Faceless ITAT proceedings using Technology- Right to a fair trial
Executive Abstract & Issue Thesis
“The Finance Act, 2021 proposes to introduce dramatic procedural changes to the existing Assessments and Appeal functions, whether they are faceless assessments and appeals or the new paradigm of reassessments and search assessments. But among these, the proposal to introduce Faceless proceedings at the Tribunal level has opened up a lot of debates and discussions. The primary purpose behind this proposal is to use technology effectively for appellate functions of the Tribunal. But then we are faced with a question whether this mechanism will ensure a Fair trial. The article tries to analyze faceless Tribunal hearings from the standpoint of technology and Fair hearing. Read on …”
1. Technological Transition in Indian Tax Administration
India has been proactive in adopting new technology and moving towards a ‘Digital’ future. This can be seen through the Digital Quality of Life Index 2020, where India outperforms most of the countries when it comes to technology use in governance.
Tax administration, more particularly, Income Tax, has seen a dramatic transition from physical filing to e-filing and e-verification, and now the rollout of the Faceless Income Tax Assessments Scheme and Faceless Appeals at the first level of Commissioner of Income tax (Appeals) – ‘CIT(A)’. These rollouts enjoyed their fair share of criticism initially.
“Tax administration, more particularly, Income Tax, has seen a dramatic transition from physical filing to e-filing and e-verification, and now the rollout of the Faceless Income Tax Assessments Scheme and Faceless Appeals at the first level of Commissioner of Income tax (Appeals) – ‘CIT(A)’.”
Just as the practitioners were getting accustomed to this transition, the Finance Act 2021 came up with yet another surprise—the proposal of Faceless Income Tax Appellate Tribunal (ITAT) to revamp the existing quasi-judicial Tribunal into a Faceless Tribunal. Section 255 of the Income Tax Act, 1961 is proposed to be amended, adding subsections (7) and (8) describing the scheme and that the detailed notification will be rolled out soon. This led the practitioners and Associations like the ITAT Bar Association to file representations to the Finance Ministry. A retired ITAT president too filed a Public Interest Litigation (PIL) before the Hon’ble Delhi High Court, which was dismissed.
2. Historical Legacy & Institutional Evolution of the ITAT
Now, coming to the history of ITAT, it dates back to the year 1922 when the Income tax law was being restructured and the need was felt for a distinct forum for hearing Income tax cases. A Select Committee recommendation finally led to the establishment of ITAT in the year 1941.
Since 1941, there have not been any fundamental changes in the functioning of the ITAT. It has operated continuously for 80 long years as an independent, open-court quasi-judicial institution, providing judicial comfort and impartial adjudication to taxpayers across the country.
3. Proposed Statutory Amendment under Finance Act, 2021
So, in the light of the announcement of changes in the functioning of ITAT after 80 long years, it would be pertinent to read through the bare text of the Finance Act, 2021:
In section 255 of the Income-tax Act, after sub-section (6), the following sub-sections shall be inserted, namely:
“(7) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of disposal of appeals by the Appellate Tribunal so as to impart greater efficiency, transparency and accountability by—
(a) eliminating the interface between the Appellate Tribunal and parties to the appeal in the course of appellate proceedings to the extent technologically feasible;
(b) optimising utilization of the resources through economies of scale and functional specialization;
(c) introducing an appellate system with dynamic jurisdiction”.
“(8) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (7), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply to such scheme or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification.” (Emphasis supplied)
4. Analysis and Institutional Concerns: ITAT vs. CIT(A)
We can see that the intention behind a faceless Tribunal is to impart greater ‘efficiency’, ‘transparency’, and ‘accountability’ to the appellate mechanism. To achieve the same, the interface between the parties and the Judges shall be eliminated by employing technology. Having read this, one may infer that the existing open Court proceedings will be replaced by video conferencing.
But, the interesting aspect to note here is that the objectives of faceless Assessment and faceless CIT(A) are exactly the same as above. Under these mechanisms and more particularly under CIT(A), the proceedings are solely based on written submissions. This might lead one to believe that the same will be followed in the case of ITAT as well rather than having video conferencing.
First Appellate Authority: CIT(A)
The CIT(A) is an Income tax authority with certain powers co-terminus to that of the Assessing Officer. It belongs to the executive tax department machinery under the Central Board of Direct Taxes (CBDT).
Second Appellate Authority: ITAT
ITAT on the other hand is a dedicated quasi-judicial Tribunal with an identity distinct from the Income tax authorities. It operates under the Ministry of Law and Justice, functioning as an independent judicial arbiter.
There exists a fundamental difference between the ITAT proceedings and the CIT(A) proceedings. So if a distinct mechanism is being contemplated, there needs to be a suitable change in the objects and reasons of the same as well.
5. Principles of Natural Justice & ‘Audi Alteram Partem’
Another area which is being debated extensively is whether the faceless ITAT proceedings will be violating the Principles of Natural Justice or a fair trial enshrined in the maxim ‘Audi alteram partem’ i.e., ‘Hear the other side’.
The Five Crucial Elements of the Principles of Natural Justice
Even though the detailed notification is not released as yet, taking the Faceless CIT(A) notification as a base, these elements appear to have been taken care of. What is changing is the method or the means of communication.
“The Faceless scheme by itself does not deny submission of evidence or legal representation. A mere alteration of the methodology of hearing cases to written submissions aided through technology cannot be directly labeled as having denied an opportunity of being heard to the parties.”
Further, there have been certain areas like search assessments and International tax matters specifically out of the faceless CIT(A) regime if taken as a base to analyze. The CIT(A) notification does provide an option for hearing through video conferencing in certain exceptional cases. So, considering the above aspects it will be difficult to prove that principles of natural justice have been substantially compromised in this Scheme.
6. Key Reservations and Practical Vulnerabilities of Faceless ITAT
However, some tax and legal practitioners have expressed certain reservations about the fairness of the scheme across four critical dimensions:
6.1 Open Court System Vs. Faceless Scheme
Any conventional hearing before a Tribunal or Court involves:
- Pitching arguments before the judges;
- Responding to the questions asked by the judges;
- Having a reasonable understanding of the body language of the Judges; and
- Conveying all the averments with clarity.
These proceedings are real-time and interactive and not restricted to mere written words or a submission to a blank screen without being aware as to whom we are addressing. Such interactions provide an additional dimension to the written submissions.
6.2 Fact Finding and Tax Effects Dealt With (Final Fact-Finding Forum)
More importantly, ITAT is the last fact-finding authority concerning income tax cases. Even though there exist provisions of further Appeal (High Court and Supreme Court), ITAT is the last Forum for the litigants/assessees to lay down a factual matrix for interpretation before the Judges.
“The ITAT deals with the cases having Tax effects of more than Rs. 50 lakh, barring certain exceptional cases admitted on merit. The written submissions in such matters involving high stakes will go into countless pages.”
With due respect to the Honourable Members, there exists some chance of a particular point in the submission being overlooked inadvertently when examining voluminous documentary records on a screen without oral synthesis.
6.3 Option of Video Conferencing Facility & Executive Discretion
With regard to the option on video conferencing provided to the litigants, the following is prescribed under the Faceless CIT(A) scheme, under Para 12, sub Para 2, 3 and 4:
(2) The appellant or his authorized representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the appeal unit under this Scheme.
(3) The Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre, under which the concerned appeal unit is set up, may approve the request for personal hearing referred to in sub-paragraph (2), if he is of the opinion that the request is covered by the circumstances referred to in clause (xi) of paragraph 13.
(4) Where the request for personal hearing has been approved by the Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre, such hearing shall be conducted exclusively through video conferencing or video telephony, including use of any telecommunication application software which supports video conferencing or video telephony, in accordance with the procedure laid down by the Board. (Emphasis supplied)
This indicates that even though the litigants have the option to request a personal hearing, which would be through video conferencing only, it is subject to the approval of the Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre. This approval shall be given if the above authorities find it a fit case as per the reasons in Para 13. The reasons under the Para 13 are yet to be notified.
This makes the option of personal hearing discretionary. There may be certain complex aspects of the matter which the litigant wishes to put up through personal hearing. If this case does not fall in the criteria which would be notified in due course, the litigant will not be afforded an opportunity of personal hearing. If a similar mechanism is also put into place in ITAT, this will impact fair hearing to some extent.
6.4 Time-Consuming Procedure & Review Unit Bottleneck
The proceedings are solely on the basis of written submissions; a query raised by the Forum is to be responded to in a written form. If not found satisfactory, it will lead to further communications and a delay in the proceedings which can be avoided if the proceedings are held in real time.
“The proceedings are solely on the basis of written submissions; a query raised by the Forum is to be responded to in a written form. If not found satisfactory, it will lead to further communications and a delay in the proceedings which can be avoided if the proceedings are held in real time.”
The CIT (A) scheme also has a review mechanism in place. As per Para 5 sub Para xix clause a:
“Where the aggregate amount of tax, penalty, interest or fee, including surcharge and cess, payable in respect of issues disputed in appeal, is more than a specified amount, as referred to in clause (x) of paragraph 13, send the draft order to an appeal unit, other than the appeal unit which prepared such order, in any one Regional Faceless Appeal Centre through an automated allocation system, for conducting review of such order;”
In case of the matters which exceed the pre-determined threshold of aggregate amount of disputed liability, the draft order shall be allocated to any random unit for carrying out a review of the same. This appeal unit will review the entire draft order and variations if any, will be conveyed to the appeal unit which had originally dealt with the matter.
Similar review mechanism if also introduced in ITAT proceedings will make the process time consuming, since the review unit has to revisit the entire factual matrix. Considering the above aspects, Faceless ITAT, to a certain extent, might negatively impact fair hearing thereby adversely affecting the chances of the litigant.
7. Concluding Remarks & Institutional Motto
While the detailed notification of the scheme is yet to arrive, we must hope that the motto with which ITAT had been constituted:
The core question remains whether this founding motto will remain relevant in the light of the new scheme. It is undeniably the need of the hour to effectively utilize technology in governance, but technological acceleration must never compromise the substantive constitutional guarantees of fair hearing and natural justice.
References & Case Citations
- Digital Quality of Life Index 2020: Available online at: https://surfshark.com/dql2020-slides.pdf
- Praveen Kumar Bansal Vs Ministry of Finance and Ors: High Court of Delhi, WP (C) 4237/2021 and CM APPL-02/2021, available at: http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=69087&yr=2021