It will ensure ease of compliance and positively impact a large taxpayer base, says Pramod Chandra Mody.
Pramod Chandra Mody, Chairman of the Central Board of Direct Taxes (CBDT), the apex policy making body for corporate and personal income tax, believes the need to change the image of the department from that of enforcer to facilitator has led to the adoption of faceless assessment.
Faceless assessment is more important than search, survey and probe for the Income Tax Department.
Can you explain the working of faceless assessment?
In this pandemic situation, we wanted to revisit the entire manner of functioning and to find out the pain points for the taxpayer. We learnt there were several problems — starting with the selection of case, with the way the case was handled by the officer, the kind of discretion he had, the number of times the taxpayer had to visit the department and the final decision being not always based on what was presented before the tax officer — that led to a kind of disenchantment with the whole set-up.
This prompted us to conceive a paradigm shift in the manner in which we function — from tax enforcers to tax facilitators. Earlier, a person would get a notice and he would not be sure whether or not it had been issued by the department, and whether or not he was expected to respond. We tried to bring in the Document Identification Number. Now, he is sure the query raised is authentic.
Earlier, multiple visits had to be made to a particular officer. Now, we are substituting it with dynamic jurisdiction, which will ensure it is the issue which gets focus and not the interface. All these mean that after the notice lands, personal visits are eliminated.
Then comes the question of individual discretion. Suppose the taxpayer submits a response and the tax officer does not agree to it. Whether it is right or wrong will be known only when the appellate decision is out. We add another layer here. This means instead of individual assessment, now, under faceless assessment, we focus on team-based assessment.
It would mean even when the officer is issuing the first notice or a query letter; it is vetted by two layers of superiors. So a team is functioning at that level. We then get a response from an officer, which is subjected to review — this will ensure no frivolous additions and unrealistic assumptions are made so far as the tax liability of an assessee is concerned. At the same time, it is not left to the whims of an individual tax officer. All these intend to provide an enabling environment for the taxpayer, where everything is recorded or documented.
Now, why would a return get selected for scrutiny? It would be mainly on account of activities not reflected in the return. All such information is given in a modified version of Form 26 AS. It is a kind of virtual handholding. If you have filed the return correctly, it might not be picked up for scrutiny. Even if there is any gap and the return is picked up for scrutiny, it will be resolved in a painless manner through faceless assessment.
What will be the impact of faceless assessment on revenue?
Revenue is one of the incidental by-products. What is more important is the behavioural change. Ease of compliance from the taxpayer point of view is far more important and more lasting. This would lead to voluntary and permanent compliance.
What kind of pandemic impact do you see on the direct tax target for FY21?
In a normal situation, the target can be met provided the taxpayers get the assurance that they will be treated in a fair and non-discriminatory manner. As on date, the tax collection has been satisfactory. The lockdown did impact economic activities, but the way they returned to normalcy is giving hope. It’s too early to say (about meeting the target) but optimism and hope are there. I am of the considered view that if I am bringing a change in tax administration, it would definitely lead to better compliance, which would offset losses, if any.
Is the I-T Department resuming the search, survey and probe that was stopped due to the pandemic?
Even during the pre-Covid period, it was not a fixed number — to do this many searchers, surveys, etc. We go for intrusive action when we have solid information and that strategy will continue. However, this is a minuscule portion of my work. What is more important is to work on processes such as faceless assessment which impact a large taxpayer base.
