ₹9.57 lakh crore in the current fiscal (2023-24) till October 9, 2023, according to the Central Board of Direct Taxes (CBDT). The government has also issued refunds totalling Rs 1,21,944 crore for FY 23-24 until September 16, 2023. Some of these measures will help corporate employees in sectors like IT and automobiles.