Faceless Tax Audit creating chaos and legal log jam - CBDT should ease the vision of the FM for tax assessments: Empower India

 

National: The faceless complex tax assessment procedure in India has resulted in taxpayers facing difficulties due to ad-hoc additions and a 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.

Mr. Ajay Rotti, Founder and CEO, of Tax Compaas, said that the requirement for detailed turnover reconciliations between GST and income-tax returns poses 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.

Mr. 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."

Mr. K. Giri, Secretary General, of Empower India, said, “The current regime has introduced a host of mechanisms that have helped in the 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".

Ms. 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".

Below are the key recommendations by Empower India to mitigate these challenges:

• Establish guidelines for a standardized GST and income tax reconciliation template to streamline assessments.
• Include turnover reconciliation in tax audit reports for added assurance and focused assessments.
• Request information on significant items upfront, reducing reliance on show-cause notices and aiding taxpayer preparation.
• Provide specialized training and updated databases for tax officers handling international transactions.
• Obtain higher authority approval for adjustments beyond a specified threshold to ensure thorough review.
• Grant taxpayers a minimum response time to show-cause notices, considering data complexity and volume.
• Prescribe conditions for taxpayers to opt for manual assessment by Jurisdictional Assessing Officers when necessary.
• Make video conference recordings easily downloadable from the income tax website, extending accessibility to at least three years.

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 totaling 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.