FACELESS ASSESSMENT AND APPEALS: TRANSFORMATIVE BREAKTHROUGH BY - SARANYA K
FACELESS
ASSESSMENT AND APPEALS: TRANSFORMATIVE BREAKTHROUGH
AUTHORED BY
- SARANYA K
ABSTRACT
In this
article the author has evaluated the
viability and practicality
of faceless assessment and
appeals and contrainsts faced by the assessee. the author has also evaluated the
constitutional jurisprudence of the faceless scheme. The
scheme will revolutionise the way in which the scrutiny assessments of the tax
returns that are filed by taxpayers are conducted and will fully digitise the
interactions between taxpayers and the revenue. The scheme has been introduced
with the intention of making direct tax administration seamless, painless, and
faceless. Similar to the revenue audits that are carried out in many countries,
the Indian revenue authorities also conduct assessment proceedings in order to
determine whether any adjustments are required to the income that taxpayers
have declared on their tax returns. Historically, such proceedings have
involved sitting across the table from the tax officer, providing details and
clarifications from time to time. The faceless assessment scheme aims to change
that completely.
KEYWORDS: Faceless assessment Scheme, faceless Appeal scheme, background, structure,
process, Assessee, Tax, appellate authority, Income, Principles of Natural Justice,
impact and constraints.
INTRODUCTION
The tax scenario before the
introduction of faceless assessment was that a taxpayer’s case was selected for
assessment through the system, manually or based on certain information
available with the Income-tax Department. The assessment was conducted by the
jurisdictional tax officer. This has led to the so many limitations such as
issuance of notices, through the system and manually which made record keeping
difficult leading to disputes. It often entailed multiple physical meetings
between the taxpayer and Income-tax Department officials[1].
Moreover, the discretionary power vested with tax officers led to a subjective
approach and varying interpretations, either in the same location or across
various jurisdictions on similar issues.In order to overcome these limitations,
it was necessary to transform the assessment mechanism to enable transparency,
efficiency, accountability and optimal utilisation of technology.
The
Finance Act of 2019 established the faceless assessment method, and the Finance
Act of 2020 extended the idea to first appeals. In faceless assessment, the
entire evaluation procedure is carried out virtually by a group of officers
without any direct communication with the assessee. For instance, a resident in
Pune may receive a notice from the Mumbai office, while another official in
Delhi may view the resident's response. Without visiting the tax office, all notices
must be responded to electronically. Moreover, neither the assessee nor the assessing
officer is aware about the party on the other end. The Finance Bill of 2021
endeavours to change the Income Tax Appellate Tribunal (ITAT) in a similar
manner by shifting the appeal procedure online, ultimately making the agency responsible
for fact-finding faceless. People have the impression that the administration
is moving quickly towards the "faceless period" without giving the
first appeals and faceless assessments enough time to wind down. At the same time, experiments
in the course of a tax dispute signal imminent catastrophe.
The idea behind this
scheme is game-changing, as it promises to streamline the tax administration while also increasing
transparency and accountability. This can also be said to be a major change in the
direct tax management procedure, as it reduces the authority of tax authorities,
tax extremism, and the potential for corruption and lawsuits[2].
BACKGROUND
Over the
years, the government has worked to modernise our nation's tax system in an
effort to eliminate the discretion and needless harassment that taxpayers face.
The department started a project to allow income tax returns to be filed
electronically in 2006, which is when the GoI's e-Governance income tax-related
activities began. The Income Tax Act of 1961 (the "IT Act") permits
the electronic filing of many applications and returns, thanks to the
persistent planning and work of the Indian Revenue Authorities (IRA).
The new procedures
for electronic filings have required constant upgrading of the IT
infrastructure of the IRA. Taking a giant leap forward in this direction, the
government came up with the idea of conducting the faceless assessment
proceedings.
In 2007 Mandatory e-filing of returns
for corporate taxpayers and taxpayers who are required to have their accounts
audited under Section 44AB of the Act, and thereafter, for other taxpayers at
different points in time. Later, 2009 the Government of India established the
Centralised Processing Centre Online (CPC) and viewing of Form 26AS.
Thereafter, in 2015 Online verification of tax returns through Aadhaar and
Electronic Verification Code was introduced.
Consequently, in 2015, the Central
Board of Direct Taxes (CBDT), the Apex Tax Authority, ushered in a paperless
environment for tax assessment proceedings on a pilot basis by using emails to
correspond with taxpayers. In April 2017, the CBDT launched an e-Proceeding
facility to enable electronic tax assessments, under which a tax officer or
assessing officer could communicate with a taxpayer through the Income-tax
e-Filing portal.
In the speech of 2018-19 budget, the
finance minister mentioned that E-assessment was introduced in the year 2016 on
a pilot basis, and in 2017 it was extended to 102 cities, with an objective of
reducing the interface between the department and the taxpayers.
The
experience gained by the government between the period 2016 to 2018 was
sufficient to rollout the scheme of E-assessment throughout the country. With
effect from 7.10.2019, the e-assessment scheme 2019, was being launched with
the setting up of National e-Assessment Centre in New Delhi and on pilot basis
58,322 regular assessment cases on a voluntary basis for the AY 2018-19 were
being shortlisted under the scheme. The e-Assessment scheme was notified on 12
September 2019[3] for automation
of the various assessment procedures mandated under the Act.
However, w.e.f. 13.8.2020, the
e-assessment scheme, 2019 has now been replaced with the new Faceless
Assessment Scheme, 2019[4] by Hon’ble Prime
Minister during the initiation of the Faceless Assessment and Taxpayers’
Charter as a portion of “Transparent Taxation – Honoring the Honest”. The
Taxation & Other Laws (Relaxation & Amendment of Certain Provisions)
Act, 2020, has inserted an altogether new section 144B in the Income Tax Act
itself, w.e.f. 1.4.2021, and accordingly all the regular assessments u/s
143(3), will be conducted in a faceless manner from AY 2019-20 onwards and all
pending income escaping assessments u/s 147 barring the cases under the central
and international taxation charges, have been covered under this new scheme. Likewise,
under the new faceless appeals system that goes into effect on September 25,
2020, the dynamic jurisdiction—rather than the jurisdictional CIT—will decide
and handle all taxpayer appeals, both new and pending, before the CIT
(Appeals).
For the purpose of conducting
faceless appeals, the National Faceless Appeal Centre and the Regional Faceless
Appeal Centres and the Appeal Units comprising of one or two CIT (Appeals) are
in the process of being set up[5].
FACELESS
ASSESSMENT STRUCTURE
·
National Faceless Assessment Centre (NaFAC) – At the top of the pyramid is the
NFAC, which will be responsible for the overall conduct of faceless assessment
in a centralised manner.
·
Regional e-Assessment Centres -The RFAC will be responsible for facilitating the conduct
of the proceedings of faceless assessments. Every RFAC will have AUs, VUs and
RUs, and will be assisted by the technical units. Every RFAC will be headed by
a Chief Commissioner of Income-tax. RFAC are under the jurisdiction of the
regional Principal Chief Commissioner for making assessment. The following
units are under the control of the RFAC and NFAC.
·
Assessment Units (AU) – the primary function is to identifying points and issues that are
material for the determination of a tax liability or refund. Then seeking
assistance from the VU and the TU. The process of analysing the material or
submissions furnished by the taxpayer or any other person rest with AU.
Finally, preparing a final draft assessment order based on receipt of comments
from the RU and determining whether penalty proceedings should be initiated or
not.
·
Verification Units (VU) – The VU carries out enquiries and cross verification,
examines books of accounts and witnesses, and records statements etc
·
Technical Units (TU) – The TU provides assistance or advice on legal, accounting, forensic,
IT, valuation, Transfer Pricing, data analytics, management or any other
technical matters that may be required.
·
Review Units (RU) – Check whether the relevant and material evidence has been put on
record and the correctness of fact and law have been incorporated in the draft
order. Verify the arithmetical accuracy of modifications proposed and to check
the applicability of the judicial decisions. Finally, to review the draft
assessment order and to communicate this to NFAC.
PROCEDURE
OF FACELESS ASSESSMENT SCHEME
a)
The
AU may ask for information or clarification from a taxpayer and/ or request
assistance from the VU and the TU, through the NFAC, at various stages of a
faceless assessment. The AU will prepare a draft assessment order, based on
material collected during the assessment proceedings and input received from
the VU and TU, either accepting the returned income or making changes in the
returned income, and send a copy of the order to the NFAC. The AU may also be
required to provide details of penalty proceedings to be initiated in a draft
assessment order[6].
b)
Once
the NFAC receives a draft assessment order from the AU, it can either finalise
the order or provide an opportunity to the taxpayer to respond or send the
draft to RU for review.
c)
If
the NFAC has sought a review from the RU, the suggestions received from the RU
will be sent to an AU other than the AU that has sent the draft assessment
order. Thereafter, the assigned AU will send the final draft assessment order
to the NFAC, and accordingly, the assessment procedure will continue until the
final assessment order is received.
d)
At
any stage of an assessment, the NFAC can, if it considers it necessary,
transfer a case to the tax officer with jurisdiction over the case (with the
approval of the CBDT).
e)
After
completion of an assessment, the NFAC will transfer all the electronic records
of the case to the tax officer with jurisdiction over the case, as may be
required under the Income-tax law.
FACELESS
APPEAL: STRUCTURE AND PROCEDURE
The entire process of an appeal, from
the communication of notice, questionnaire, verification, enquiry and till the
communication of the appellate order will be online[7].
The scheme also prescribes the electronic process for filing of additional
grounds, admission of additional evidence, penalty proceedings for
non-compliance of notices and rectification proceedings.
At the top of the pyramid is the
NFAPC (National Faceless Appeals Centre) set up by CBDT, which will be
responsible for the overall conduct of the appeal proceedings in a centralised
manner. All correspondence about information, documents, evidence, or any other
details that may be needed between the appeal unit and the taxpayer or any
other individual, the NFAC, or the Assessing Officer will go through the NFAPC[8].
Notifications will be sent by the NFAPC to taxpayers via the Income-tax
department's mobile app, registered email addresses, and e-filing portals.
This will be followed by a real-time
alert. Under the NFAPC, there will be the RFAPC (Regional Faceless Appeal
Centres), which will be responsible for facilitating appeal-related proceedings
and disposal of appeals. Every RFAPC will have multiple Appeal Units and each
Appeal Unit will have one or more CITs (A) and other Income-tax authority or
staff[9].
During and
following the appeal process, taxpayers' and the NFAPC's roles and practices
will mostly mirror those of the in-person hearing. The internal operations and
protocols of the NFAPC and its various units would resemble faceless evaluation
processes in this regard.
The scheme with requires that any
additional grounds for appeal filed by an appellant is to be forwarded to the
AO or the NFAC for their comments before such grounds are admitted and it is
subject to absolute discretion of CIT for admission of any additional grounds.
Under the scheme, a draft appeal order will be mandatorily reviewed by an
Appeal Unit other than the Appeal Unit that has issued the draft appeal order,
if the aggregate amount payable in respect of issues disputed in appeal exceeds
the threshold to be prescribed by the CBDT based on risk management stratergy.
If the
NFAPC has sent the draft order to a review appeal unit and that unit has
offered feedback on the order, it will need to forward the draft order to
another Appeal Unit for the purpose of creating a new draft appeal order.
Consequently, it is recommended that an appeal that exceeds the threshold
restrictions be heard by bigger appeal units, which satisfy court criteria, are
effective, and benefit taxpayers by allowing them to submit their cases before
all the concerned units[10]. As far as a personal hearing is
concerned, taxpayers or their authorised representatives will have to make a
request from the Chief Commissioner or the Director General of the RFAPC.
CONSTRAINS
AND IMPACT OF FACELESS ASSESSMENT
AND APPEALS
Ø Procedural lapse cannot make
assessment void:
The existing sub-section (9) to
section 144B provides that the assessment proceedings shall be void if the
procedure mentioned in the section is not followed. This sub-section is
proposed to be deleted from the st date of its insertion, i.e. w.e.f. 1 April
2021. Hence assessment should not be considered as void merely because
prescribed procedure is not followed.
Section 144B (9) states that
assessment made under section 143(3) or under section144 shall be non est
if such assessment is not made in accordance with the procedure laid down under
this section. In Gurgaon Realtech Ltd. V. National Faceless Assessment Centre,
Delhi[11], the Department should proceed with the assessment
process by following the procedure prescribed under section 144B. A
notice-cum-draft assessment was to be issued and a personal hearing was to be
accorded if there was variation in income. order was set aside for AY 2018-19.
Ø Principle of Natural Justice:
The current scheme of
faceless assessment is challenged before the various Courts mainly on the
grounds of violation of principle of natural justice[12].
The proposal in this Finance Bill makes an attempt to address such issues by
providing for few measures like, requirement to first issue a show cause notice
and only then prepare an income of loss determination proposal, etc.
Nemo
judex in causa sua(the rule against prejudice) and Audi alteram partem (no one
should be condemned
without being heard) are the two main inalienable facets of the
of thenatural justice
principle which was reiterated in many judicial precedents such as olga
tellis case, Menaka Gandhi case and so on. Moreover, the said
scheme is also said
to be in
violation of Section
250 and Section 251
of the Income
Tax. The dependency on the written request is very high in this scheme
which has to be handled in a formal and time-bound manner[13].
The Delhi HC in RKKR Foundation v.
NFAC[14]
also acknowledged the need for formal disposal of adjournment requests. It was
held that the benefit of doubt must be given to assessees as it is not clear if
notices are sent to the email ids mentioned in the latest ITR or email of the
authorised representative. The Aos should be equitable and reasonable with
respect to due date extension for assessments and adjournment and admission of
additional evidence before the appellate authorities[15].
The authorities should do away with such strict adherence to timeliness.
In BL Gupta Construction (P.) Ltd V.
National E-Assessment centre[16],it
was held that faceless assessment and appeal scheme shuld not defeat Audi alteram partem
principles as it was passed to plug widespread alleged corruption .
Ø Opportunity for hearing:
Further with reference to
personal hearing, there exist some ambiguity under the existing provisions. As
per existing section 144B (7), assessee may request for personal hearing where
a variation is proposed in the draft order and assessee is served with show
cause notice. Further the Chief Commissioner of Director General in charge of
the Regional Faceless Assessment Centre may approve the request for personal
hearing, if such request is covered by the circumstances laid down by the
Principal Chief Commissioner with the approval of CBDT at the satisfaction of
underlying conditions[17];
i.
Assessee
should have submitted written submission in response to draft assessment order,
and
ii.
In
such submission assessee disputes the facts underlying proposed modification
and should have made a request for
personal hearing.
In
view of word 'may' used in s. 144B (7)(viii), the tax authorities have taken a
stand that the personal hearing is discretionary and could be granted only
where a dispute on facts is involved[18].
The Delhi High Court in
the case of Bharat Aluminium Company Ltd[19] held
that even under faceless assessment scheme the assessee would have a vested
right of personal hearing and the same has to be granted, if he request for it.
There is an ambiguity in the proposed section by use of words “shall allow such
hearing” as opposed to “may approve the request for personal hearing”. The
relevant provisions of the proposed sub-section (6) of section 144B, as is
relevant to the personal hearing which states that In a case where a variation is proposed in the
income or loss determination proposal or the draft order, an opportunity is
provided to the assessee by serving show cause notice and the assessee or his
authorised representative may request for personal hearing and Where a request
for personal hearing has been received, the income tax authority of the
relevant unit shall allow such hearing through NaFAC via video conferencing.
The Delhi HC in Sanjay
Aggarwal V. NFAC [20]
the usage of the word “may”, to our minds, cannot absolve the respondent from
the obligation cast upon it, to consider the request made for grant of personal
hearing in the matter. Moreover, sub-clause (h) of section 144B (7)(xii) read
with section 144B (7)(viii), the revenue has been given the power to frame
standards, procedures and processes for approving the request made for personal
hearing. But no such standards and procedures are framed yet creating a vacuum.
Ø No opportunity when matter is
referred to Review Unit:
The opportunity of
hearing is provided at the time of preparation of the income or loss determination
proposal by the AU. When the AU finalise income or loss determination proposal
after considering the submission of the assssee and taking into account all the
material available on record and forward the same to the NaFAC, the NaFAC may
refer the same to the Review Unit (RU) and the RU may suggest some modification.
If the AU accepts any of the modification suggested by the RU which is
prejudicial to assessee, then again, the asseessee should be given an
opportunity of hearing, which somehow seems to be missing.
Ø Apprehension that such hearing
opportunity should not become mere formality:
The bill provides that
the income tax authority of the relevant unit shall allow hearing through NaFAC
through video conferencing or video telephony. Now if the officer doing
assessment is different from the one who hear the assessee, then again purpose
is not achieved[21].
Further, the officer who hears the assessee should reveal his identity during
the hearing otherwise it will not be possible to ascertain whether the officer
who pass the assessment order is the one who heard the assessee. Currently,
after the negative remarks from the various High Courts, the opportunity is
given to the asseessee through video conferencing, but in many cases the
officer refuses to reveal his identity.
Ø Technical Glitches:
various instances have
been recorded regarding the computational error of the department etc. in such
case the taxpayers do not have the option to file rectification applications
online and have to visit their jurisdictional AOs again and they are not
disposed within the prescribed timeliness as well.
Though multiple
submissions can be made the size of the file is restricted upto 5 Mb and the
number of attachments is maximum 10. Hence, this is a hurdle for large
companies with voluminous data leading to segregating the files into several
pieces.
CONCLUSION
Faceless assessment and appeals is
definitely a step in the right direction which
was much anticipated and awaited, but the actual efficacy of the new assessment
scheme can be seen only after achieving the factors of functional
specialisation, transparency and efficiency. The scheme needs to be re-evaluated
and restructured in order for it to fit within the Constitutional limits to
clear the constitutionality test. Provisions pertaining to
penalizing the Assessing officer for
incorrect need to be incorporated in the Income Tax Act, 1961 in order to
ensure that the interests of tax-payers. The constitutional jurisprudence
should be considered with respect to the personal hearing and principles of
natural justice.
REFERENCE
·
Amendment in faceless assessment undersection 144B
of the Act: https://www.taxmanagementindia.com/visitor/tmi_faq_details.asp?ID=683
· Faceless Appeal Scheme, 2021 mandating grant of personal
hearing is curative amendment:
·
https://www.taxmann.com/post/blog/faceless-appeal-scheme-2021-mandating-grant-of-personal-hearing-is-curative-amendment
· India’s Shift to Faceless Income Tax Assessment:
·
Budget
2022: make personal hearing mandatory in faceless assessmments:
·
Latest Update in Faceless Tax Assessment:
[1] M. P. Jain, Principles of
Administrative Law 490 (N.M. Tripathi Pvt. Ltd, Bombay, 1986).
[2] P. Craig, Administrative Law
388 (Sweet & Maxwell, London, 2008).
[3] vide SO 32644 and 32655.
[5] https://icmai.in/TaxationPortal/upload/DT/Article/63_1903_21.pdf
[6] https://www.incometaxindia.gov.in/communications/notification/notification_no_2_2021.pdf
[7] https://incometaxindia.gov.in/booklets%20%20pamphlets/faceless-assessment-under-income-tax-act-1961.pdf
[8] Rakesh Mishra, Faceless
Assessment under Income Tax Act, 1961, The Institute of Cost Accountants of
India, available at https://icmai.in/TaxationPortal/upload/DT/Article/63_1903_21.pdf
[9] Shefali Singh 2021, Ministry of
Finance, accessed 25 March 2022
https://www.incometaxindia.gov.in/communications/notification/notification_no_2_2021.pdf
[10] Directorate of Income Tax 2021,
accessed 24 March 2022
https://incometaxindia.gov.in/booklets%20%20pamphlets/faceless-assessment-underincome-tax-act-1961.pdf
[11] (2021)
436 ITR 280/203 DTR 129/321 CTR 266 (Delhi) (HC)
[12] Kinjal Bhuta, Practical Guide
to Faceless Assessment and Appeal (2022).
[13] Commissioner Of
Income-Tax (Appeals) Gets Masked: Government Introduces Faceless Appeal Scheme.
Retrieved from Mondaq:
https://www.mondaq.com/india/transfer-pricing/990598/commissioner-of-income-tax-appeals-gets-masked-government-introduces-faceless-appeal-scheme.
[14] [2021] 127 taxmann.com 643
(Delhi)
[15] A Agrawal (2020) Faceless
assessment A paradigm shift in interacting with Indian revenue authorities
[16] (2021) 127
taxmann.131(Delhi)
[17] CBDT, vide Circular dated
23.11.2020 & 31.03.2021
[18] the SOP in CBDT Circular dated
23.11.2020
[19] [WP(C) 14528/2021]
[20]
(2021) 127 taxmann.com 637 (Delhi)
[21] Gopal Mundhara, Income tax
assessment- It is faceless but not voiceless.(2022)