The Faceless Assessment were introduced and made effective from 2020. The Central Government introduced the Scheme with noble intentions of tax transparency, moving towards a digital economy and reducing corruption looking towards greater transparency, efficiency, and accountability in Income Tax assessments. All provisions introduced under Faceless Assessment, under the Income Tax Act, 1961, are introduced to-
- Eliminate the interface between the Assessing Officer and the assessee during the course of proceedings, to the extent that is technologically feasible;
- Optimise the utilization of resources through the economies of scale and functional specialization; and
- Introduce a team-based determination of arm’s length price with dynamic jurisdiction.
The overall experience of the conduct of the faceless assessments in its full-fledged way has been good, smooth, pleasant, flawless but also crop up many bottlenecks in the newly introduced scheme. But slowly the assessments are bypassing the desirable mandated procedures for the conduct of these faceless assessments. The success of this faceless assessment scheme is lively related to adherence to by the concerned income-tax authorities both in the National Faceless Assessment Centre and the Regional Faceless Assessment Centres.
PROVISIONS & SOP
The impugned assessment orders and the consequential notice of demand and notice for initiating penalty proceedings issued are flawed and are contrary to the provisions of Section 144B(7)(vii) of the Income Tax Act, 1961 and the Standard Operative Procedure For Personal Hearing Through Video Conference under The Faceless Assessment Scheme, 2019 issued by the Central Board of Direct Taxes via Circular dated 23.11.2020.
Section 144B(7)(vii) of the Act and the SOP framed by the CBDT are extracted hereafter:
“144B. Faceless assessment –
xxx xxx xxx
(7) For the purposes of faceless assessment—
xxx xxx xxx
(vii) in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the such draft or final draft or revised draft assessment order, the assessee or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit;
xxx xxx xxx”
“Standard operating procedure (sop) for personal hearing through video conference under the faceless assessment scheme, 2019 circular f. no. pr. ccit/neac/sop/2020-21, dated 23-11-2020
The Principal Chief Commissioner of Income Tax, National e-assessment Centre, with the prior approval of the Central Board of Direct Taxes, New Delhi, lays down the following circumstances in which personal hearing through Video Conference shall be allowed in the Faceless Assessment Scheme, 2019:
Where any modification is proposed in the draft assessment order (DAO) issued by any AU and the Assessee or the authorized representative in his/her written response disputes the facts underlying the proposed modification and makes a request for a personal hearing, the CCIT ReAC may allow personal hearing through Video Conference, after considering the facts & circumstances of the case, as below:-
1. The Assessee has submitted written submission in response to the
2. The Video Conference will ordinarily be of 30 minutes duration. That may be extended on the request of the Assessee or authorised
3. The Assessee may furnish documents/evidence, to substantiate points raised in the Video Conference during the session or within a reasonable time allowed by the AU, after considering the facts and circumstances of the ”
Further Section 144B (9) of the Income Tax Act reads as under:
“Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 or under section 144 in the cases referred to in sub-section (2) (other than the cases transferred under sub-section (8), on or after the 1st day of April 2021), shall be non-est if such assessment is not made in accordance with the procedure laid down under this section.”
BOTTLENECKS IN THE SCHEME
There are many if and buts in complying with the faceless scheme. The uppermost problem is to have the documents in bilingual languages and the assessing authorities spread over to PAN India are not able to understand the local practices or nomenclatures. The problem is worst in the case of documents related to agriculture and its holdings. The same is in the local language, the size and areas are termed as different and there is no uniform pattern that can be followed. Further, there are some major problems faced by taxpayers and consultants who need to embark upon with greater understand
1. Voluminous Information to upload
Compilation & uploading of bulky data is a cumbersome job. Generally, taxpayers are being served notices with voluminous information related to their sales, purchases, expenses with supportive vouchers, bank statements, and so on. Many of the times, some transactions spread over too many years so information of all the years is required to club and upload. However, in the case of Limited scrutiny, the asking pattern is quite fair than the physical appearance where the assessing officer’s job was to collect more and more information to make his file attractive and laborious. In such cases, there is definitely relief but in case of unlimited scrutiny in this regime, is looking for every possible paper to be uploaded. If there are capacity constraints of an assessee, then the problem is severe. However, it is expected that initiatives like data collection from multiple sources & new technologies will articulate data into information for Tax department and after analysis of such information; this bottleneck can be eased out.
2. Opportunity for video conferencing
The critical issue related to assessments requires the adequate opportunity for taxpayers to present their views and explain their stand in a particular contest. However, this aspect is lacking in this scheme. There should be two-way communication for proper redressed but the faceless regime is like one-way communication. Further, the assessee is not having any right to a personal hearing and the assessee may only request for a personal hearing by way of video conferencing/telephony, in case of disagreement with the additions/disallowances. The Chief Commissioner or the Director-General, RFAC, may approve such a request for a personal hearing if he is of the opinion that the case falls in the list of specified circumstances as notified by CBDT. The circumstances where the request of the assessee for personal hearing via video conferencing may be approved are yet to be notified by CBDT and in order to do away with the ambiguity, a suitable clarification by the CBDT concerning the specified circumstances wherein the request of personal hearing of the assessee may be approved by the CCIT RFAC is desirable. In the old E-Assessment Scheme, 2019, by virtue of a right vested in the scheme, the assessee was entitled to a personal hearing, by way of video conferencing/telephony, in case of disagreement with the additions/disallowances proposed in the draft assessment order, in all assessment cases.
3. Improbable timelines
The assessments were required to pass by 31st march however the date has been extended later on. But there was the pressure of completing the assessment in a stipulated time, so Orders are passed ignoring extended time demanded by taxpayers. The delay in viewing the application by the concerned officer for adjournments may be because of some glitches. Earlier the replies filed by the assessee were being seen by the assessing officer after two days and many of the times, the Assessing Officer has passed the orders then and there on the given date. Though the appellate is open to the assessees such cases definitely require a different treatment.
4. Non-reactive portal
In the course of an assessment, the taxpayer often files different applications like adjournments, request for condonation of delay, additional pieces of evidence, rectification application or stay application, etc. But there is a delay in the corresponding response from the portal. Real-time response is the need of the hour to track the progress of applications, submissions, etc. Many orders are surfacing under the Faceless Schemes where assessees are approaching the High Courts and High Courts are passing the stay orders or cancellation of assessment orders on the plea of natural justice or not hearing the assessee arguments well. Though initially, it was to provide the power of revision in such type of assessments where the mandates have been ignored completely. Such orders should have a provision of rectification u/s 154 like facilities. The demands are rising bypassing the high pitch order with the intent to collect 20% demand from taxpayers resulting in hardship.
5. Rectification or stay applications
The faceless portal, as per its current design does not accept rectification for orders passed under scrutiny or stay of demand application. The scheme is not vocal on the procedure for such application and therefore a physical application to jurisdictional ward should be accepted and an effect of same should be given on portal to align the process. Further, It takes a long time for the portal to give the effect of rectification application which leads to reflection of outstanding demand, interest on such demand, adjustment of another refund against this demand.
6. Technical Glitches
Last but not the least, technology sometimes proves to be a two-edged sword. While taxpayers and their advisors save the time in commuting for the purpose of a physical hearing, the advantage is lost on the time spent on scanning bulk data, compressing files to meet the maximum file size permitted, and uploading the same during peak times when there is a heavy load on the portal.
7. SCN vs. Show cause Notice
In the procedure of Faceless Assessments enshrined in section 144B of the Income Tax Act (inserted w.e.f. 1.4.2021), the Show Cause Notice (SCN) is being issued to the appellant only after passing of the Draft Assessment Order by the Assessment Unit in the Regional Faceless Assessment Centre (RFAC).
FACELESS ASSESSMENT AFTEREFFECTS
It is relevant to note here that the Hon’ble Madras High Court in a recent order in the case of ‘Salem Sree Ramavilas Chit Company v. DCIT [2020] 114 taxmann.com 492 / 423 ITR 525 / 273 Taxman 68 (Madras)’, have observed and stated that the faceless tax-assessment system can lead to erroneous assessment if officers are not able to understand the transactions and statement of accounts of an appellant without a personal hearing.
High Courts have admitted writ petitions filed by the assessees and have stayed the implementation of the assessment orders passed under these Faceless Schemes. Typically, stay orders have been granted where the principles of natural justice have not been adhered to or the taxpayer has not been given an opportunity of being heard or where the final order was passed without following the protocols. However, the intent of the Government was totally different and never expected such an outcome that the disputed demands will land at High Courts bypassing the appellate authorities. But that’s the reality of the day. Dismissing the plea of availability of the alternative remedy of filing an appeal before the CIT (Appeals) of the Revenue Authorities, High Courts have found it deserving to grant relief by their own. Many assessees have filed their respective writ petitions before the respective Honourable High Courts, against their respective defective faceless assessment orders for the AY 2018-19, and the Honourable High Courts have decided their respective writs, as follows:
In this case, the Hon’ble High Court has held that we have to presume that, no standards, procedures and processes have been framed in terms of clause (xii) Section 144B(7) of the Act. These standards, procedures and processes are required to be framed, to guide the assessing officer as to whether or not personal hearing in a given matter should be granted. That apart, in our view, since the statute itself makes the provision for grant of personal hearing, the respondents/revenue cannot veer away from the same. Accordingly, the impugned assessment order as well as the impugned notice of demand and notice for initiating penalty proceedings, of even date, i.e., 29.04.2021, are set aside. Liberty is, however, given to the respondents/revenue to proceed from the stage of the show cause notice-cum-draft assessment order.
In this case, the Hon’ble High Court has held that the impugned assessment order has been passed with a pre-set mind and without considering the reply filed by the assessee. The Hon’ble Madras High Court has remitted the impugned assessment order back to the National Faceless Assessment Centre to pass a speaking order on merits in accordance with law after considering the reply filed by the assessee. A Show Cause Notice was issued to the assessee requiring him to file his reply on or before the end of the day 11th day by specified timing. The assessee filed his reply before this deadline. But the order was made before that time.
The petitioner appealed that since there was a variation made to the declared income of the petitioner assessed income manifold as against the returned income, a show-cause notice should have been issued, in terms of sub-clauses (b) and (c) of clause 2(xvi) of the ‘2021 Scheme’, before finalizing the variation, and passing of the final assessment order by the National e-Assessment Centre. Taking cognizance of these contentions of the petitioner, the Hon’ble Delhi High Court has stayed the operation of the assessment order dated 31.3.2021, passed u/s 143(3A), for the AY 2018-19 by holding that the petitioner has been able to set up a prima-facie case for issuance of notice and grant of an interim order. Thus accepted the contention of the petitioner that the order has been passed in breach of the principles of natural justice as engrafted in the Faceless Assessment (1st Amendment) Scheme, 2021 [2021 Scheme].
IV. Praful M. Shah vs. National Faceless Assessment[2021] 127 taxmann.com 177 (Bombay)[06-05-2021]
Assessment Order was passed by National E Assessment Centre without granting an opportunity to be heard. A Writ Petition was filed in the Bombay High Court. The Hon Bombay HC observed that the impugned order is passed without jurisdiction and in gross violation of principles of natural justice and so bad in law and directed that further action based on the order shall be kept in abeyance until the next date, Thus Notice was to be issued to revenue upon writ. (10th June, 2021)
V. DJ Surfactants v. National E-Assessment Centre in [2021] 127 taxmann.com 370 (Delhi)
In this case, show cause notice was issued to the petitioner required to file a response in a week time as to why the assessment should not be completed as per the draft assessment order. The petitioner sought a week’s to respond to the queries raised in the show cause notice and also sought time to gather the relevant material. Further, the assessee also replied and uploaded the response after three days. Furthermore, in the reply, a request was also made for grant of a personal hearing in the matter. The impugned assessment order was passed on without having regard to the aforesaid reply uploaded by the petitioner. The Honourable High Court has held that the assessing authority has not taken into account the explanation and the material placed before him by the petitioner and although a personal hearing was sought by the petitioner, the same was not granted by the assessing authority. In these circumstances, the petitioner has been able to establish at least at this stage, a prima-facie case in the favour of a petitioner.
The Honourable High Court has set aside the impugned assessment order for de-novo completion, holding it to be in breach of the principle of natural justice as the order was made prior to the elapse of time granted to respond to show cause notice, the impugned order of assessment has come to be passed on the same day,
VII. KBB Nuts (P) Ltd v. National Faceless Assessment Centre in [2021] 127 taxmann.com 194 (Delhi)
In this case, a show-cause notice, along with a draft assessment order was served and sought the reply the next day. The assessee sought adjournment. No response was there hence assessee also filed objections. However order passed without considering the objections The Petitioner has contended that though the impugned order was passed, objections filed by it were not taken into account by National Faceless Assessment Centre before passing the impugned order, hence there had been a breach of principles of natural justice. The Honourable High has held that “without getting into the tenability of the objections on merits, in our view, the best course forward would be to set aside the impugned assessment order dated 22.04.2021, and have respondent no.1 pass a fresh assessment order after taking into account the objections filed qua the show cause notice dated 19.04.2021 on behalf of the petitioner.”
In this case, the Petitioner has contended that there are a lot of glitches in the operation of the E-assessment Scheme. Pursuant to the said Scheme, by show-cause notice dated 23rd April 2021, a draft assessment order had been issued to Petitioner requiring Petitioner to show cause as to why the assessment should not be completed as per the draft assessment order. Petitioner had responded to the same on 23rd/24th April 2021 and sought an opportunity of hearing and requested for adjournment in order to respond to the draft assessment order due to lock-down. However, despite that order of assessment and notice of demand for Rs.18,39,23,430/- has been raised. The Honourable High Court has stayed the effect, implementation and operation of the impugned assessment order and notice of demand till the date of the next hearing on 21.6.2021.
In this case, the Honourable Delhi High Court has stayed the operation of the impugned regular assessment order for the AY 2018-19, on the ground that the said order has been passed without issuing the mandatory show cause notice as prescribed in the Faceless Assessment Scheme, 2019 read with Faceless Assessment (Ist Amendment) Scheme, 2021 and CBDT Instruction No. 20/2015 dated 29.12.2015.
X. Raja Builders v. National Faceless Assessment Centre in [2021] 127 taxmann.com 339 (Bombay)
In this case, the show-cause notice dated 20th April 2021 along with a draft assessment order had been issued to the petitioner requiring showing cause as to why the assessment should not be completed in terms of the draft assessment order. The said show cause appeared for the first time on the E-fling portal on 22nd April 2021 and on the same day the petitioner filed an online reply requesting for an opportunity of being heard. On 23rd April 2021, the petitioner filed a detailed reply to the show-cause notice with documentary shreds of evidence. However, without considering his request for a hearing or a detailed reply, the assessment order dated 23rd April 2021 came to be passed, even though the time limit to pass the assessment order was extended to 30th June 2021. In pursuance of the assessment order, there is a notice of demand for a sum of Rs. 17,71,87,220/- in addition to the penalty proceedings that have been initiated. The Honourable High Court has held as under: “Pending hearing and final disposal of the Petition, the operation of the assessment order passed under section 143 (3) read with Section 144B of the Act dated 23rd April 2021 and the notice of demand in Form No. 156 dated 23rd April 2021, as well as the show cause notice under section 274, read with Section 270A and 271AAC of the Act dated 23rd April 2021 have stayed.”
In this case, The Hon’ble Bombay High Court has granted an interim stay on an assessment order passed under the faceless assessment regime on the ground of not hearing and has further remarked that there are a lot of glitches in the operation of the faceless assessment scheme.
The Honourable High Court has granted an interim stay on an assessment order passed under the faceless assessment regime involving similar facts.
In this case, the Honourable Bombay High Court has directed to keep the impugned assessment order for the AY 2018-19 in abeyance till the next hearing date holding that prima-facie the assessment order has been passed without giving a proper opportunity of being heard to the assessee and as such the order is not in adherence to the principles of natural justice.
In this case, the Honourable High Court has set aside an assessment order passed under the faceless assessment regime without considering the adjournment request filed by the petitioner and has directed the assessing authority to consider the petitioner’s submission and complete the assessment proceedings in accordance with the law.
Prima facie, once an assessee [i.e., the petitioner, in this case] requests for a personal hearing, the officer in-charge, under the provisions of clause (viii) of Section 144B(7) of the Act, would have to, ordinarily, grant a personal hearing.
In any event, since Ms. Malhotra is not able to inform us as to whether steps under sub-clause (h) of Section 144B(7)(xii) of the Act have been taken by respondent no. 1, we are inclined, at least at this stage, to agree with the contentions advanced on behalf of the petitioner.
In the meanwhile, there shall be stay on the operation of the impugned assessment order, dated 22.04.2021, as also qua the notice of demand and notice for initiation of penalty proceedings, of even date.
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