While the author had almost finalised the article, Notification No. 27/2021 dated 27-Feb-2021 the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Ordinance, 2020 which was promulgated on 5-Jun-2020 [while later become Act] has extended date of completion of assessment for AY 2018-19 from 31-March-2021 to 29-30-June-2021.
But one must note that the very said Ordinance in the month of June 2020 itself had postponed the due dates for completion of assessment to 31-March-2021 as contrary to date of filing of return filing which was extended only to 31-Oct-2020 and after much agitation a notification was issued on 30-Oct-2020 at late night extending the said date.
Structure-:
The article gives authors own analysis. This article is based on a series of legislative enactments and is divided into following parts.
- Objective
- Structure
- Background
- Data with Dept.
- Take away points
- A word about appeal
- Enactments
- Judgments affected
- Situation after Enactment
√ Return of Income
√ Intimation u/s 143(1)(a)
√ Scrutiny assessment 143
√ Penalty u/s 272A
√ Re-assessment u/s 147
Objective
1) Author, in this article, discusses the overall situation of assessment of income and appellate procedure and concludes that the balance has significantly tilted in favour of Revenue.
2) This article will give a surface acquaintance of framework of handling assessment and appeals.
3) This article will be useful for a tax-practitioner.
Background
The process of “faceless” started off way back on 4-1-2012 when the Centralised Processing of Returns Scheme, 2011 came into force.
But Amendments made since the Finance Act, 2019 till date has radically changed the whole of the landscape of the manner in which assessments were conducted.
Despite the above, recently, the C&AG, in its Performance Audit Report on Income Tax Search and Seizure Assessment (Report No. 14 of 2020) has highlighted the shortcomings on part of the Income Tax Department with regards to its modus operandi adopted during the assessments.
It observed that 76.5% of additions made in search assessment did not stand the test of judicial scrutiny at the level of CIT(A) / ITAT.
Data with IT Dept.
Consider following sources of data-:
A) Audited financial statement in terms of tax audit report or various other reports / certificates certified by CA.
B) TDS / TCS – considering only recent amendments
1) section 194N – Payment of certain amount in cash by
1) Banker
2) Post office
2) section 194M – Payment by certain individuals / HUF – even if no tax audit is applicable
3) section 206(1H) Sale of any other goods
C) Various Inter-Governmental Agreements which allow a free flow of exchange of information
D) Data from various ministries like MCA, CBIC [GST]
E) IT Dept has initiated web-crawlers [a program to systematically browse internet traffic] searching information on social media.
F) Various statements specifically called for like
1) section 285 – statement by Non resident having liaison office
2) section 285A – where an entity outside India derives its value from assets in India
3) section 286 – reporting by entity which is part of an international group
4) section 285BA – statement of transactions by following persons
1) Government
2) RBI
3) Registrar – immovable properties
4) Registrar – motor vehicles
5) Post office
6) banks and other financial institutions
7) Financial intermediaries under the Depositories Act, 1996
5) section 285BB – making above mentioned information available in form 26AS
Just for information, IT Dept has reached Facebook [at Hyderabad]and Google [at Bengaluru] and their income attributable to India is being assessed in India.
Take away points
Following are the take away points for a person who has no time to read the whole article.
a) As mentioned above, the IT Dept is heavily equipped with robust Artificial intelligence and plethora of information relating to assessee specific transactions. At the cost of repetition, I would like to mention that the data analysis will be done by a machine based on pre-defined criterion which does not have any human limitations.
b) One must accept the fact that the quality of questions asked during the scrutiny u/s 143(3) has increased significantly. There is a lot of transparency in the manner of communication.
c) Faceless Assessment appears to be good but definitely not sufficient for complicated matters.
d) One must be very careful while filing return of income and making claims thereof. It is equally important to maintain accurate data including that relating to inventory because it is now very easy for IT Dept to reconcile the same.
Enactment
Recent legislative enactments read with rules have made significant changes in the manner in which the assessments will be made hereinafter. The procedural aspect is mainly contained in
- the faceless Assessment Scheme, 2019
- the Faceless Appeal Scheme, 2020
- the Faceless Penalty Scheme, 2021
Regarding assessment and appeals, important changes have been made in Act to following sections namely;
| Section | Brief change |
| Section 139 – Return of Income | Time limit for filing reduced to 9 months |
| Section 142 – Inquiry before assessment | Time limit for scrutiny reduced. |
| Section 142B – Faceless Inquiry and Valuation | Enabling provisions for Faceless Inquiry and Valuation |
| Section 143 – Assessment | Time limit for scrutiny reduced. |
| Section 147 – Income escaping assessment | Total overhaul. Assessment in consequence of search, requisition or survey subsumed |
| Section 148 – Issue of Notice where Income escaping assessment | |
| Section 148A –Conducting inquiry, providing opportunity before issue of notice u/s 148. | Total overhaul. |
| Section 149 – Time limit for notice – substituted by new section | Total overhaul. |
| Section 151 – sanction for issue of notice – substituted by new section | Total overhaul. |
| Section 151A – Consequential change in view of section 148A | Consequential change. |
| Section 153 – Time limit for completion of assessment, reassessment & re-computation | Self explanatory |
| Section 153A – Assessment in case of search and requisition | The section stands closed and henceforth assessment will happen u/s 147 |
| Section 153C – Assessment of income of any other person | The section stands closed and henceforth assessment will happen u/s 147 |
| Section 255 –Procedure of Appellate Tribunal | Attempt to make it Faceless |
| Section 271AAD – Penalty for false entry etc. in the books of account | Self explanatory |
| Section 271K – Penalty for failure to furnish statements | Self explanatory |
| Section 281B – Provisional attachment to protect revenue in certain cases | Consequential to penalty sections |
Currently the constitutional validity of the faceless assessment and faceless penalty and faceless appeal is under challenge before Delhi High Court and the matter is sub-judice.
Judgements affected
There is a plethora of judgements of various judicial forums including Supreme Court which has become “No more a Good Law”. They contain subjects like
Validity of service of notice
Validity of Jurisdiction
Correctness of AO issuing notice / summons etc.
In case of re-assessment,
Discrepancies in obtaining approval of CIT
Objective satisfaction of AO
Meaning of “reason to believe”
Meaning of “change of opinion”
In case of search
The pre-pondering law was that, in case of search, the assessment can be made only on the basis of “Incriminating material” seized during the course of search. Currently drafted section 147 does not have such fetters. IT is being argued that, above mentioned law relating to “Incriminating material” may still remain a good law.
Situation after Enactment
The author believxaes that preparation for scrutiny starts with filing return of income. In view of that, we may divide the scrutiny in following categories.
I. Return of income
II. Response to intimation u/s 143(1)(a)
III. Notice u/s 142 for scrutiny u/s 143
IV. Notice u/s 148A for re-assessment u/s 147.
V. Penalty u/s 272A
I. Return of income
The time limit for original / revised / belated return has been substantially curtailed.
The IT Dept is coming up with pre-filled returns. Thus, preparation of return of income will not start from a blank form but with the data that the IT dept has.
II. Response to intimation u/s 143(1)(a)
Scope of 143(1)(a) stands enlarged in terms of information available with the IT Dept read with Central Processing Scheme, 2011.
III. Notice u/s 142 for scrutiny u/s 143
In view of the E-Assessment Scheme, 2019 read with “Risk Management Strategy“ of the IT Dept, it is expected that there were more of “Limited Scrutiny” than “full scrutiny”.
Consider the following chart –
| AY | Last date for Scrutiny assessment | Return filing date |
| 2018-19 | 30/9/2020 (18 months rule) (Now, extended to 31/3/2021 due to COVID) | Not required at this stage. |
| 2019-20 | 31/3/2021 (12 months rule) | Not required at this stage. |
| 2020-21 | 31/3/2022 (12 months rule) | 31-03-2021 due date for belated / revised return. |
| 2021-22 | 31/12/2022 (9 months rule) | 31-12-2021 due date for original / revised / belated return. |
IV. Notice u/s 148 / 148A for re-assessment u/s 147. [old / new]
Now we come to last phase where vide Finance Act, 2021 has over-hauled provisions of re-assessment proceedings. Now the assessment in case of search, a reference u/s 132A and survey will also be made as per re-assessment system.
Consider the cumulative effect of following
1) The IT Dept is heavily equipped with robust Artificial intelligence and plethora of information relating to assessee specific transaction.
2) Govt. has removed the checks and balances which were inculcated by judicial pronouncements like
a. Objective Reason to Believe to the satisfaction of AO
b. Application of mind by AO [contrary to earlier law. For example, now case reported by C&AG is sufficient]
c. No re-opening in case of mere change in opinion
3) the period for doing re-assessment is extended to 10 years which is contrary to explanation given while reducing the period available for filing return and for scrutiny assessment and
4) There is no curtailment in the provisions of section 263 empowering CIT revise an order which is erroneous in so far as prejudicial to revenue which provides further time and liberty to Revenue.
V. Penalty u/s 272A
The penalty proceedings u/s 272A is now into action and has replaced earlier regime of section 271(1)(c) which had many checks and balances which have been done away with like:
- For Initiation of Penalty recording of satisfaction of AO is mandatory.
- Ratio laid down by Karnataka High Court’s decision relating to section 271(1)(c) in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 dated 13-12-2012 which now is no more a good law. The details are in the material attached.
A word about appeal
We are yet to experience Faceless Appeal but there is a possibility that the same experience as that of faceless assessment may get repeated.
It has completely undermined the importance of physical / virtual presence of all concerned persons’, their body language in communication / argument.
The power of granting a video conference in faceless assessment is with CIT which is completely discretionary because it is without any Guidelines. A writ is pending before Delhi HC on this issue.
The Finance Act, 2021 has abolished Income Tax Settlement Commission which was a kind of best judgment assessment and has helped in resolving disputes.
It has re-structured Authority on Advance Ruling [and renamed also] where only 2 CIT will sit has eliminated confidence of assessee. Now it will only be used as a stepping stone to approach High Court.
There is no clarity as to how “faceless appeal” will take place u/s 255 “Procedure of Appellate Tribunal” of the Act.
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Download Material Relied upon in Preparation of the above Article
Author Bio
Sir,
An excellent article very educative and informative. Sir I really very thankful for providing this very valuable and useful material.