Income Tax Taxation

Faceless Hearing under Income Tax Act

With the impact of Covid-19 across countries, the use of digital communication has accelerated. India has adopted faceless interactions through digital means with the tax payers. The revenue department has come up with changes introducing faceless tax assessment scheme and appeal schemes. In this article, we shall take a look at the new concept of faceless hearing.

Faceless Hearing in ITAT

In the budget 2021, it was proposed that the Income Tax Appellate Tribunal was proposed to be faceless. Here we must understand the intention of the legislature behind this proposal.

The relevant para of the memorandum explaining the Finance Bill 2021 dealing such proposed amendment stated that in order to ensure greater efficiency, transparency, and accountability to the assessment process, appeal and penalty process a new faceless assessment scheme and the faceless appeal scheme and faceless penalty scheme has been introduced.

To ensure that reforms initiated by the department to reduce the human interface from the system reach next level, it is essential that faceless scheme is launched for Income Tax Appellate Tribunal proceedings on the same line as the faceless appeal scheme. This can reduce cost of compliance for taxpayers, increase transparency in appeals disposal and also help in even work distribution in different benches, thereby causing best utilization of resources.

Therefore it is proposed to insert new sub-sections in order to provide that the Central Government shall notify a scheme for disposal of appeal by the Income Tax Appellate Tribunal by-

• Eliminating the interface between Income Tax Appellate Tribunal and parties to the appeal in the course of proceedings as far as its technologically feasible;
• Optimizing utilization of resources via economies of scale and functional specialization; and
• Introducing an appellate system with dynamic jurisdiction.

From the above, it is clear that on the same lines wherein the Faceless Appeal Scheme related to the hearing before the Commissioner of Income Tax Appeals was notified, the faceless appeal scheme related to the hearing before the Income Tax Appellate Tribunal will be notified.

Before we move ahead, the detailed scheme is yet to be notified and laid down before both houses of parliament. However, if it’s seen through the Faceless Appeal Scheme 2020, would depict that the appellant would not have any by-default right of a personal hearing to make their oral submission or present their case before the tribunal under the new scheme. 

Can Income Tax Appellate Tribunal be considered as a Court?

If we look into the provisions of section 255 of the Income Tax Act^[1], there is no doubt that the legislature has held that the Income Tax Appellate Tribunal shall be deemed to be a civil court. What it means is that the power and procedure as applicable in the court proceedings are applicable in the case of the Income Tax Appellate Tribunal.

To further safely deduce that the Income Tax Appellate Tribunal is a court, we can have a look at the following observation made by the court in context to the ITAT:

• Durga Shanker Mehta vs. Raghuraj Singh (1954)-

It was held that the expression “Tribunal” doesn’t mean the same as Court, but it includes within its ambit all adjudicating bodies provided that they are constituted by state and are invested with judicial as distinguished from the administrative or executive functions.

Indian Judicial System-Right of Hearing and the concept of faceless hearing

According to the legal system in India, a 3-tier system has been provided to ensure fair trial, thereby ensuring that the principles of natural justice is followed and the flaws of arbitrariness is removed in the process.  The hearing is an open hearing. However, once the proposed scheme is implemented, a litigant, complaint and petitioner will have a right of hearing (personal hearing) in case of a civil and criminal case but not in case of tax matter.

This can prejudice the interest of an assessee. As stated above that the ITAT is a court and the procedures and practices that apply to civil and criminal matters should be made applicable in the tax matter or the other two should also be made faceless. There should be equality in all branches of law and just because the matter relates to income tax can’t be the reason for separation from traditional process of hearing.

The concept of faceless hearing/court is still a vague and unheard concept in the common law system as it contradicts the fundamental principles of law enshrined in our constitution.

Conclusion

A right of hearing is essential, whether in person or virtual. Although it may not be incorrect to state here that hearing has a human touch that must be cherished and cultivated. There should be a specific right provided to the assessee as to whether he desires a personal or a faceless hearing. Therefore the amendment proposed may need serious discussion, keeping in mind the spirit of law.

Read our article:Faceless Penalty Scheme: Boosting Transparency and Compliance