| Mar-19-2021

Faceless Assessment Scheme: Well Thoughts with Ceratin Lags

The Hon’ble Prime Minister launched the ‘Faceless Assessment Scheme’ on the 13th of August 2020 with an aim  to  call  for  reduced  Red-Tapism  and  corruption,  better  accountability  from  the  department’s  side  and enhanced transparency and efficiency. The underlying objectives of the scheme could be summarized in the following points:

• Limit the interaction between the departments’s Assessing Officer and the taxpayer as much as possible whilst the proceedings are going on;
• Use the modern and appropriate technology to achieve the above mentioned objective and at the same time optimizing the resources of the
• Vanishing the concept of jurisdiction and install team based functioning throughout the
• The scheme also aims to reduce the litigation involving the department by putting various checks on the assessment

1. Structure for faceless assessment

The Central Board of Direct Taxes (CBDT), after the announcement has issued the notification No 60/2020 and notified the procedure for the faceless assessment scheme. The scheme will cover all the cases except those constituted on Central charges such as black money, benami transactions, major tax frauds etc.

As per the notification, CBDT has set up various centers and units in order to coordinate and seamless the whole process.

• A ‘National e-Assessment Centre’ to set up which will act as the nodal institute for this scheme. It will be headed by Principle Chief Commissioner of the Income Tax and it will facilitate and control the e-assessment
• 34 ‘Regional e-Assessment Centres’ to be set up which will be headed by the regional Principal Chief Commissioner for making the
• ‘Assessment units’ for obtaining such further information, documents or evidence from  the assessee or any other person, as it may specify; conducting of certain enquiry or verification by verification unit; and seeking technical assistance from the technical unit;1
• ‘Verification units’ for conducting of certain enquiry or verification such as examination of  accounts, supporting documents submitted and witness, if any, etc
• ‘Technical units’ to be set up for providing, as the name suggests- technical It shall provide technological assistance along with other functions such  as  giving  legal  advice,  accounting, forensic, audit, or any other matter.

‘Review units’ for conducting review of the draft assessment order, referred to it by the National e- assessment Centre.

CBDT has deployed two-third of its workforce to deal with the faceless assessment scheme.3 All the interchanges between all the units referenced above, to make an assessment under this plan should  be  through the National e-Assessment Center.

There is no denying that the scheme was announced with all pomp and show and if implemented properly will go a long way in easing out the already traduced assessments by the department. IT department is the biggest litigant in the government and this scheme may reduce the exposure of the same. Though the first phase of the scheme was launched in 2019 with the name of ‘E-assessment’ and it proved to be a successful experiment, there exists some loopholes in the current faceless scheme which the department must clarify at the earliest given it could hamper the whole procedure.

A. 15 DAYS NOTICE PERIOD IS NOT ENOUGH AND RIGID IN APPROACH

The  scheme  under  paragraph  5  of  the  notification4  provides  for  15  days  to  the  assessee  within  which  the assessee has to respond to the 143(2) notice issued by the NeC initiating the assessment u/s. 143(3) or S-144. The notification fails to provide any clause where this time period could be extended beyond 15 days. This rigid approach could lead to unnecessary difficulties for the assessee.

Possible Solution- Keeping in mind the disadvantageous position this particular time frame of 15 days has put  the  assessee  into,  the  National  Centre  must  be  given  powers  to  extend  the  time  limit  in  reasonable circumstances.

B. WRONG UNDERSTANDING OF THE ISSUE OF FACTS BY THE AU- THEN WHAT?

Recently, in the case of Salem Sree Ramavilas Chit Company v. Dy. CIT [2020] 114 taxmann.com 492, the Madras High Court set aside  the  order  passed  by  the  Department  due  to  the  wrong  understanding  of  the facts of the case on the department’s side. The Court in para 15 observed that:

The Government of India has introduced E-Governance for conduct of assessment proceedings electronically. It is a laudable steps taken by the Income Tax Department to pave way for an objective assessment without human interaction. At the same time, such proceedings can lead to erroneous assessment if officers are not able to understand the transactions and statement of accounts of an assessee without a personal hearing.

As evident by the case, these situations will continue to increase due to the fact that personal hearing facility   is provided to the assessee only during the final stage of obtaining the assessee’s comments on the show    cause notice (SCN),sent alongwith the draft assessment order, where the assessee’s liability is proposed to be raised or penalty imposed, and not at any earlier stage of the assessment.5 AU, due to lack of communication will proceed on his judgement until the draft assessment order stage is reached. Neither the assessee nor the AU will know, till the stage the draft assessment order is served on the assessee and objections received, whether the AU has understood the assessee’s business, submissions made and basis on which the income    has been computed in the return filed by the assessee.

This could actually result in a substantial waste of time and effort by the assessee and the AU, due to lack of adequate communication.

Possible Solution- The assessee must be given opportunity at least once to explain his side before the draft assessment order is given. There is no doubt that the main objective of the scheme is to limit the contact between taxpayer and department in order to boost transparency and reduce corruption. The department  must devise some method to provide for real time interaction between the assessee  and  AU  without  revealing the identity of any sort. The dept could use modern day technologies to make it possible.

C. TAKING AWAY THE INHERENT RIGHT OF AUDIENCE IN FRONT OF DEPARTMENT- VIOLATION OF FUNDAMENTAL RIGHT

It is pertinent to note that Notification No. 61 dated 12.09.20196  used the expression “shall” thereby giving the assessee the mandatory power to make himself heard.7 The clause read as:

In a case where a modification is proposed in the draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show-cause as to why the assessment should not be completed as per the such draft assessment order, the assessee or his authorised representative, as the case may be, shall be entitled to seek personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit under this Scheme,

However, the new notification No. 60 dated 13.08.2020 amended the para 11 clause 2 as mentioned above and replaced the word “shall” with “may request”8 thereby taking the inherent right of the audience.

In a case where a modification is proposed in the draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the such draft assessment order, the assessee or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit under the said Scheme.

Moreover, the dept has not come yet with the guidelines of what will constitute as conditions where the assessee will be granted personal hearing by the dept and what if the assessee fails to fall into the conditions. Does it mean that the assessment order would be finalised without even hearing the assessee once in the  whole process?

Possible Solution- This conditional clause where personal hearing is subject to approval from the authorities must be amended back to 2019 state where it was mandatory to hear the assessee if requested.

D. APPREHENSION OF BIASENESS TOWARDS ASSESSEE

The scheme has somewhat put the assessee on a disadvantageous position during the whole assessment proceedings due to the following reasons:

1. WHETHER SECTION 154 OF IT ACT GETS REDUNDANT?

Section 154 of the It Act provides for rectification of mistakes. This section provides the Assessing Officer (authority under section 116) power to amend the order passed in lieu of any mistake apparent in it. Now, the question arises whether in this scheme of faceless assessment where the final order is going to be passed by the NeC which is headed by the Principal Chief Commissioner or the Principal Director General, the AO can amend the order indirectly scrutinized and passed by his superior officers.

It is interesting to note that the notification No 61 of 2019 under para 5 clause (xx) mentioned that:

The National e-assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over such case., for –

• imposition of penalty;
• collection and recovery of demand;
• rectification of mistake;
• giving effect to appellate orders;…………

The notification recognized the power of AO under the section 154 and authorized him to exercise the same. However, the new notification 61 of 2020 mentions:

The National e-assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over the said case for such action as may be required under the Act;”9

Therefore, now the new notification is ambiguous in nature as far as rectification of mistakes is concerned.

Possible Solution- The department must clarify the expression “such action as may be required under the     act” as to whether it covers rectification of mistakes or not.

2. WHETHER SECTION 263 AND 264 OF THE ACT GET REDUNDANT?

The  Income  tax  under  the  sections  263 and 264  provides  the  Commissioner  with  the  power  to  revise  the orders  prejudicial  to  revenue  and  the  assessee  respectively.  Now  given  the  fact  that  Nation  Centre  is authorized to send the draft assessment order for further review to a RU, the NeC is likely to use this power more often in the cases of orders which are against the revenue department. The order could be sent back without the knowledge of the assessee and the assessee will only be made aware of the order only when a revised draft assessment would be provided to him.

The commissioner is less likely to intervene now under section 264 because the commissioner can claim that since  the  order  has  gone  through  the  stages  of  NeC,  AU,  VU  and  RU  there  is  less  of  a  chance  of  it  being incorrect. On the other hand, the commissioner can still exercise powers under section 263 and can make the order favorable to the revenue.

Possible  Solution-  The  government  must  either  amend  the  sections  so  as  to  take  away  the  power  of commissioner  under  section  263  and  264  altogether  or  must  make  the  commissioner  to  provide  cogent reasons for intervention as such especially under the 263.