CA Siddesh Nagaraj Gaddi
Our focus of the article will be on section 144B of the Income-tax Act, 1961 (Act) which has been introduced with effect from 01.04.2021 and already stands widely litigated before the courts. While the technology was recasting the process of assessment and appellate proceedings over the years, COVID-19 induced lockdown quickened the process multi-fold.
What started off as a pilot-based email assessment, turned into full-fledged e-proceedings and which now has gone completely faceless. Even the first appellate proceedings as well penalty proceedings have gone faceless with notices and orders being received on a daily basis. Further, the Govt has also announced an e-filing portal of Income-tax Appellate Tribunal.
All assessments proceedings up to 31st March 2021 were to be governed by Faceless Assessment Scheme, 2019 and with the beginning of new FY, all the assessments will now be governed as per Section 144B of the Act, which runs into 10 sub-sections, an explanation and a whooping over 50 clauses (all put together), is a step towards codification of the faceless assessment scheme. Faceless Appeal and Penalty schemes continue to be driven by notification. Despite the above efforts to address all situations in conducting the assessment which was otherwise done sitting across the table (manual proceedings) for over 5 decades, there are following issues that have been appreciated by the courts.
- Transitional glitches
- Principle of natural justice
- Lack of guidance on VC or personal hearing
- Others
Transitional glitches
Though the new regime (section 144B) came into force from 1.4.2021 and the need for assessment under the said section as reiterated by notification dated 31-3-2021, the Revenue Authorities (RA) have been caught unaware and unprepared (also indicates hurried implementation without adequate training leading to miscarriage of justice). Instances of assessments being concluded under section 143(3) r.w.s 143(3A) and 143(3B) are unacceptable. While section 292B (Return of income, etc., not to be invalid on certain grounds.) will come to the rescue of the RA, assessees can only be comforted by judicial bodies and provisions of section 144B(9) as extracted below:
Section 144B
..(9) Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 or under section 144 in the cases referred to in sub-section (2) [other than the cases transferred under sub-section (8)], on or after the 1st day of April, 2021, shall be non est if such assessment is not made in accordance with the procedure laid down under this section.
The above issue has been discussed in Gurgaon Realtech Ltd. V. NFAC [2021] 127 taxmann.com 726 (Delhi), wherein the Delhi HC setaside the order for AY 2018-19.
Principle of natural justice
It is well settled that nobody should be condemned unheard. The opportunity of being heard occupies greater significance in the successful implementation of faceless proceedings. Since the dependency on the written requests is very high, such requests are required to be handled in a formal and time-bound manner. Seeking adjournment, especially` at the fag end of the proceedings, has always been a bone of contention. The DELHI HC in KBB Nuts (P.) Ltd. V. NFAC (Earlier NeAC) [2021] 127 taxmann.com 194, set aside the assessment order which was passed without considering the submission against SCN which was filed after the given date to reply. It was noted that 1-day notice to reply to SCN and non-consideration of the adjournment request by way of formal response (either accepting or rejecting it) breaches the principles of natural justice.
The Delhi HC in RKKR Foundation v. NFAC [2021] 127 taxmann.com 643 (Delhi) also acknowledged the need for formal disposal of adjournment requests. The above rulings occupie significance for the following reasons
- This being the first year of implementation of faceless assessment, 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, ITR pertaining to the year of assessment, email entered in the profile setting, email of the authorised signatory (non-individual cases), email of the authorised representative.
- Almost every notice comes with a standard disclaimer (or threat) that failure to comply will result in ex parte order or penalty for non-compliance;
- Given the due date extension to complete assessments and the pandemic, the AOs should be equitable and reasonable;
- Such adjournment request which has gone unanswered should help assessees in getting additional evidence admitted before the appellate authorities;
- Though strict timelines are imposed on assessees to respond to notices/SCNs, the assessment orders are passed long after the due date. In such cases, the AOs should not be ignoring the submissions filed after the due date to reply.
- The RA should do away with such strict adherence to timelines given the new income tax website which is riddled with technical glitches. They should also allow assesseees and tax professionals to get used to the same.
Unfortunate instances of orders being passed before the expiry of the time provided to respond to SCN had come up before [2021] 127 taxmann.com 131 (Delhi) DELHI HIGH COURT BL Gupta Construction (P.) Ltd. V. National E-Assessment Centre. Not every aggrieved asssessees will have the wherewithal to approach HCs in such cases, the Revenue Authorities should take up such cases on suo-moto basis under section 154. Faceless initiatives passed with an intention to plug widespread alleged corruption, should not defeat Audi alteram partem principles. “One of the basic principles of the criminal justice system is that the benefit of doubt must always be extended in favour of the accused. 1000 culprits can escape, but, one innocent should not be punished” – Is also equally relevant for tax cases.
Personal hearing
Though the assessment proceedings have gone faceless, the statute provides for a personal hearing at the final stage. The relevant extract for academic purposes:
144B
..
(7) For the purposes of faceless assessment—
…
(vi) a person shall not be required to appear either personally or through authorised representative in connection with any proceedings before the income-tax authority at the National Faceless Assessment Centre or Regional Faceless Assessment Centre or any unit set up under this sub-section;
(vii) in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised 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 or final draft or revised 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;
(viii) the Chief Commissioner or the Director General, in charge of the Regional Faceless Assessment Centre, under which the concerned unit is set up, may approve the request for personal hearing referred to in clause (vii) if he is of the opinion that the request is covered by the circumstances referred to in sub-clause (h) of clause (xii);
(ix) where the request for personal hearing has been approved by the Chief Commissioner or the Director General, in charge of the Regional Faceless Assessment 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;
(xii) the Principal Chief Commissioner or the Principal Director General, in charge of the National Faceless Assessment Centre shall, with the prior approval of the Board, lay down the standards, procedures and processes for effective functioning of the National Faceless Assessment Centre, Regional Faceless Assessment Centres and the unit set up, in an automated and mechanised environment, including format, mode, procedure and processes in respect of the following, namely:—
(h) circumstances in which personal hearing referred to clause (viii) shall be approved;
It is relevant to note from the above scheme of things that authority under the law is required to formulate, with the Board’ approval, SOP for a personal hearing. Section 144B(9) renders orders as non-est if the same is contrary to the procedure laid down thereunder. The observation of Delhi HC in Sanjay Aggarwal V. NFAC [2021] 127 taxmann.com 637 (Delhi) in the context of above provisions are noteworthy (or funny):
11.4 A careful perusal of clause (vii) of Section 144B (7) would show that liberty has been given to the assessee, if his/her income is varied, to seek a personal hearing in the matter. Therefore, the usage of the word ‘may’, to our minds, cannot absolve the respondent/revenue from the obligation cast upon it, to consider the request made for grant of personal hearing. Besides hi under sub-clause (h) of Section 144B (7)(xii) read with Section 144B (7)(viii), the respondent/revenue has been given the power to frame standards, procedures and processes for approving the request made for according personal hearing to an assessee who makes a request qua he same.
11.5 In several matters, we have asked the counsels for the revenue as to, whether any standards, procedures and processes have been framed for dealing with such requests. The response, which we have got from the standing counsels including Mr. Chandra, is hat, to the best of their knowledge, no such standards, procedures as also processes have been framed, as yet.
Similar being the observation of HC in Lemon Tree Hotels Limited vs. NFAC & Anr., dated 21-5-2021 and again in Ritnand Balved Education Foundation V. NFAC [2021] 127 taxmann.com 627 (Delhi) rendered on 27.05.2021, that there is no such SOP.
The above act of conclusion of assessment proceedings without SOPs, as mandated by the statute, amounts to riding a motorcycle without a front wheel/only on one wheel. Such stunts/journey will end in accidents and definitely not achieve a happy resolution.
Others issues:
- Clean Orders yet mistake apparent on records: Various instances have been encountered where the department has accepted the ROI filed without any modification and yet there has been demand raised u/s 156 of the Act. The demand was mainly due to computational error such as short grant of TDS, chapter VI-A deduction, the decrease in losses b/f, erroneously levy of interest u/s 234 of the Act, etc. The taxpayers do not have the option to file rectification applications online and have to visit their jurisdictional AOs again. Further, the rectification applications are not disposed within the prescribed timelines.
- Limit to upload data: While there is no limit imposed on the AO to ask for information pertaining to the scrutiny, the taxpayers have been restricted to size of 5mb as well as no of attachments of max 10 (though multiple submissions can be made). Large Companies which are asked voluminious data are left with no option but to divide it into several pieces and upload.
- Fishing & Roving inquiry: One of the challenges of the new scheme is that the AO’s serve generic notice across without being aware of the nature of business, background, applicability, etc. There have been instances where the taxpayers have been asked to provide information which have no connection with the activities undertaken. The voluminous information requested seemed like file building exercise with less efforts on concrete legal questions.
Conclusion
No doubt, faceless measures are in their nascent stage and the law (which is almost 60 years) is evolving. The debate around principles of natural justice should be avoided in these pandemic / ease-of-doing-business times. Without prejudice to the above critical notices, we welcome any efforts to bring in transparency and weed out corruption in the process of assessment and appellate proceedings.
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