Faceless Income Tax E assessment Scheme

Our Hon’ble Finance Minister, Mrs. Nirmala Sitharaman in her Speech on Union Budget 2019, indicated about the intention and plans of the present Government to replace the existing system of scrutiny assessment in the Income tax department with a new system of faceless e assessment to be conducted in Electronic mode.

The reason for introduction of this new system of faceless e assessment, as mentioned in the budget speech is:

• To eliminate undesirable practices on the part of tax officials
• To give shape to the vision of Hon’ble Prime Minister

Key features of E assessment Scheme, 2019

• Creation of a Central cell, which shall be single point of contact between the tax payer and the Income tax department
• Notices to be issued to tax payers electronically by the Central cell
• Cases selected for scrutiny to allocate to assessment units in Random manner by the central cell.

Synopsis of the E assessment Scheme, 2019

The Ministry of Finance vide Central Board of Direct Taxes (CBDT) notification No 61 & 62 dated 12^th September 2019 has respectively notified the E – assessment Scheme 2019 & given directions for its implementation.

The CBDT vide Circular No 27/2019 dated 27^th September 2019 have provided certain exceptions wherein implementation of the E assessment scheme 2019 shall not be mandatory

Salient Features of E assessment Scheme, 2019

Organization Structure

E assessment center for the Purpose of the Scheme may be set up by CBDT and shall include:

• National e assessment center (NeAC) :
  • To Act as a Central Cell between Tax payer and the Income tax Department
  • Located in Delhi and inaugurated on 7^th October 2019
  • To be headed by Principal Chief Commissioner of Income Tax
• Regional e Assessment Centers (ReAC):
  • Comprises of :
    • Assessment Unit
    • Review Unit
    • Technical Unit and
    • Verification Unit
  • Each ReAC to be headed by Chief Commissioner of Income Tax
  • 8 ReAC‘s are set up at Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bangalore and Hyderabad.

E-Assessment 2019 Ecosystem:

Tax Payer

Assessment Unit

Verification Unit

Technical Unit

Review Unit

Functions of ReAC‘s:

• Assessment Unit : to facilitate the conduct of e-assessment,
  • to perform the function of making assessment, which includes
    • identification of points or issues material for the determination of any liability (including refund) under the Act,
    • seeking information or clarification on points or issues so identified,
    • analysis of the material furnished by the assessee or any other person, and such other functions as may be required for the purposes of making assessment;

• Verification Unit : to facilitate the conduct of e-assessment,
  • to perform the function of verification, which includes
    • enquiry, cross verification, examination of books of accounts, examination of witnesses and recording of statements, and such other functions as may be required for the purposes of verification.

• Technical Unit : to facilitate the conduct of e-assessment,
  • to perform the function of providing technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter which may be required in a particular case or a class of cases, under this Scheme;

• Review Unit : to facilitate the conduct of e-assessment,
  • to perform the function of review of the draft assessment order, which includes
    • checking whether the relevant and material evidence has been brought on record,
    • whether the relevant points of fact and law have been duly incorporated in the draft order,
    • whether the issues on which addition or disallowance should be made have been discussed in the draft order, whether the applicable judicial decisions have been considered and dealt with in the draft order,
    • checking for arithmetical correctness of modifications proposed, if any, and such other functions as may be required for the purposes of review

Modus of operation:

• Tax payers selected for Scrutiny assessments to receive notices u/s 143(2) of the Income tax Act over email on their registered email ids and in their accounts created on the Income tax efiling portal incometaxindiaefiling.gov.in and Sms alerts on registered mobile number thru NeAC
• Response to the notices within 15 days electronically on the Income tax efiling portal
• Any notice or communication from department shall hove Document identification number (DIN) and should be mentioned in all related correspondence
• Receipt of acknowledgement on successful submission of response by taxpayer from NeAC
• On receipt of response from Tax payer, NeAC to allocate the matter to the Assessing Unit of any one Regional e assessment centers via an Automated system
• Assistance required by at the Regional unit on Technical matters or for the purpose of verification shall be assigned to Technical and/or Verification unit via automated system.
• Any further information and/or documentation requirement of the Regional assessment unit from the tax payer shall be routed thru the NeAC ’s
• On completion of assessment draft assessment order to be sent by the Regional assessment unit to NeAC ‘s
• Draft assessment order to be reviewed by the review unit of any ReAC as may be referred to it by NeAC
• The review unit after review of the draft assessment order may agree or may just modification in the said order to NeAC
• The NeAC may in turn send the draft assessment order back to the Assessment unit of the ReAC with the modification as may be suggested by the review units.
• Then on receipt of final draft assessment order from ReAC, the NeAC shall follow specified procedure whereby it may either finalize the assessment order or serve a show cause notice on the tax payer before finalizing the assessment order
• The response submitted by tax payer shall be dealt with by NeAC as per prescribed procedure.
• The NeAC shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer (AO) having jurisdiction over such case., for –
  • Imposition of penalty
  • collection and recovery of demand
  • rectification of mistake
  • giving effect to appellate orders
  • submission of remand report, other report to be furnished, or any representation to be made, or any record to be produced before the Commissioner (Appeals) , Appellate Tribunal or Courts proposal seeking sanction for launch of prosecution and filing of complaint before the Court;
• The NeAC may at any stage of assessment proceedings if it considers it necessary may transfer the case to the Assessing officer having jurisdiction over the case.
• Personal hearing with the tax payer and/or his representative may be allowed in certain scenarios but exclusively through video conferencing and/or through video telephony.
• Appeal against the assessment order passed by NeAC can be filed with the CIT (Appeals) having jurisdiction over such jurisdictional Assessing officer

Our Comments/observation:

• Introduction of faceless e assessment scheme signals the desire of present government to have transparency in handling Tax assessments and to reduce the hardships that may have been faced by the tax payer in the hands of Tax administration. It can be said to be another move that not only promotes Governments objective of Digitization but also of Ease of doing business in India.
• But to make this scheme successful in our view amongst other things the government needs to have:
  • Robust and secure data servers for storage of data gathered under this scheme both at the level of NeAC and ReAC ‘s
  • Requisite Internet band width and secured communication channels for implementation of this scheme
  • Availability/Development of facilities to support video conferencing and/or video telephony
  • Capability of handling bulk submission online and resolving real time technical glitches
  • Development of systems may be using Artificial Intelligence and such other technologies for Automated allocation of cases to ReAC‘s.
  • Heavy investment in IT infrastructure.
  • Defined Rules, Protocols and practices to be followed both at NeAC and ReAC‘s.
  • Adequate training at all levels involved in implementation of this scheme
• From Tax payers perspective the immediate issues may be:
  • Necessity to keep the address, email-id and registered mobile number updated in the Income tax database
  • A lot of time and cost may be consumed in digitizing physical data for the purpose of submission to the Income tax department under this scheme.
  • Hardships faced on account of Technical glitches due to lack of appropriate IT infrastructure maintained by the Tax Department.
  • Ability to differentiate between genuine communication received from the department vis-a vis any fake communication that may be received from malicious external party
  • Basic understanding of operation of this scheme and digitization and/or Computer operation is needed.

The E assessment scheme of the Income tax department though has been launched in FY 2019-20 and in a phased manner.

But the success of this scheme amongst others mainly also depends on the IT Infrastructure maintained not only at the department level but also across the country for the implementation of this scheme, Automated allocation systems of NeRC, IT related training at the level of all those involved in the implementation of this scheme including the tax payer, Data security, Creating and maintaining an appropriate IT frame work which is in line with the present complex and matured Income tax Act and last but not the least ability to handle exceptional scenario’s.

This new scheme appears to bring about a paradigm shift in the manner in which the Income tax department shall function but the stakes are also too high for the tax payers in form of levy of penalty proceedings.

We Chartered Accountants in our role as, “The Partners in Nation Building” like in case of implementation of the Goods and Service Tax Act (GST) will always stand by the Government and country at large for implementation the E assessment Scheme, 2019…!

(Reference : CBDT  : Notification No 61 & 62 dated 12th September 2019, Circular No 19/2019 and 27/2019 dated 14th August 2019 and 27th September 2019 respectively, PowerPoint presentation on E Assessment Scheme 2019 as issued by the Income tax Department)