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Any notices served by the Income Tax department u/s 143(2) (Scrutiny) or u/s 144 (Best Judgement Assessment) or u/s 147 (Income Escaping Assessment) or in combination, the hearing and settlement was conducted on an offline mode.

The Assessee to whom such a notice was served, was asked to present himself in person or by a representative in front of an Income Tax officer (generally the Assessing Officer). This would give an opportunity to both the officer and the Assessee to collude and escape paying the shortfall tax amount or penalty he is liable to pay. Not only did this lead to loss of revenue for the Government, but it also sent out a wrong image about the Government Machinery. Come August 13, 2020, the Prime Minister Shri Narendra Modi replaced the above process with the renowned “Faceless Assessment” in which, as the name suggests, the appeals, hearings and assessments are conducted in a faceless manner. It was effective immediately form 25th September 2020. What it means is that now neither the Assessee knows which AO is assessing his Return, nor the Officer knows who’s Return he is assessing. They are completely unaware of each other’s identity which increases the transparency and reliability of the Assessments.

This is conducted in the following manner (Modus Operandi):

1. The National Faceless Assessment Centre (NFAC), Delhi, serves a notice under the aforementioned sections to the Assessee (let’s assume he lives in Kolkata) suspected to be in default. He has only one point of contact with the Tax Authority as far as this notice is concerned i.e. with the NFAC.

2. The NFAC now sends his Return to an Assessing Unit of a Regional Faceless Assessment Centre (RFAC) (under the jurisdiction of the regional Principal Chief Commissioner) (assuming to be in Chennai) which is chosen at random to eliminate any underlying bias. Neither does the Assessee know nor has any contact with the RFAC which is assessing his Return.

3. The RFAC has 4 sub departments:

a. Assessing Unit – for identifying points or issues, material for the determination of any liability (including refund), analysing information etc

b. Verification units – for enquiry, cross verification, examination of books of accounts, witness and recording of statements etc

c. Technical units – for technical assistance including any assistance or advice on legal, accounting, forensic, information technology, valuation, audit, transfer pricing, data analytics, management etc.

d. Review units – for reviewing the draft assessment order to check whether the facts, relevant evidence and law and judicial decisions have been considered in the draft order.

Communications between the above departments are through NFAC only even though they might belong to the same RFAC.

4. The Assessing Unit in Chennai can make a request to NFAC in case it requires:

a. further information or documents from the Assessee who’s Return has been assigned to it.

b. Needs to make certain verifications through a Verification Unit about the Assessee

c. Seeking technical assistance from a Technical Unit.

The NFAC, as it seems fit, issues a notice to the Assessee or the respective department to aid the Assessing Unit. It forwards the reports and/or documents & evidence received by the other Units and the Assessee respectively.

5. In case the Assessee fails to provide the necessary documents or evidence so requested by the NFAC, the Assessing Unit shall issue a Best Judgement Assessment u/s 144 on the direction of the NFAC. The Assessee can respond to this notice, and consequently the Assessing Unit (after taking into consideration all the evidence, documents and responses), prepares
a Draft Assessment Order u/s 144 and sends it to the NFAC.

6. It shall append the notice with the penalties, modification, and proceedings to be initiated thereafter.

7. The NFAC examines the Draft Assessment so prepared by the Assessing Unit according to the Risk Management Strategy issued by the CBDT. The NFAC has the authority to do the following:

a. Give an opportunity to the Assessee of Being Heard. This is also done through video conferencing, i.e online mode, between the NFAC and the Assesse.

b. Assign the draft assessment order to a Review Unit but of a different RFAC (again through the Automated method of Allocation, say Hyderabad).

Faceless Assessment Scheme under Income Tax Act, 1961

8. The Review Unit (Hyderabad) shall intimate the NFAC about modifications and alterations, if any, regarding the Draft Assessment Order.

9. The NFAC after considering the suggestions and modifications made by the Review Unit reassign the case to another Assessing Unit (different from the original Assessing Unit, say Mumbai), which will reconsider the suggested modifications and send the Final Draft Order to the NFAC.

10. The NFAC after receiving the Final Draft Order gives the Assessee an opportunity of being heard in case of any modifications. If the Assessee fails to respond or his response seems to be inadequate or he accepts the Order, the Final Draft Order becomes the Final Order. However, if the response so submitted by the Assessee seems appropriate to the NFAC, it may on its discretion re assign the case to another Assessing Unit of another RFAC and the entire process is repeated.

11. The Assessee can file his objections with the Final Assessment Order with the Dispute Resolution Office if he is dissatisfied with the same.

12. The NFAC shall act according to the directions of the Dispute Resolution Office and accordingly either submit its response or prepare the Final Order.

13. The NFAC now transfers all the electronic records of the Final Assessment Order to the Assessing Officer who has jurisdiction over such action. This order includes the

a. The Notice of Final Assessment Order made by the NFAC

b. the Notice for issuing penalties and/or proceedings

c. the Demand Notice, if any, specifying the amount payable by the Assessee.

The Faceless Assessment was brought in with the vision of promoting Ease of Doing Business in India. In my opinion, it provides the Assessees with the following benefits:

1. Since the entire system has gone online, no physical presence is required.

This saves both time and cost of the Assessee.

2. Increased transparency from the Income Tax department proves to relieve the Assessee. This curbs unethical practices as both the Officer and the Assessee are unaware of each other’s identity.

3. Since the entire process is a team-based effort, errors are minimised and reliability of the Orders increase.

4. This also speeds up the process of dispute resolution and recovery of tax by doing away with the arduous offline process.

However, cases related to serious frauds, major tax evasion, sensitive and search matters, cases relating to international
taxation and cases related to black money act and Benami Property are not covered under this faceless appeal scheme. These are still done in the way they were used to before i.e. the offline method. These events prove to be a greater opportunity to collude rather than the comparatively smaller cases of scrutiny assessment. It is here that major sources of corruption, tax evasion, money laundering etc. lie compared to the events covered under Faceless Assessment as far as monetary magnitude is concerned.

The Government taking a step towards the future of “Online India”. It is a step towards complete digitalization of the Income tax Return Filing and Compliance and the effort is commendable. What is even more praiseworthy is the effort the Government is taking to educate the masses about the importance of return filing and paying their taxes honestly.

This process is an endeavour to “Honour the Honest” as the way the Tax Authority’s deal with tax payers is considered to be an unpleasant one. The government now sees the Tax Department not as a source of Revenue but as a body to serve the citizens. The faceless process will make the honest taxpayer’s work faster and weed out the dishonest ones much more easily.

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