Business

Paradigm shift in Indian revenue audit

Tricks

Faceless assessments are managed through individual units within the tax department, that is, units that have a specific important role in the process: assessment units, verification units, technical units, and review units. All of these units work closely with the National e-assessment Center (NeAC) and the Regional e-assessment Center (ReAC).

Single point contact for taxpayers

NeAC is the primary interface primarily responsible for all communication with taxpayers, facilitating the procedure in a centralized way and providing a “single” between taxpayers and the various departments of the tax department. It functions as a “contact point”. Separation of responsibilities between teams aims to achieve the objectives of team-based evaluation and is a collective will for one officer to apply discretion to determine issues in the previous regime. Make a decision.

When it comes to the faceless valuation process, broadly speaking, tax department IT systems use risk-based criteria identified through data analysis to select cases for scrutiny valuation. NeAC will begin the valuation process and issue a notice asking taxpayers for information.

Internal dynamics of the tax department

Answers provided by taxpayers are passed to any one ReAC specific evaluation unit assigned to a specific case through an automatic allocation system. The evaluation unit asks NeAC to obtain information / documents from the taxpayer, to make further inquiries / verifications by the verification unit, or to seek technical assistance from the technical unit.

Considering the details provided by the taxpayer, the valuation unit will share the proposed valuation order with NeAC. In some cases, NeAC may assign a draft of the evaluation order to one ReAC review unit to review the same.

If the taxpayer’s income fluctuations are not proposed by the review unit, NeAC will confirm the order and issue it to the taxpayer on the online income tax portal. If the review unit proposes to adjust taxable income, NeAC provides taxpayers with a final opportunity to present the case by issuing a cause indication notice that may include a draft assessment order. ..

Draft orders (along with show cause notifications) clarify the tax authorities’ views on specific cases / issues.

Video conferencing facility

Taxpayers can also request a personal hearing through video conferencing when responding to show cause notifications. From experience, and to maintain the faceless nature of the procedure, they can see taxpayers and their authorized representatives, but tax officials generally do not look like video conferencing.

In our experience, requests for personal hearing through video conferencing are generally accepted by NeAC. To facilitate interactive discussions, you also have the option to upload your document to a trusted portal during the video conferencing process.

However, in some cases, taxpayer submissions were not taken into account when the order was finalized, and video conferencing requests were not approved. A statement was made to the tax authorities to consider some cases only in video conferencing mode. In some cases, suffering from NeAC orders, some taxpayers have appealed to court on the principles of natural justice.

notification

The assessment process begins by issuing a notice to the taxpayer. The questionnaire that NeAC issues to taxpayers to initiate a faceless assessment is very specific to a particular business, and the tax department takes into account financial statements, income tax returns, tax audit reports, etc. Has been observed. Provided by the taxpayer.

Usually, the time allowed in the first notice issued under the faceless valuation system is reasonable and provides taxpayers with ample opportunity to submit their response. However, the timeline seemed relatively tough, especially towards the end of the procedure. Nonetheless, this is an early stage in implementing a faceless valuation process, which could streamline the process for both taxpayers and the tax department.

Submit online

Income tax portals currently have a limit on the size of files that can be uploaded, which requires multiple uploads for large submissions by taxpayers.

What taxpayers can only explain by submitting complex transactions and vast amounts of details in writing can raise challenges under a faceless valuation scheme. This also requires taxpayers to draft accurate and easy-to-read submissions. That makes it easy for tax authorities to understand.

Upload restrictions are expected to be gradually tightened to facilitate proper submissions by taxpayers and the smooth completion of the assessment process.

Postponed

There are appropriate provisions for requesting postponement under a faceless evaluation system. However, it can be a bit tricky in certain situations, especially if you have a very tight schedule to answer your questions. Taxpayers must plan in advance where they would like to postpone. A better plan may help address such concerns and avoid unintended complications in the evaluation sequence that lead to further proceedings.

Taxpayer responsibility

Digitization of tax procedures requires companies to be prepared to meet the dynamic needs of this compulsory change. In addition to storing documents / information electronically for timely retrieval, you should also maintain a backup of tax adjustments made during a particular fiscal year to ensure timely submissions. It is important for taxpayers to keep their credentials up to date on the income tax portal so that notifications and other communications reach the designated recipient.

Our goal

The first year of the faceless valuation scheme was very fruitful in line with the overall goal of increasing the transparency and consistency of the revenue audit process. In addition, the introduction of this system also helped tax authorities and taxpayers during chaotic times when face-to-face communication was not possible.

Being in the transition phase, taxpayers would have felt the need to interact directly with the tax department to better explain facts and legal submissions, especially on complex issues. Stakeholders hope that the experience gained from recent revenue audits will help streamline the process.

This scheme gives taxpayers and former tax authorities a great deal of flexibility. Business trips to the tax office and waiting times there have saved me a lot of time.

Taxpayers and their representatives can also better manage their time by submitting responses online outside normal business hours.

In a nutshell, a faceless valuation scheme is an important tax reform and a step in the right direction to facilitate business and increase the transparency and certainty of tax issues. The success of this scheme is a joint responsibility of both parties, and with increased cooperation between tax authorities and taxpayers, this scheme may lead to better quality assessments in the future.

Consistency in tax position on industry-wide issues provides taxpayers with certainty and helps avoid unnecessary disputes and proceedings.

Sujay Paul and Archana Kumar contributed to this article

Vikas Vasal is a national leader and tax affairs – Grant Thornton Bharat LLP

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Paradigm shift in Indian revenue audit

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