Faceless Assessment Scheme Not 'Maze-Like' Or 'Arbitrary', Government Tells Court
Central government says allegations of Faceless Assessment Scheme being unconstitutional, arbitrary, and puzzling are baseless.
In response to the constitutional challenge to the income tax department's Faceless Assessment Scheme, the government has told the Madras High Court that allegations of the scheme being maze-like, arbitrary and opaque are baseless.
The petition before the Madras High Court has asserted that the faceless assessment scheme is unconstitutional, contrary to the provisions of the Income Tax Act, violates settled principles of natural justice and administrative law.
In its counter, a copy of which has been reviewed by BloombergQuint, the government has detailed the intent behind the scheme and emphasised that it was introduced after much deliberation for the benefit of the taxpayers. The scheme neither lacks legislative competence—an essential ingredient to test constitutionality. Nor does it discriminate between taxpayers on unconstitutional grounds.
It has been held that in tax and economic regulations, courts have adopted self-restraint if not judicial deference to legislative judgment.Central Government
Specifically, on the contours of the scheme, the government has argued that –
First, the risk management strategy comes into play only when National Faceless Assessment Centre examines the draft assessment order. Various tools are used to ensure that income liable to tax doesn’t escape and the question of making it public does not arise.
The petitioners have argued that this strategy has not been made public, is opaque and violates Article 13 of the Constitution which requires laws to be consistent/not in derogation of fundamental rights.
RMS is not an opaque strategy…being only a tool employed for errorless assessment order, the question of it standing the test under Article 13 does not arise —Central Government
Second, the petitioners have stated that allocation of cases to the assessment unit, reference to review unit for further investigation without any guidelines is wholly arbitrary. The government has countered it to say that all this is automated. And once it is so, the question of guidelines does not arise.
By laying down rules or guidelines, the allocation ceases to remain random and defeats the purpose of faceless assessment. It’s not clear from the allegations how such random allocation is unconstitutional or hampers the fundamental rights of any citizen.—Central Government
Third, the petitioners have failed to show how and at what level the scheme is discriminatory in the context of the NFAC having two alternatives for making assessment orders. That is, provide the taxpayer with an opportunity in case any variation prejudicial to its interest is proposed. Or assign the draft assessment order to a review unit.
The objective of giving the NFAC the two options is to introduce some checks and balances, arrive at true and accurate income liable for tax, and reduce unnecessary litigation.
There is no differential treatment as alleged by the petitioners….No prejudice is cause as before finalising the assessment, the petitioner is put to notice as to the variations proposed and granted an opportunity. —Central Government
And as long as the taxpayer is being granted an opportunity to contest the draft assessment order if variations to taxable income are proposed, it doesn’t matter who proposed the additions, the government argues in its reply.
Finally, the government has also dismissed the petitioners’ argument that personal hearing is a fundamental right. The Income Tax Act gives discretion to the Chief Commissioner or the Director General, in charge of the Regional Faceless Assessment Centre, to allow a taxpayer to make oral, submissions.
The intent, the government says, is to eliminate personal appearances and allowing it in every case will defeat the purpose of the parliament’s intent. Pointing to the amendment to the definition of ‘hearing’ via Finance Act, 2016, the government says it includes communication of documents through electronic mode.
This enables the taxpayer to submit his reply, documents or evidence in support of his return through electronic mode which has a digital trail and therefore, it is in the interest of transparency and efficiency. —Central Government
To be clear, in several cases, high courts have pointed out that lack of personal hearing is a violation of principles of natural justice.
Perhaps in response to this view, the government has stated that courts cannot insist on personal hearing under all circumstances. The petitioner proceeds under mistaken notion that compliances with the principles of natural justice necessarily requires affording an oral hearing. As long as the affected party is given an opportunity to present its case in some reasonable form, the principle stands complied with, the government says in its response.