Practicing as a Chartered Accountant under the Faceless Income Tax Era

On June 13, 2011, one article was published by me "Specialisation for the survival of Chartered Accountants" which stands validated today by implementing the new assessment policy under the income tax act 1961 named as e- "faceless assessments" including "faceless disposal of Appeals"

Why e-faceless assessment is different from earlier face to face assessment needs to be understood and we need to fill gaps existing in our offices, if any, to face the future challenges. Due to Covid-19, we were forced by the nature to experiment with an unknown/unchartered difficult situation of keeping offices working while remaining away from our offices. We invested in automation with a pious thought that our clients must not suffer due to inadequate or paucity of services and to a great extent once again proved ourselves.

Our offices are now fully automated therefore ready for faceless assessments/Appeals or we can say physical distancing between ourselves and the Income-tax authorities will be part of our profession. We need to systematize our offices to face the upcoming challenges due to faceless assessments and appeals. As per my limited understanding our future offices, say after five years from here need to change in line with new demands of the profession as under:

1. One partner or one employee to track notices and or communications from the department related to the clients on daily basis. There will be continuous addition to the workload on this account with the passage of time. The reason is that it is next to impossible to closes all the online notices/cases within a particular assessment year. Certainly, we will begin the new assessment year with the brought forward unresolved cases and will add new cases during the current assessment year. This will take the shape of a continuous process and we need to be ready for the said situation.

2. A good efficient documentation and filing system will be the essence for the successful practice of a CA firm. Replying or submission of documents online by adhering to timelines will make our lives comfortable as well as save or time and cost. Timely retrieval of information and documents with efficient-to-the-point explanations while filing replies in response to notices will help us resolve issues quickly resulting in the desired best service to our clients by saving time and cost under a faceless income tax regime. Since submissions, documents and replies will be handled by different authorities’ under-multilevel system of processing of assessments and disposal of appeals will also put end to the existing single-point system of processing of assessments and disposal of appeals. Under the new faceless system, it is expected that the assessments and appeals will be decided on merit only. Since all the orders will be evaluated internally before serving the assesses resulting in lesser chances of disputes.

3. Audit papers and audit notes will play a vital role in the future while dealing with authorities under a faceless system. We need to create a robust system of creating audit details and give equal importance to audit notes. Once the notice is served by the income tax authorities audit papers and audit notes will be of great help in making submissions as desired quickly and to the point. The quality of an audit will paly an important role in the future. We need to ensure that audit is evidence-based with the backing of valid/proper vouchers. With the implementation of GST, the information with respect to purchase and sale is already on the portal. Any adjustment with stocks or expenses not explainable or without proper evidence/documentation will become the biggest problem when asked to upload such evidence or documents at the time of assessment which usually happens after a gap of a year or more. Till now it was possible to satisfy assessing authority while appearing personally but that is now history. It will be next to impossible to create evidence or documents once the books are closed and audited and after a gap of more than a year. The best thing to preserve the audit details and notes is to digitize the information on a yearly basis and ensure that the digitized information is preserved properly.

4. Since tax practice is based on continuation and is different from the auditing which can be resumed by new staff by studying the previous year’s audit papers, it is suggested either keep a dedicated partner to look after income tax practice or a qualified or semi-qualified employee to deal with the income tax cases. The income tax practice is based on the chain of hearings, submissions, and replies thus changing staff frequently breaks the chain and may prove harmful to the client or may not provide desired results. I personally feel that to grab new opportunities we need to create partnership firms with more than three partners and let every partner handle a vertical like audit division, direct taxes, and indirect taxes. This will provide a chance for specialization as well as pooling of knowledge which is essential under the present continuously evolving nature of various commercial laws.

Much can be said about as to how our professional brothers can face the challenge of the fast-changing business environment, economies, twist in sectoral preferences, ever-growing expectations of our clients, and the Government which is moving fast in enacting new commercial/business laws or amending the existing ones and the revelation created by the use of digitization/automation.

We will try to help our professional brothers to draft replies based on research to online notices.