Procedural lapses by NeAC- Good grounds of appeal against Faceless Assessment Order
The first cycle of Faceless Assessment Scheme is about to be over. A number of orders have already been passed upto the date of this article (April 21). The experience of tax professionals with faceless assessment till now is by and large OK and in majority of the cases, it has been observed that no additions have been made during the assessment (though there is a view that this comfort is only for the first year of scheme and in subsequent years, things may not be this smooth.
However, there are also cases where faceless assessment has resulted in substantial additions to the total income. In number of such cases, taxpayers are now contemplating filing of appeal.
In this regard, it has been observed in number of cases where orders have been passed with additions, that the due process of the Faceless Assessment Scheme (as notified by notification no. 61/2019 dated 12.09.2019 and amended by notification no. 60/2020 dated 13.08.2020) has not been followed by the department. Such deficiency shall be a good point of argument in appeals against such orders. This article discusses two of such aspects where non compliances on the part of department have been observed with respect to provisions of the Faceless Assessment Scheme and which should be good grounds of appeal against assessment order.
Draft Assessment Order
A general observation has come out from Chartered Accountants and tax professionals in various cities that in various cases of additions in assessment, no draft assessment order has been issued to the assessee before final assessment order.
In this regard it is worth referring to Para 5 (1)(xiv) and (xvi) of the Scheme. Clause (xiv) provides for making of a draft assessment order (D.A.O.) in every case and then clause (xvi) talks about action by National e-Assessment Centre (NeAC) on the same. The paras read as follows :
(xiv) the assessment unit shall, after taking into account all the relevant material available on the record make in writing, a draft assessment order or, in a case where intimation referred to in clause (xiii) 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.
(xvi) the National e-assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to, —
The use of word “may” in the opening paragraph of clause (xvi) indicates that the National e-Assessment Centre (NeAC) has a discretion to either finalise the assessment as per the D.A.O. or to issue a show cause to the assessee before finalising the assessment as per D.A.O. However this discretion is to be exercised “in accordance with the risk management strategy specified by the Board”. No such risk management strategy has been specified till date or at least is not in the public domain. In absence of any known parameters of how this discretion is to be exercised, exercising it in a manner prejudicial to the assessee should be treated as perverse and not in accordance with the principle of natural justice.
The Hon. High Court of Delhi in its order dt. 16.04.2021 , in the case of K L Trading Corporation Vs. National E-Assessment Centre Delhi & Anr (which is probably the first order having NeAC as a party), has already granted an interim stay on the operation of assessment order on these grounds. It had been argued before the court that since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, a show-cause notice should have been issued, before finalizing the variation. Hon. Court held that “at least, at this stage, the petitioner has been able to set up a prima facie case for issuance of notice and grant of an interim order.”
Thus it is suggestible that in every case of additions in faceless assessment, one should consider taking an appeal ground on the lines that the assessment order passed by National e-Assessment Centre (NeAC) is vitiated in law as the same has been passed without sharing draft assessment order with the assessee, which is required as per faceless Assessment Scheme and without prejudice to this , even if it is held that the sharing of draft assessment order is discretionary, this discretion has been exercised in an arbitrary manner.
Cases of Delayed Reply by the assessee
Another issue which has been observed in a number of cases is that assessee could not submit the reply of last 142(1) notice on time and the assessment has been finalised straight away making the addition and without giving any further opportunity to the assessee.
Para 5 (1)(xi) of the Scheme needs to be referred to in such case :
(xi) where the assessee fails to comply with the notice referred to in clause (vi) 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.
It is quite evident that as per the requirements of the scheme, in case of non compliance by the assessee of 142(1) notice, it is imperative for the NeAC to afford him one more opportunity in the form of show cause notice u/s. 144 . Any assessment order passed without such opportunity deserves to be nullified or at best set aside. In all the cases where assessment order has been passed referring to non submission of reply in response to 142(1) notice but without affording any further opportunity to the assessee, this should prove to be an important ground of appeal.
[It is true that as per 2nd proviso to Sec. 144 (1) , when notice u/s. 142(1) has been issued, no opportunity is required to be given to the assessee before invoking Sec. 144. However under the mechanism of faceless assessment, provisions of Chapter XVI (Assessment Procedure) of the act are to be applied subject to exceptions, modifications and adoptions specified in the Faceless Assessment Scheme ( Sec. 143(3B) r.w. notification no. 61/2020 dt. 13.08.2020)]
The Faceless assessment is being done in accordance with The Faceless Assessment Scheme as notified by notification no. 61/2019 dated 12.09.2019 and amended by notification no. 60/2020 dated 13.08.2020. Para 5 of the notification describes detailed, step by step procedure to be performed for faceless assessment, meticulous compliance with which is imperative for a valid assessment by the department. Wherever an appeal is being contemplated against the faceless assessment order, any non adherence on the part of department to any of the steps of the scheme should be examined and appropriate plea should be taken in this regard in the appeal.
Author may be contacted on 9826046463 or [email protected].