Faceless Assessment Scheme 2019 – Analysis of recent amendments

INTRODUCTION

Administrative departments in the country are on a pathway of digitalization. Old administration practices are continuously being upgraded to improve efficiency and resource utilization. CBDT too, plays active role in the same and has incorporated Income Tax Business Application (ITBA) for electronic conduct of various functions/proceedings including e-assessment is step towards the same. Adding a feather to this cap, union budget 2019 proposed to introduce E-Assessment scheme, 2019. Now known as the Faceless Assessment Scheme 2019.

Recently a Platform for `Transparent Taxation ‑ Honoring the Honest’ was launched and it’s relevant key highlights were

• Tax system aims to be Seamless, Painless and Faceless
• The platform has major reforms like Faceless Assessment, Faceless Appeal & Taxpayers Charter
• Faceless Assessment & Taxpayers Charter have come into force from today while the facility of faceless appeal to be available from 25th Sep’ 2020
• PM Modi praised the role of honest taxpayers in nation building & said that making lives of such taxpayers easy is responsibility of the government.

HISTORY TRAILS AND RUDIMENTARY STEPS

Once a return is filled by taxpayer, department processes the information. This process of examination return is called Assessment. Summary assessment u/s 143(1), Scrutiny assessment u/s 143(3), best judgment assessment u/s 144 or income escaping assessment u/s 147 are major assessments under IT act.

If history trails could be summarised, traditionally proceedings of assessment, right from selection and serving notice to completion of assessment were carried in physical manner. Digitalization swept in and e assessment was thought of in year 2015 which was on a pilot basis. Further, in the year 2017, ITBA project was rolled in and assesses were made to comply, first voluntarily and then necessarily for scrutiny u/s 143(3) after instructions published in 2018, through e-proceedings tab at designated portal.

From hardcopy submissions and physical representations, department now eyes to make assessments completely faceless, nameless and jurisdiction less. To add feathers of legality to this dream following steps were taken:

Through Finance Act 2018, Section 143 was amended to insert three new sub-sections (3A), (3B) and (3C). Section 143(3A) provides that CG may make scheme by notification in official gazette. 143(3B) enabled govt. to apply provisions of IT act, with such exception, adaptations and modifications as may be specified to give effect to scheme prescribed u/s 143(3A). 143(3C) provides that every notification issued under subsection 3A and 3B be laid before each of parliament as soon as issued.

Later on, in budget speech on 5^th July 2019 Finance minister made announcement of the e-assessment assessment scheme. Creation of dedicated assessment hierarchy for scheme followed.

Finally, on 12^th September 2019 notifications were issued by CBDT regarding e-assessment scheme 2019, which is to be launched in phased manner.

Title	Notification No.	Date
Directions for giving effect to Income Tax E-assessment Scheme, 2019	Notification No. 62/2019- Income Tax	12/09/2019
CBDT notifies Income Tax E-assessment Scheme, 2019	Notification No. 61/2019- Income Tax	12/09/2019

On 13^th August 2020, further amendments were made to the principal scheme via following notifications:

Original notification	Amendments made recently to them via
Notification No. 62/2019- Income Tax dated 12th September 2019	Notification No. 61/2020 – Income Tax dated 13th August 2020
Notification No. 61/2019- Income Tax dated 12th September 2019	Notification No. 60/2020 – Income Tax dated 13th August 2020

Kindly note where ever there are amendments wrt notification issued on 13th august 2020. Changes have been marked with Example-text*

Order F No. 187/3/2020-ITA-I dated 13^th August 2020

The Board in exercise of powers under section 119 of the Income-tax Act, 1961 hereby directs that all the assessment orders shall hereafter be passed by National e-Assessment Centre through the Faceless Assessment Scheme, 2019, except as provided hereunder:

1. Assessment orders in cases assigned to Central Charges.

2. Assessment orders in cases assigned to International Tax Charges.

Any assessment order which is not in conformity with Para-2 above, shall be treated as non-est and shall be deemed to have never been passed.

This order shall come into force with effect from the 13th day of August, 2020.

FACELESS SCHEME, 2019

(Earlier E-ASSESSMENT SCHEME, 2019)

In the interest of revenue and to facilitate bonafide and hassle free assessment proceedings both on the part of assesse and department, CBDT has introduced E-Assessment scheme, 2019. let’s look at the backdrop and framework of the scheme as issued through notification no. 61/2019 and 62/2019 and further Notification No. 60/2020 and 61/2020.

IMPORTANT TERMINOLOGIES

“assessment” – assessment of total income or loss of the assessee u/s 143(3) and u/s 144* of the Act.

“automated allocation system” – algorithm for randomized allocation of cases, by using suitable technological tools

“automated examination tool” – algorithm for standardized examination of draft orders, with a view to reduce the scope of discretion

“e-assessment” – assessment proceedings conducted electronically in ‘e-Proceeding’ facility through assessee’s registered account in designated portal

“registered account” of the assessee – electronic filing account registered by the assessee in designated portal

“registered e-mail address” – e-mail address at which an electronic communication may be delivered or transmitted to the addressee, including- email address available at account in designated portal or in the last income-tax return furnished or in PAN database and further as specified in scheme.

Designated Portal – web portal designated by Pr. Chief Commissioner or Pr. Director General in-charge of NeAC.

Rules – means the Income-tax Rules, 1962*

SCOPE OF SCHEME

The assessment under this Scheme shall be made in respect of such territorial area, or persons or incomes or cases as may be specified by the Board.

E-assessment is not a special type of assessment; just that current assessments are being made electronic to enjoy perks of digitalization.

STRUCTURE

Board i.e. Central Board of Direct Taxes shall constitute for the purpose of this scheme: –

NATIONAL E-ASSESSMENT CENTRE (NEAC)

Constituted as a principal body to facilitate the means to and shall have jurisdiction to conduct assessment proceedings in an electronic mode. It shall be headed by Pr. CCIT and is located in Delhi. It shall specify format, mode, procedures and processes.

Note: All communication between assessee or any other person and all units and centres, including internal communication amongst them shall be mandatorily through NeAC and be exclusively through electronic mode.

REGIONAL E-ASSESSMENT CENTRES (REAC)

Constituted (as it may deem necessary) to facilitate the means to and shall have jurisdiction to conduct assessment proceedings in the cadre controlling region of a Principal Chief Commissioner. It shall be headed by CCIT and there are 8 ReAC across country.

ASSESSMENT UNITS

Constituted (as it may deem necessary) to perform functions of making assessment which includes:

• determination of any liability (including refund)
• seeking information or clarification from assessee on points or issues so identified
• analysis of material furnished by the assessee or any other person
• such other functions as may be required

VERIFICATION UNITS

Constituted (as it may deem necessary) to perform functions of verification which includes:

• enquiry, cross verification, examination of books of accounts
• examination of witnesses and recording of statements
• such other functions as may be required

TECHNICAL UNITS

Constituted (as it may deem necessary) to perform functions of providing technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, audit* transfer pricing, data analytics, management or any other technical matter.

REVIEW UNITS

Constituted (as it may deem necessary) to perform functions of review of the draft assessment order, which includes:

• checking whether material evidence has been brought on record
• relevant points of fact and law, issues on which addition or disallowance should be made and applicable judicial decisions have been duly incorporated in the draft order
• checking for arithmetical correctness of modifications proposed
• such other functions as may be required

The overall manpower strength of the NeAC/ReACs consists of 30 CCsIT, 154 PCsIT, 565 Addl./Jt., 645 DCs/ACsIT and 2830 ITOs. The Office order for setting up of NeAC and ReACs has already been issued.

The following norm has been adopted for creation of hierarchy in each ReAC:

• Each ReAC (AU) will have 1 PCIT, 4 Addl./Jt.CsIT, 4 DCs/ACsIT and 20 ITOs
• Each ReAC (VU) will have 1 PCIT, 4 Addl./Jt.CsIT, 4 DCs/ACsIT and 20 ITOs
• Each ReAC (RU) will have 1 PCIT, 3 Addl./Jt. CsIT., 6 DCs/ACsIT and 9 ITOs
• Each ReAC (TU) will have 1 PCIT, 3 Addl./Jt.CsIT, 6 DCs/ACsIT and 9 ITOs

PROCEDURE

1. Once case is selected for assessment, NeAC shall serve notice u/s 143(2) with issues mentioned therein to the assessee.

Note: Every notice/ order/ other communication shall be delivered to assessee by placing it on assessee’s registered account or sending to his/AR’s registered email address or uploading on assessee’s mobile app followed by a real time alert in all cases.

2. Assessee shall file response within 15 days from the date of receipt of notice.

Note: The time and place of dispatch and receipt of electronic record shall be determined in accordance with the provisions of section 13 of the Information Technology Act, 2000.

Note: Assessee shall submit response through his registered account and upon generation of acknowledgement it shall be deemed to be authenticated.

3. where the assessee –

1. has furnished his return of income under section 139 or in response to a notice issued under subsection (1) of 142 or sub-section (1) of section 148; and a notice under sub-section (2) of section 143 has been issued by the Assessing Officer or the prescribed income-tax authority, as the case may be; or

2. has not furnished his return of income in response to a notice issued under sub-section (1) of section 142 by the Assessing Officer; or

3. has not furnished his return of income under sub-section (1) of section 148 and a notice under subsection (1) of section 142 has been issued by the Assessing Officer;

The National e-Assessment Centre (NeAC) shall intimate the assessee that assessment in his case shall be completed under this Scheme*

• Section 139: Voluntary and Mandatory Returns, due dates, applicability etc.
• Section 142(1): Inquiry before assessment
• Section 148(1): Income escaping assessment

4. Now, NeAC shall assign respective case through an automated system (randomized allocation of cases) to a specific assessment unit in any one ReAC.

5. Post assignment, Assessment unit shall request NeAC for

• Obtaining further information/ documents/ evidence from assessee.

Then NeAC shall issue appropriate notice or requisition to assessee for obtaining the information, documents or evidence requisitioned by the assessment unit.

The assessee or any other person, as the case may be, shall file his response to the notice, within the time specified therein or such time as may be extended on the basis of an application in this regard, to the National e-Assessment Centre. *

• Conducting enquiry or verification by verification unit.

NeAC shall assign function to a specific verification unit in any one ReAC through an automated system.

National e-assessment Centre shall then send the report received from the verification unit to the concerned assessment unit. *

• Seeking technical assistance from technical unit.

NeAC shall assign function to a specific technical unit in any one ReAC through an automated system.

National e-assessment Centre shall then send the report received from the technical unit to the concerned assessment unit. *

6. where the assessee fails to comply with the notice referred to in above point or notice issued under subsection (1) of section 142 or with a direction issued under sub-section (2A) of section 142,

the National e-Assessment Centre shall serve upon such assessee a notice under section 144 giving him an opportunity to show-cause, on a date and time to be specified in the notice,

“why the assessment in his case should not be completed to the best of its judgment” . *

7. The assessee shall, within the time specified in the notice referred above or such time as may be extended on the basis of an application in this regard, file his response to the National e-Assessment Centre.

Where the assessee fails to file response within the time specified in the notice or within the extended time, if any, the National e-Assessment Centre shall intimate such failure to the assessment unit. *

8. After examining all materials gathered, Assessment unit shall prepare a draft assessment order

or, in a case where intimation referred to in clause above is received from the National e-Assessment Centre, make in writing, a draft assessment order to the best of its judgment

either accepting the income, or sum payable by, or sum refundable to, the assessee as per his return or modifying the said income or sum and send a copy of such order to the National e- assessment Centre. *

9. Assessment unit shall, while making draft assessment order, provide details of the penalty proceedings to be initiated therein, if any.

10. NeAC shall examine draft assessment order in accordance with the risk management strategy specified by the Board whereupon

11. It may finalize the assessment as per draft received, and serve copy of such order and notice for initiating penalty proceedings to the assessee along with demand notice or specifying refund if any; or

12. If modification is proposed, issue SCN to assessee as to why assessment shouldn’t be completed as per draft assessment order; or

13. Conduct review of order by assigning function to a specific review unit in any one ReAC through an automated system

14. Review unit shall either concur or propose modification to draft and send its decision to NeAC.

15. If NeAC receives concurrence, it shall follow procedure laid down in 10(a) or 10(b) above.

16. If NeAC receives suggestions for modifications, which then shall after considering modification prepare final draft order and send it NeAC. NeAC shall now follow procedure laid down in 10(a) or 10(b) above.

17. If SCN is issued to assessee as per 10(b) it shall respond to NeAC on or before the date and time specified in the notice or within the extended time, if any. *

18. NeAC shall where no response is received from assessee, finalise assessment as per draft as per 10(a) or in any other case, send the response received to assessment unit.

19. Assessment unit shall thereafter, considering response furnished, prepare revised draft assessment order and send it to NeAC

20. Upon receiving revised draft, NeAC shall finalize assessment as per 10(a) if modification is not prejudicial to interest of assessee or if prejudicial it shall provide opportunity as per 10(b) and response furnished by assessee shall be dealt as per point 13, 14 and 15.

21. NeAC shall after completion of assessment transfer electronic record to assessing officer having jurisdiction over such case for such action as may be required under the Act. *

22. The Principal Chief Commissioner or the Principal Director General, in charge of National e-assessment Centre * may at any stage, if necessary transfer the case to respective AO having jurisdiction.

PENALTY PROCEEDINGS

Penalty proceedings can be initiated by any unit through NeAC for non-compliance of any notice, direction or order.

NeAC shall upon recommendation, serve SCN to assessee. And upon response, respective unit may wither draft order for penalty or drop penalty after recording reasons for same.

(1) Any unit may, in the course of assessment proceedings, for non- compliance of any notice, direction or order issued under this Scheme on the part of the assessee or any other person, send recommendation for initiation of any penalty proceedings under Chapter XXI of the Act, against such assesse or any other person, as the case may be, to the National e-assessment Centre, if it considers necessary or expedient to do so.

(2) The National e-assessment Centre shall, on receipt of such recommendation, serve a notice on the assessee or any other person, as the case may be, calling upon him to show cause as to why penalty should not be imposed on him under the relevant provisions of the Act.

(3) The response to show – cause notice furnished by the assessee or any other person, if any, shall be sent by the National e-assessment Centre to the concerned unit which has made the recommendation for penalty.

(4) The said unit shall, after taking into consideration the response furnished by the assesse or any other person, as the case may be, –

(a)  make a draft order of penalty and send a copy of such draft to National e-assessment Centre; or

(b) drop the penalty after recording reasons, under intimation to the National e-assessment Centre.

(5) The National e-assessment Centre shall levy the penalty as per the said draft order of penalty and serve a copy of the same along with demand notice * on the assessee or any other person, as the case may be and thereafter transfer electronic records of the penalty proceedings to the Assessing Officer having jurisdiction over the said case for such action as may be required under the Act. *

PROCEDURE FOR APPEAL

Appeal made against the assessment order, or penalty order * made by NeAC under this scheme shall be filled before the commissioner (appeals) having the jurisdiction over jurisdictional assessing officer.

EXCHANGE OF COMMUNICATION EXCLUSIVELY BY ELECTRONIC MODE

(1)  For the purposes of this Scheme,-

(a) all communications between the National e-assessment Centre and the assessee, or his authorized representative, or any other person shall be exchanged exclusively by electronic mode; and

(b) all internal communications between the National e-assessment Centre, Regional e-assessment Centres and various units shall be exchanged exclusively by electronic mode.

(2) The provisions of sub-paragraph (1) shall not apply to the enquiry or verification conducted by the verification unit in the circumstances where the whole procedure laid down in para “PROCEDURE” doesn’t apply.

PERKS OF SCHEME

1. Elimination of interaction between Assessing officer and Assessee to the extent technologically feasible – reduction of personal bias, harassment by tax officials, elimination of possibility of unauthorized practices such as corruption. Thus ensuring a greater transparency.

2. Reduction of red-tapism during the assessment proceedings.

3. Upgrading from traditional modes of administration, provides significant reduction in resource consumption. For both assessee and department, time is saved, resources used for physical storage, documentation, communication is significantly reduced. Thus providing ease of administration to department and ease of compliance to tax payer.

4. Unwanted personal bias, over pitched assessment, differences, resulting litigation cost is saved.

5. 24×7 accessibility and dedicated online cloud server make it hassle free to the assessee to comply from any part of country at any time.

6. Standardization as a result of digitalization, of reports, orders and proceedings provides for expeditious disposal of cases. Also providing economies of scale to the department.

7. Team based assessment with dynamic jurisdiction.

8. Significant potential to improve revenue collection by automation of processes.

9. Since submission is electronic, proof of submission remains with the assessee.

10. online system, which will use artificial intelligence, machine learning and technology tools to randomly and automatically allocate cases for assessment within the Income Tax Department.

11. Time gap between issue of notice or order and receipt by assesse in pre-electronic era can be mitigated.

DRAWBACK OF SCHEME

1. Foundation of scheme is digitalisation of proceedings and records, but that comes with possibilities of technical glitches (file size limitations, emails becoming spams etc.) and issues for assesses not having sound technical knowledge. Unintended technical glitches may initiate unwanted penalty proceedings.

2. Differences in understanding may arise w.r.t. allocation of case to random assessment unit located in another part of country. Jurisdictional officer is much aware of trade practices, other administrative procedures and market of respective jurisdiction.

3. Issues may also arise in cases where frequency of one-to-one communication between officer and assessee is volatile in nature.

4. Submissions which are critical and extremely technical and confidential can be at risk of authenticity and genuineness. There may also arise a minute possibility of exposure of confidential documents to persons not known to assessee.

5. Bandwidth issues may also arise at remote areas of the country. Uneducated assesses which may prefer personal hearings over digitalisation. It also gives video conferencing option, but it still lacks a personal touch to proceedings.

6. Assesses shall be required to continuously keep follow up and update their profile on designated portal.

7. Broad aspects of physical communication such as expressions, haptic, body language, gestures etc. are absent.

Faceless assessment is a great initial step towards making assessment procedure transparent and void of undesirable practices. Paying more attention to better technological setup and addressing the minutest issues by measures such as standardization in calling data from assessee etc. shouldn’t be a big deal to department if proceed towards it at an early stage. Overall, E-assessment scheme 2019 or call it faceless assessment is a boon for the country. Income tax administration shall surely a revolution by ITBA project and now through great initiative of faceless assessment.