The government, in the Union Budget 2021, has in an endeavor to adopt the digital way of doing things has further taken ahead the faceless initiative and made announcements regarding the faceless proceedings before the Income-tax Appellate Tribunal (ITAT).  In this backdrop, author Sanjiv Chaudhary, Senior Advisor, BSR & Co LLP, evaluating the proposal opines that “Though the faceless ITAT scheme is yet to be rolled out by the government, perhaps we may successfully implement the existing faceless schemes and then may be use it to navigate it for the ITAT level proceedings”. Further, emphasising on the Budget speech which mentioned that where personal hearing is needed, it shall be done through videoconferencing (VC), the author believes that “Giving a personal hearing on need basis may result in a denial of natural justice and may entail the risk of defeating the entire purpose of providing a judicial ruling by the ITAT only after a factual analysis and examining the facts of the case.” Further, highlighting the possibility of contrary views by two different benches of the ITAT, the author states that “there arises controversy when it comes to adhering to any one of them for precedence value especially in a third jurisdiction.”. The author signs off stating that “Though the government has embarked on the initiative of a digital environment, it would be interesting to see how the same pans out in the midst of the various bottlenecks being faced particularly, when there are several challenges viz. at one end infrastructure in all forms in the two tier cities may act as an impediment to implement digital schemes effectively and at the other end the pressing need for a harmonious integration of entire ITAT forum into a dynamic jurisdiction until the scheme is rolled out.” 

Faceless Income-tax Appellate Tribunal – whether needed now and in the best interest of justice

As we gradually seem to be moving out of the shadow of the global pandemic which saw almost the entire world come to a stand-still in the last Calendar year, Budget 2021 was presented by the Finance Minister in India earlier this month in the midst of the challenging times witnessed. In the past, while we have seen shift in the focus of the government on the ways of doing things digitally, the agenda seem to have gathered more ground considering similar such amendments being proposed in the Finance Bill, 2021. The government has in an endeavor to adopt the digital way of doing things has further taken ahead the faceless initiative and made announcements regarding the faceless proceedings before the Income-tax Appellate Tribunal (ITAT).

The Finance Minister in the Budget Speech has stated that the government is committed to make the taxation processes faceless. The new faceless assessment scheme, faceless appeal scheme and faceless penalty scheme have already been introduced. The Memorandum to the Finance Bill, 2021 states that with a view to ensure reduction in the human interface and for the system reaching the next level, it is imperative that a faceless scheme be launched for ITAT proceedings on the same line as faceless appeal scheme.

While it has been mentioned that a National Faceless ITAT Centre shall be established, it would be interesting to see the fine print of what the broad contours of the scheme would be like. There has also been a mention of the introduction of an appellate system with a dynamic jurisdiction.

The faceless assessment, appeal and penalty schemes have been launched by the government not very long back and it would have been only prudent to first take a stock of the success factors that contributed to the operation of the schemes launched or otherwise. Further, such digital interfaces have their own set of challenges and the learnings out of the process. Since the schemes were implemented, the experience in implementing those schemes and bottlenecks faced could be used as a benchmark to then fine tune the faceless ITAT proceedings and ensure successful implementation of the said scheme. Though the faceless ITAT scheme is yet to be rolled out by the government, perhaps we may successfully implement the existing faceless schemes and then may be use it to navigate it for the ITAT level proceedings.

It would be necessary to lay emphasis on the Budget speech which mentioned that where personal hearing is needed, it shall be done through videoconferencing (VC). In the case of hearing at the Income-tax Appellate level, in most case the submissions would be lengthy and may run in hundreds of pages and deal with the issue from a factual standpoint. The Tribunal being a final fact-finding authority, the Tribunal members may have to verify the facts and address the issue arising therefrom. The presiding members of the Bench of the Appellate Tribunal are in a better position to appreciate facts upon a personal hearing with the taxpayer and the tax authorities to understand the perspective. The Appellate stage is by no means a mere extension of the assessment proceedings, where a detailed scrutiny is necessary along with a deeper understanding of factual matrix and then to have a reconciliation of the same with the tax laws.

Giving a personal hearing on need basis may result in a denial of natural justice and may entail the risk of defeating the entire purpose of providing a judicial ruling by the ITAT only after a factual analysis and examining the facts of the case. In the context of giving an ‘opportunity of hearing’ to the taxpayer and meeting out natural justice, it would be pertinent to refer to the decision of the Supreme Court in the case of Rajesh Kumar v. DCIT [TS-29-SC-2006-O] where the Supreme Court observed that the principles of natural justice are based on two basic pillars, (i) Nobody shall be condemned unheard (audi alteram partem) (ii) Nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa). In the said case, the Supreme Court held that the order of the lower authorities was unsustainable in law since no ‘opportunity of hearing’ was given to the taxpayer. Thus, a discretionary power with respect to personal hearing may not be in the best interest of justice, more particularly at the ITAT stage.

The CBDT notified the faceless Appeal scheme in September 2020. Subsequently, a writ petition was filed with regard to the right of being heard (through VC) being discretionary under the scheme. It is our understanding that the Delhi High Court has issued a notice to the government for hearing the matter and the ruling in that regard is awaited. While the fine print of the ITAT scheme is awaited, should the matter pertaining to hearing (virtual as it may be) not be addressed appropriately it may result into unnecessary litigation. Therefore, it is imperative to have clarity about ‘opportunity to hear’ (physical or through VC) in each and every case which raises a question whether ITAT can be faceless?  

It would also be relevant to note that the in many cases different views are given by different benches of the ITAT. In case of contrary views of the two different benches of the ITAT there arises controversy when it comes to adhering to any one of them for precedence value especially in a third jurisdiction. Ideally, under the new scheme there should be a mechanism where a ruling delivered by a particular bench of ITAT should be referred by the subsequent benches on the same issue to save valuable time of other Benches and it helps to dispose of cases speedily at a national level. Many years back the then government had proposed to set up the National Tax Tribunal, but it did not see the light of the day. What dynamic jurisdiction means and how it would be finally implemented; one will have to wait for the fine print of the faceless ITAT scheme.

Though the government has embarked on the initiative of a digital environment, it would be interesting to see how the same pans out in the midst of the various bottlenecks being faced particularly, when there are several challenges viz. at one end infrastructure in all forms in the two tier cities may act as an impediment to implement digital schemes effectively and at the other end the pressing need for a harmonious integration of entire ITAT forum into a dynamic jurisdiction until the scheme is rolled out.