On February 01, 2018, the Hon’ble Finance Minister in his Budget speech at Para 157 stated as under:

“We had introduced E-assessment in 2016 on a pilot basis and in 2017, extended it to 102 cities with the objectives of reducing the interface between the department and the taxpayers. With the experience gained so far, we are now ready to roll out the E-assessment across the country, which will transform the age-old assessment procedure of the Income Tax department and the manner in which they interact with taxpayers and other stakeholders. Accordingly, I propose to amend the Income- tax Act to notify a new scheme for assessment where the assessment will be done in electronic mode which will almost eliminate person to person contact leading to greater efficiency and transparency”.

The Finance Act, 2018 is also set to launch a new system of assessment proceedings pan India basis i.e. “Jurisdiction-Free Assessment” for scrutiny related assessments, where system envisages allocation of a particular taxpayer’s profile to any assessing officer across the country via special software. For example, Mumbai based assessee can be assessed by an Assessing Officer deputed at Kolkata or Chennai or vice versa.

The new system would do away with the Assessing Officers’ discretionary powers to call for additional documents, records, and most importantly, ask the taxpayer to appear in person. Thus, the new system will –

1. Minimise interaction between the taxpayer and the Assessing Officer.

2. Curb corrupt practice in the Department.

3. Ensure a transparent and no-harassment culture.

4. Deal with all kinds of tax–related matters such as filing of returns for scrutiny etc.

5. Identities of the taxpayer and his Assessing Officer will be kept as confidential.

6. It will save precious time of the taxpayer.

7. Provides a 24/7 anytime/anywhere convenience to submit details to the Department.

8. Compliance burden on taxpayers in the form of time and resources will be reduced.

9. The Scheme is environment friendly as information can be exchanged online.

10. Taxpayer would retain complete information for future reference.

The E-assessment system was introduced in 2016 on a pilot basis in New Delhi and Mumbai. In 2017, it was extended to 102 cities with the objectives of reducing the interface between the department and the assessees. It is expected that the same will dissolve the 18 assessment zones which account for all direct tax collection in coming days.

To implement the new system, an amendment made in Section 143 of the Income- tax Act, 1961, implementing e-assessment proceedings, no doubt, India is moving towards borderless compliance within the country.

Furthermore, the Prime Minister, while addressing a Conference of senior tax officials, asked to push E-assessment in income tax proceedings, and anonymity of proceedings using technology, so that vested interests do not impede the due course of law. He also suggested that human interface be kept to a minimum in the tax administration’s dealings.

One of the significant advantages of E-assessment is the time saved. A taxpayer need not travel to the income tax office, and await his turn in the corridor to meet the Tax Officer (at times, that wait would stretch to a few hours). Even if one is not in the same city, one can still respond to the notices.

The second significant advantage is that the taxpayer is no longer subject to the potential corruption of a Tax Officer, with threats to make additions to the income unless one pays up. This is indeed a big relief for honest taxpayers, and which is what the Prime Minister has been stressing on.

At the same time, practical implementation of E-assessment in many cases, which involve complex commercial transactions, lot of supporting evidences and documents. In manual assessments, we often see cases of unnecessary adjustments being made by Tax Officers, either they are not able to understand commercial reason and structure of any business/transaction or they find the evidences submitted by taxpayer in support of its claim as inadequate or unclear.

In case of complete e-assessment proceedings without personal interaction may result in many arbitrary additions and adjustments by tax authorities, where Tax Officer making E-assessment is not able to understand the case and make addition only to protect interest of department. This will also result in increasing litigation and increasing paper-work at appellate levels and also multiple rounds of litigation in same case.

In fact, currently, during the course of assessment hearings, one is able to explain to the tax officer the commercial rationale, and is able to clear his doubts about a transaction. Most tax practitioners would testify to the fact that tax officers do not get convinced merely by written submissions, however eloquent they may be, but when the same issue is explained to such officers orally in a manner which they can understand, the issue is understood much better. Tax officers’ arguments can be countered on the spot, clearing their misgivings.

Audi Alteram Partem therefore the courts have held that the right to be heard is one of the fundamental principles of natural justice to be followed in assessment proceedings, which are quasi-judicial proceedings. If such right of hearing is not granted, serious injustice may be caused to a taxpayer.

While the idea of e-assessment is in principle an excellent one, the systems and procedures need to be tweaked a little to ensure that it does not result in injustice to taxpayers in the form of unjustified additions in the assessments. The space limit for uploading documents needs to be increased, and on change of tax officers, login access to the system has to be granted to the new officers immediately. Also, tax officers need to be given adequate training regarding trade practices and procedures in different industries, and for different types of transactions. Ideally, they need to be deputed for a year or two to a public sector entity, to understand commercial realities.

E-assessments need to be monitored by a Commissioner. Wherever any addition is proposed by the tax officer, a show cause notice needs to be given to the taxpayer, that too only after seeking approval of the Commissioner. At that stage, the taxpayer needs to be given an option to either e-file his reply, or seek an appointment for attendance and reply in person. The scope for corruption can be reduced by a requirement of seeking approval of the Commissioner for every addition, and a right to the taxpayer to appear before the Commissioner to explain his case before grant of such approval.

It is only then perhaps that the process of e-assessment will really live up to its true potential, and taxpayers as well as the tax department will reap the benefits that it is supposed to provide.

H. N. Motiwalla

Joint Editor

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