• Notification Date: 22-02-2022
• Notification No: N/A

Clarity in Tax Assessment Procedure induces Confidence among Taxpayers

The government had introduced a new tax assessment regime. The new faceless tax assessment regime has been made effective from April 2021. As a result, there were several loopholes in the tax assessment system along with procedural lapses. The assessment orders were passed without providing any opportunity for a physical hearing to the taxpayers. The taxpayers have been rejecting the assessment orders under the new faceless tax assessment regime. Several courts have supported the protests of the taxpayers and have decided to nullify this rule on the basis of natural justice.  

As a response to these protests made by the taxpayers, the Union Budget has decided to mitigate this issue faced by the taxpayers. The Union Ministry is taking necessary actions to resolve the inefficiencies of the faceless tax assessment regime. The Union Budget has decided to make several amendments to the tax assessment regime under the Income Tax Act. The amendments are believed to simplify the tax assessment procedures. The provisions will be litigated, and the errors in the drafting procedures will be rectified in the new amendments.

The amendments in the tax assessment regime consist of some of the under-mentioned provisions.

1) Faceless Assessment

The Union Budget aims at removing the RFAC. It proposes to abridge the number of reviewing authorities. In some complex matters, the Budget will provide the authorities with the power to conduct special audits. The taxpayers will be provided with the opportunity to make requests for a physical hearing. The Budget has decided to continue with the faceless assessment regime after establishing the reassessment proceedings.

According to the government, some procedural lapses are bound to happen while coordinating multiple units. Faceless assessments will be deferred in cases of transferring pricing cases, DRP and ITAT until March 31, 2024. After these amendments are made, the faceless tax assessment procedures can be implemented wisely without having any loopholes or lapses.

2) Repetitive Appeals

The Budget has proposed to make necessary expansion in repetitive appeals by the tax department under the current tax law. According to the new proposal, the filing of an appeal will be considered invalid if it is against the order of the Appellate Tribunal or Commissioner (Appeals) by the department. The filing made by the department will be deferred for another assessee for any assessment year until the question of law is decided by the Jurisdictional High Court or Supreme Court. This will diminish the time and resources that are required to resolve the matter. It will be beneficial in clearing the judicial system.

The amendments under Section 147, Section 148, and Section 149 have further given rise to the new Section 148A under the Income Tax Act.

3) Rectification of Errors

There were several drafting errors in the Income Tax assessment regime. The new amendments brought in the Budget have resolved the drafting issues, and have brought clarity and alignment in the Budget which can be re-opened under the extended period of 10 years.

The rectified Budget cites cases of similar cases of escaped assessment due to over-reporting of expenditure, or expenditure that has been made due to some event or occasion, or by the entries in books of account. These factors have impacted the income of the taxpayers.

The amendments proposed by the government will be effective in establishing more clarity in the tax assessment procedures, and it will minimize the unproductive use of time and resources. The new tax regime will establish a sense of confidence among the taxpayers for a fair and reasonable tax assessment.