Finance ministry begins an independent survey on faceless scheme

The finance ministry has initiated a time-bound internal survey of the ongoing faceless assessment regime to examine its effectiveness and implications both on the tax department and taxpayers.

The survey will focus on various features of the scheme, including video conferencing, which is a bone of contention for taxpayers. 

The final report of the survey is expected to be submitted in August. Sources said that the findings of the survey will be crucial as it will cover the impact. It may also suggest some changes that could fix certain ambiguities of the scheme. 

A third party — National Council of Applied Economic Research (NCAER) — has been roped in to conduct this survey independently. An NCAER team is working under the supervision of the finance ministry’s economic affairs department, headed by its additional secretary Anand Bajaj. 

The survey will cover about 200,000 scrutiny cases, which will include complex cases as well. 

The move has come at a time when some taxpayers have filed writ petitions against the scheme in different courts. A recent one is currently in Delhi High Court. Here, the high court had granted a stay order against a show-cause notice issued by the tax department under the scheme. The taxpayer, in response, filed a writ petition calling the action breach of principles of natural justice.

Faceless assessment was to evaluate returns without any face-to-face interaction between those filing the returns and tax officers. The government introduced the scheme after complaints of harassment and allegations of bribery and corruption. 

According to an internal note circulated by the department of economic affairs (DEA), an interim report on the scheme has already been submitted to the tax department and finance ministry in March. The final report is expected in August. 

The note said there would be certain implications to the survey as the faceless scheme was being scaled up from a pilot one to covering all scrutiny cases. So NCAER, which was initially to evaluate around 58,300 cases during its pilot phase in 2020, will now cover over 190,000 cases by March 31.

As a result, the project design, which was limited in scope and intended to cover a sample of scrutiny cases only under the pilot phase, had to be changed, it said, citing Shekhar Shah, director general, NCAER. 

The ramping up of the pilot scheme to a universal one also put considerable pressure on the Central Board of Direct Taxes (CBDT) during the remaining fiscal year after August 2020. 

Accordingly, NCAER had revised the sampling strategy accordingly to provide for sub-samples covering both simple, mid-level, and complex cases.

Such an analysis would provide a better comparison of taxpayer experiences between the new scheme and the older schemes for all types of assessments — simple and complex — it said.

The original concept was to do the survey in three waves, with an interim, curtain-raiser, preliminary report each following the first and second waves.

Now, it will be done in one wave with its consequent advantages, and the interim reports will be project progress reports. 

Another important feature of the faceless scheme was video-conferencing that was made operational late in the last fiscal year. It allowed the NCAER to gather feedback from survey respondents on their experience of using the facility compared to the physical scheme.