Friends let me begin with an interesting question...
"What comes across your mind when you hear these terms and phrases- artificial intelligence, machine learning, advanced algorithm-based data analytics, automated random allocation system, automated examination tool, hash function, video telephony? Any science fiction movie or any space science mission?
Well, here I am simply referring to some of the terminology being used in the New Legislative Schemes of Faceless Assessments & Appeals.
The usage of the above technical terms in the legislative schemes of the faceless assessments and appeals, itself speaks volumes about the thrust and importance which the income tax department has placed upon the adoption of modern and advanced technologies in the tax administration and compliance systems so as to impart greater transparency, efficiency, and accountability in the systems.
On 13.8.2020, Our Hon’ble PM Sh. Narendra Modi launched a new platform for transparent taxation- ‘honoring the honest’ and the major thrust of this platform is on two pathbreaking and bold reforms - faceless assessments and faceless appeals.
With effect from 7.10.2019, the e-assessment scheme 2019, was being launched with the setting up of the National e-Assessment Centre in New Delhi, and on a pilot basis 58,322 regular assessment cases for the AY 2018-19 were being shortlisted under the scheme. However, w.e.f. 13.8.2020, the e-assessment scheme, 2019 has now been replaced with the new Faceless Assessment Scheme, 2019, and currently, all the regular assessment cases u/s 143(3) for the AY 2018-19 and onwards and all pending income escaping assessments u/s 147 barring the cases under the central and international taxation charges, have been covered under this new scheme.
In the new faceless assessments’ regime, the scrutiny cases will be assigned by NeAC to any particular assessment unit in any ReAC based on an automated random allocation system and the scrutiny notices will be issued by NeAC and the assessments will not be conducted by territorial jurisdictional AOs by will be conducted by the dynamic jurisdiction of IT officials comprised in NeAC and Assessment Units in ReAC, with the assistance of TU, VU & RU.
The Taxation & Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020, has inserted an altogether new section 144B in the Income Tax Act itself, w.e.f. 1.4.2021, and accordingly all the regular assessments u/s 143(3), will be conducted in a faceless manner from AY 2019-20 onwards.
Similarly, in the new faceless appeals’ regime implemented w.e.f. 25.9.2020, all the pending and new appeals of the taxpayers before the CIT(Appeals) will be adjudicated and disposed of by the dynamic jurisdiction and not by the jurisdictional CIT(Appeals). For the purpose of conducting faceless appeals, the National Faceless Appeal Centre and the Regional Faceless Appeal Centres and the Appeal Units comprising of one or two CIT(Appeals) are in the process of being set up.
These two bold and path-breaking reforms are indeed a game-changer for overhauling the entire tax administration system. Though for the taxpayers and tax practitioners, these reforms will result in missing out on that odd cup of Tea with the AO/CIT(Appeals), as long as that odd cup of Tea is being substituted by a far more rewarding and satisfying TEA i.e. Transparency, Efficiency & Accountability, no one is complaining.
The new faceless assessment regime will impart greater transparency, efficiency, and accountability in the tax administration systems.
(i) Transparency: In the traditional assessment regime, human interactions make the element of personal biases in the conduct of the assessments, imperative. In the new faceless assessment regime, all the communications between the assessees and the income tax authorities will be through NeAC only and that too through electronic means of e-mails and communications via the registered e-filing accounts of the assessees only. So, there will not be any room left for personal biases on the part of the Income-tax Officials. Further, all communications/notices from the department must contain a DIN, and without a DIN the notices will be considered a nullity.
(ii) Efficiency: The functional specialization which is a characteristic feature of advanced tax administrations in countries like Australia & Canada was missing in the conventional assessment regime in India. The new faceless assessment regime has an inbuilt feature of functional specialization and team-based assessment with the supervision of senior officials, which will definitely increase the efficiency levels in the conduct of the assessments and rule out the possibility of over-pitched assessments.
(iii) Accountability: The new faceless assessment regime will have a digital trail for each and every action of the income tax official, so as to fix proper responsibility and accountability. In the case of bonafide mistakes, the SOPs can be revised and in case of malafide mistakes, suitable disciplinary action can be taken against the defaulting official.
PRACTICAL CONSIDERATIONS OF THE NEW FACELESS ASSESSMENT & FACELESS APPEAL SCHEMES
(i) In the new faceless assessment scheme, the pre-assessment work and the post-assessment work are still vested with the jurisdictional AO for administrative convenience and only the assessment function has been transferred to the faceless hierarchy. So, the rectification function u/s 154 and collection & recovery of taxes u/s 220/281B is still vested with the jurisdictional AO.
(ii) For the taxpayers, nothing much has changed even in the faceless regime. They have to file their e-responses to the scrutiny notices, in the same manner as they have been doing in the e-proceedings utility of the ITBA module. The knowledge about the internal restructuring in the Income-tax Department and the manner of the conduct of the faceless assessments is just for the understanding of the taxpayers.
(iii) In the faceless assessment system, the assessing authorities are already having the complete financial information about the taxpayers because of the use of artificial intelligence and machine learning, so scrutiny questions are definitely going to be sharper, focussed, and pointed. The taxpayers and tax practitioners should ensure that their corresponding replies to such pointed questions are also focussed, accurate, and to the point. This will ensure better acceptability of the submissions and faster resolution of the scrutiny notices.
(iv) In the response window, a maximum character limit of 4000 characters is available for summarising the e-submission. The maximum file size of one supporting attachment is 10mb and the maximum number of files which can be uploaded in response to one partial response is 10. Only the scanned files in pdf format are to be uploaded as attachments. The resolution of the pdf file should be kept at 300dpi. The multiple pages in one submission should be uploaded as one pdf file only. There is no need for the taxpayers to be scared of multiple scrutiny notices u/s 143(2) or 142(1) of the same date, as the functionality is still evolving and improving and they need to reply only to one of such repeated notices, probably the last one.
(v) Currently there is one common response window both for the faceless assessments and faceless appeals. In the future, separate windows may be provided.
(vi) In the faceless appeals, the taxpayers can e-file the Appeal Form 35, without there being any need to choose the jurisdictional CIT (Appeals). In the appeal form 35, the mentioning of the Document Identification Number (DIN) of the Assessment Order, will result in auto-populating of most of the basic details of the appeal.
(vii) Currently the Video Conferencing (VC) functionalities are in the process of being built and soon the VC links will be available in the e-proceedings window of the e-filing portal.
(viii) The formats of State-wise Vakalatnamas with applicable stamp duty, will also be available shortly in the e-filing portal.
(ix) UDINs are not required for e-filing of assessments and appeal submissions in the faceless regime.
(x) The taxpayers should respond to all the Prima-facie Adjustment (PFA) Notices u/s 143(1), so as to avoid getting a complete scrutiny notice u/s 143 or 147.
(xi) The taxpayers should upload their current and accurate e-mail ids and mobile numbers in the e-filing portal so as to receive all the intimations and scrutiny notices from the department, in the e-filing portal and the e-mails.
(xii) The new platform i.e. CPC 2.0, with enhanced processing speed, is going to be rolled out in November, which will result in faster ITR & Refund processing, faster resolution of the taxpayer’s grievances. Pre-filled ITRs, Mobile App, Real-Time Chat functionality with the Virtual Tax Assistant are some of the key features of the new CPC 2.0 platform.
(xiii) Currently the taxpayers can file their Rectification Applications u/s 154 before the Jurisdictional Assessing Officer through ASK.
(xiv) The opportunity of cross-examination of any third party on whose statements adverse inference is proposed to be drawn against the assessee, will be provided to the assessee in the faceless assessment regime, by way of video conferencing/video telephony, after the passing of the draft assessment order only and not before passing of the draft assessment order by the assessment unit in the ReAC.
(xv) The statement on oath u/s 131 will be recorded through video conferencing or video telephony only in the new faceless assessment regime and in no circumstances, the assessee will be physically called in the income-tax department for the recording of such statement.
(xvi) The adjournments may be granted on the written application of the assessee. Practically, currently, the response window is open even after the elapse of 15 days or the stipulated time in the notices. However, the assessees have advised to e-file their corresponding responses to the scrutiny notices within the prescribed timelines, as very soon, the response window will get closed after the elapse of the prescribed time, and then the same will be opened only after the written request of the assessee for adjournment citing genuine and justifiable grounds for delay.
(xvii) The functionality enabling the e-filing of rectification application u/s 154 in relation to the order passed by the NeAC, will soon be made available. Till then, the assessees can file their 154 Applications before the jurisdictional AO through ASK.
(xviii) The possibility of sending of the scrutiny notices physically to the assessees is completely ruled out and the intimations and notices will be sent to the assessees only electronically at the registered email ids of the assessees and to the registered e-filing account of the assessees in the ITBA module of the Income Tax Department’s website. So, the assessees are advised to provide and upload their accurate and correct email ids in their registered e-filing accounts.
(xix) In cases of assessment/appeal submissions in vernacular languages, the translation will be done by the Revenue Authorities and the assessee will not be required to himself/herself translate the assessment/appeal submissions.
(xx) In the new Faceless Assessment Scheme, 2019, a categorical exception has been stipulated wherein the Verification Unit can conduct any inquiry or verification in modes other than the electronic modes. However, the said exception has been provided only for those cases where ‘on the spot verification’ or physical verification of the residential or business premises of the assessee are to be done by the verification unit, and in no circumstances, the assessee will be physically called in the income-tax department by the verification unit.
A Few Critical Issues in Faceless Assessments & Appeals requiring some more Clarification/Improvement.
I have always believed that “ Even perfection has room for improvement.”
Faceless Assessments & Appeals are indeed a revolutionary and path-breaking initiative of the Government, aimed at reforming and overhauling the tax administration system and curbing the undesirable practices prevailing in the system, by eliminating the personal interface between the assessee and the assessing authority.
However, it is not uncommon for any new reform-oriented initiative to face some teething problems during the initial stages of its implementation and practice.
Accordingly, such critical areas where there is still scope of some improvement are discussed as under:
(i) In the present Faceless Appeal Scheme, the Right of Filing Rebuttal to the objections of NeAC/AO against the admission of an additional ground of appeal & additional evidence by the appellant, has not been provided to the appellant, so this issue needs immediate attention of the concerned IT Authorities.
(ii) Right of Personal Hearing via Video Telephony to the Assessee in all cases should be Re-instated and it should be provided before passing the Draft Assessment Order.
(iii) In the Faceless Assessments, the assessees can attach scanned documents only in .pdf, .xls, .xlsx, .csv format. At times, the process of scanning files or their conversion into pdf files for the purpose of uploading is a very cumbersome and tedious process and involves a lot of time. So, this file conversion becomes an irritant and hinders the smooth and uninterrupted uploading of supporting attachments to be attached `along with the response to any query to a notice. The requirement of scanning of files or the conversion of files into pdf version to make them up-loadable should be done away with and instead of a standard file format like ‘XML’ in line with the International Best Practice of ‘Standard Audit File for Tax’ (SAF-T), should be adopted and implemented for uploading files and attachments, by aligning and integrating the ‘e-proceedings’ functionality of the ITBA module with that of the natural accounting systems of assessees.
(iv) The status quo w.r.t. the exercise of Revisionary Powers u/s 263 by the jurisdictional CIT & the rectification powers u/s 154 by the jurisdiction AO, may defeat the very purpose of the team/group-based conduct of the faceless assessments by a dynamic jurisdiction. So, this issue also needs immediate attention of the Law Makers.
(v) Clarification on Circumstances, wherein the Scrutiny Cases may be transferred by NeAC to the Jurisdictional AOs, after obtaining prior approval of CBDT as well as the Circumstances, wherein the opportunity of personal hearing to the assessees/appellants may be approved and given by the Faceless Hierarchy, are yet to be notified by CBDT. So, to do away with the uncertainty, the said circumstances should be notified soon by CBDT. Also, the litigation issue of the violation of the Principle of Natural Justice & Article 14 of the Constitution of India, as admitted by the Hon'ble Delhi High Court on 16.10.2020, in the Laksha Buddhiraja Case, should be duly and fully addressed by the CBDT in a timely manner, so as to avoid the opening up of avoidable pandora box of litigations.
About the Author
Sh. Mayank Mohanka, FCA is a seasoned Tax Practitioner, SRCC alumni & is a renowned author with Taxmann Publications. He is a Senior Partner in a Noida based established and reputed CA Firm, M/s S M Mohanka & Associates. He is the Founder Director in M/s TaxAaram India Pvt Ltd and has recently launched his unique Start-up Venture taxaaram.com, India’s first digital platform offering painless, seamless, and cost-effective professional e-services in relation to faceless assessments, appeals, and other statutory e-compliances.
He has 15+ years of rich and profound experience in the field of Taxation (Direct & Indirect) and Advisory. He makes Representations for a widely diversified cross-section of industries including the Power Sector, Banking & Finance, Real Estate, Food Processing, Infrastructure, Manufacturing, Education and Information Technology, before Authority for Advance Rulings, ITAT, Education Boards, and other appropriate forums.
He has to his credit 50 distinguished, informative, useful, and practically oriented published articles in reputed journals, sites, and platforms including Taxmann, on wide-ranging subjects including Income Tax, GST, PF, ESI, IBC, Corporate Laws, Education Acts & FEMA.
He has also authored a 'Best Seller' Professional Book on the New Faceless Assessment Scheme, titled "Faceless Assessment Ready Reckoner with Realtime Case Studies", with Taxmann Publications.
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