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Troubled Turf: Finance Minister Nirmala Sitharaman wants tax assessments to be digital and faceless, but the experience so far has been far from desirable

After giving a mighty push to the less-cash economy, digital governance seems to be the next big thing on the current government's agenda, going by what Nirmala Sitharaman said in her Budget speech. The finance minister told Parliament "the existing system of (income tax) scrutiny involves a high level of personal interaction between the taxpayer and the tax department, which leads to certain undesirable practices on the part of tax officials. To eliminate such instances, a scheme of faceless assessment in electronic mode involving no human interface will be rolled out this year in a phased manner." Sitharaman never uttered the word 'corruption', but this might be her honest admission of how the IT Department had gone about its business to meet revenue targets and the subsequent fallout.

Electronic assessment, or e-assessment, is considered a big leap towards curbing taxpayer harassment by unscrupulous taxmen. The government started it as a pilot project in FY2015/16 and later extended the programme to more than 100 cities to test its efficiency and transparency. But in her haste to launch it on a bigger scale, the finance minister might have overlooked some of the 'shortcomings' of the faceless assessment procedure.

Not Yet Anonymous

According to Sitharaman, the cases selected for scrutiny will be randomly allocated to assessment units, and a central cell will send notices via e-mail, without disclosing the name, designation or location of the assessing officer (AO). In fact, the central cell will be the single point of contact between the taxpayer and the IT Department. Although this is the ultimate model the government is pursuing, the current system, even three years after the pilot, is nowhere close to it.

However, this loophole could be plugged soon. As Sitharaman explained in her Budget speech, the government is trying to build a system where the mail will be sent from a common ID. When assessees respond, those mail messages will be sorted at the backend before reaching the officers concerned.

Meetings a Necessity

Tax assessment is a complex procedure and assessees need to do a lot of explaining in most of the cases. And doing it over e-mail alone may not be feasible for all. Explaining a particular entry, say an expense, a deduction or an asset valuation, often requires face-to-face interactions with the tax officer.

According to tax experts, assessments involving simple returns - those without any scope of (tax) addition or deletion - could be ideal for e-procedure, but complex cases almost always require face-to-face discussions with taxmen. Besides, tax laws are open to interpretation, and certain business activities/transactions may lead to an unnecessary tax burden if proper clarifications are not provided.

Some tax experts also think e-assessments will lead to more disputes. Amit Maheshwary, Managing Partner at Gurgaon-based Ashok Maheshwary & Associates, says, "Unless you meet taxmen face to face, it is difficult to explain things. You think you can do it all on mail, but I think a lot of additions are happening because of this and a lot many disputes will also come up."

Then there are certain types of assessments - say, those related to transfer pricing - which are difficult to complete online. Transfer pricing is not strictly based on a set of rules and largely depends on economic interpretations. Explaining all these in writing will be slightly challenging.

 

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