Department has been going for computerisation and e-proceedings for quite some time and e-proceedings for assessments had also commenced through Income Tax Business Application (ITBA). Vide Finance Act, 2018 sub-sections (3A) to (3C) were inserted in section 143 of the IT Act for the purpose of introducing the scheme for e-assessment proceedings keeping in view the objects of greater efficiency, transparency and accountability. Sub-section (3A) empowered the government to frame the scheme whereas sub-section (3B) empower the government to notify any of the provisions of the Act which shall not apply or shall apply with such exception, modification and adaptations as may be specified in the notification. Pursuant to powers vested with the government under above section two Notifications Nos. 61/2019 and 62/2019 dated 12.09.2019 were issued by CBDT notifying e-assessment scheme, 2019 and also notifying that certain sections of the Act will be applicable to the scheme in modified manner. On 13th August, 2019 Hon’ble Prime Minister announced the faceless assessment scheme. Pursuant thereto two Notifications Nos. 60 and 61 of 2020 dated 13.08.2020 were issued making certain modification in the scheme earlier notified vide Notification No. 61/2019 dated 12.09.2019 and also modifying Notification No. 62/2019 dated 12.09.2019 in regard to applicability of certain provision of the Act to the Scheme. Name of the Scheme was also changed from e-assessment scheme to Faceless Assessment Scheme. Now the Scheme has been incorporated in the Act itself vide Section 144B. The Hon’ble Prime Minister had also announce that Faceless Appeal Scheme shall also be introduced for appeal proceedings before CIT(A)s on 25.09.2020. Pursuant to aforesaid announcement scheme for faceless appeal proceedings has also been introduced vide Notification No.76/2020 dated 25.09.2020. In order to introduce faceless appeal proceedings provisions of Section 250 of the Act were also amended vide Finance Act, 2020 by inserting sub-sections (6B), (6C) and (6D) on the lines of sub-section (3A) (3B) and (3C) of section 143 of the Act. The Scheme for faceless assessment and also for faceless appeal proceedings, as have been notified by CBDT, in brief are described hereunder. The department is in the process of setting up the required infrastructure for implementing the schemes and also is in the process of framing standard operating procedure for conducting the faceless proceedings, which are expected to be finalised and notified shortly.
Faceless assessment Scheme
Under the scheme the department has setup National e-assessment Centre (NeAC) at Delhi under the charge of Principal Chief Commissioner of Income Tax. Regional e-Assessment Centres (ReAC) have been setup at Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bengaluru and Hyderabad. Under each ReAC Assessment Units (AU), Verification Units, (VU) Review Units (RU) have been setup. Four Technical Units (TU) have also been setup at Delhi Bombay, Kolkata and Chennai. As per the Scheme all communication with the assessee shall be by NeAC only. On selection of a case for assessment notice u/s 143(2) shall be issued by NeAC specifying the issues for selection of the case for assessment and the assessee has to submit necessary details / reply to NeAC within 15 days from the receipt of the notice. NeAC shall assign the case through the automated allocation system to AU under any of ReAC. AU on examining the response of the assessee may require further information / details or may request verification of details or may seek technical advice from a Technical Unit. NeAC shall call for further details from the assessee or send the case for verification or may call for technical assistance as per the request of AU. Assessee has to provide further details or explanation within the time allowed in the notice or within the time as may be extended on his request. Response of the assessee or report of VU or TU shall again be sent to AU, which shall further proceed in the matter and will prepare the draft order. NeAC will either issue Assessment order or send the draft to the assessee for his response or may send the same to Review Unit. Thereafter the revised draft assessment order will be prepared by the Assessment Unit on considering the reply of the assessee or report of the review unit and will also initiate penalty proceedings as may be necessary. The assessment order and / or penalty notices shall be sent by NeAC to the assessee. On completion of proceedings NeAC shall transfer all the electronic record of the case to the AO having jurisdiction over the case. The jurisdictional AO shall take all further action such as rectification, recovery of demand, appeal effect etc.
It may also be stated that an assessee can also ask for hearing in the matter which may be granted by Pr. CIT in charge of concerned ReAC in specified circumstances through video conferencing only. It may also be stated that as per order dated 13.08.2020 issued by CBDT all assessment orders shall be passed under the scheme, except in the cases assigned to central charges and to International tax charges and any order which is not in conformity shall be treated as non-est.
Faceless Appeal Scheme
Pursuant to powers conferred on the government u/s 250(6B) of the Act scheme called “Faceless Appeal Scheme, 2020” has been notified vide notification dated 25.09.2020. The scheme is on the line Faceless Assessment Scheme. Under the scheme a National Faceless Appeal Centre (NFAC) has been setup for centralised communication with the assessee/ appellant for e-appeal proceedings. Regional Faceless Appeal Centre (RFAC) have been setup to conduct e-appeal proceedings under which there will be Appeal Units (AU). Each Appeal Unit shall have one or more Commissioner (Appeals) and such administrative staff as may be necessary. Appeal unit shall perform all the functions which are presently being performed by Commissioner (Appeals) for the purpose of adjudication of the appeals, which includes admitting additional grounds of appeal, making such further inquire as it thinks fit, directing NeAC or AO, as the case may be, for making further inquire, seeking information or clarification on admitted grounds of appeals, providing opportunity of being heard to the appellant, analysis of the material furnished by the appellant, review of draft order and such other functions as may be required for the purpose of Scheme. All communication between Appeal Unit, Appellant, NeAC or the AO shall be only through NFAC. The procedure for conducting the appellate proceedings has been specified in the scheme. As per the procedure an appeal shall be assigned to a specific Appeal Unit in any of the RFAC by NAFC through an automated allocation system. In case the appeal has been filed after the time limitation or tax payable as per the appellant has not been paid, the appeal unit shall firstly decide admissibility of appeal and decision of the appeal unit for accepting or rejecting the appeal shall be communicated to the appellant by NFAC. In respect of the appeal admitted appeal unit shall require such further information, documents or evidence from the appellant, as it may specify, through NFAC. In case, a report is to be called from NeAC or the AO on the grounds of appeal or information, documents, or evidence filed by the appellant, same shall be called by Appeal unit though NFAC. Any further inquiry, if required to be made by the AO or NeAC, for the same also request shall be made by the Appeal unit though NFAC. Appeal unit after considering the material submitted by the appellant and also the report furnished by the NeAC or the AO shall prepare draft order in accordance with provisions of Section 251 of the Act and will send the same to NFAC along with details of penalty proceedings, if any, to be initiated. NFAC on receipt of draft order shall sent the same to another appeal unit under different RFAC for review in case disputed issues in the appeal are for more than specified amount or same is to be re-examined in accordance with risk management strategy specified by the Board. In other cases, order shall be issued by the NFAC as per the draft of Appeal Unit. In the cases where draft order is sent for review to different Appeal unit, that Appeal unit may either concur with the order or suggest modification. In case modification is suggested, NFAC will refer the case to third Appeal unit for considering the modification suggested and prepared revised draft order. On receipt of revised draft order, final order shall be issued by NFAC and final order shall be communicated to the appellant, Pr.CIT, NeAC or the AO, as the case may be, for such further action as may be required under the Act. In case, initiation of penalty has been recommended, NFAC shall issue show cause notice for levy of penalty under the relevant provision. Pr.CCIT in charge of NFAC has also been empowered to transfer any appeal with prior approval of the Board to any Commissioner (Appeals) as may be specified in his order. All other proceedings such as rectification of the order, order in pursuant to directions of ITAT shall also be conducted in the same manner by the Appeal unit through NFAC. All communication under the scheme shall be only in electronic mode and record shall be authenticated by affixing digital signature or by electronic verification code. The Appellant or his representative can request for personal hearing so as to made oral representation. CCIT in charge of RFAC may accept the request for making representation through video conferencing in the circumstances to be specified. Pr.CCIT, in charge of NFAC has been empowered to lay down the standard, procedures and processes for effective functioning of NFAC, RFAC and Appeal unit with the prior approval of the Board in respect of appeal proceedings.
Issues in respect of faceless Assessment Scheme
1. Firstly, and most importantly the issue regarding the scheme is the concern of the assesses as regards the actual functioning under the Scheme vis-à-vis the traditional system of assessment proceedings. Assesses have doubts regarding proper communication of notices, issues to be raised by the AUs, time to be provided for submission of details, the manner in which details will be examined and the attitude with which the whole proceedings will be conducted and decisions will be taken. Assesses have doubts that principles of natural justice will be followed in the proceedings. Even grant of personal hearing is within the discretion of Pr.CCIT in charge of concerned ReAC and that too only in circumstances to be specified.
2. As per the Scheme communication of any notice or order shall be by posting the same on the computer resource of the assessee in terms of Information and Technology Act, 2000 or by sending the email or by posting the same on mobile application. It is not clear whether any one of the above modes will be followed for sending the communication or all the three modes shall be followed. Many of the assesses are either not having access to computer system or e-mails or they are not accustomed to check the same on daily basis. The Scheme requires response within the specified time, otherwise adverse view will be taken without providing any other or further opportunity to the assessee.
3. Scheme as such does not provide any mechanism for raising any grievance in regard to any of the issue, such as delay in giving the response, issues on which details have been called for and the nature of the details required, necessity of verification and the manner in which verification has been done and the report of verification unit. There may be many such other issues on which the assessee may have the grievance.
4. As per the scheme, on the request of Assessment Unit, NeAC will take action in a mechanical manner to issue the notice to the Assessee for the details required or will refer the case for verification or for technical assistance. There appears to be no mechanism to check or review the information asked for by the AU or necessity of verification or technical assistance in the matter.
5. Scope of verification unit and the manner in which verification will be done is also not clear. It is also not clear from the scheme that in case the person from whom verification is to be made or whose statement is to be recorded does not respond then what action or view will be taken by the verification unit. It is also not clear that before submitting report by the verification unit, whether assessee will be provided any opportunity to make his submissions or cross examining the witnesses. It is doubtful that proper verification will be possible, particularly in faceless manner.
6. Technical unit is supposed to be quite important unit. It will be acting in the advisory capacity and will be giving assistance on technical aspects. Success of whole scheme will depend upon, how competent and expert officials or consultants are appointed in technical units. Position in this regard is not yet clear.
7. Scope of the Review unit and binding force of the comments or suggestions of Review unit in regard to additions proposed in draft order is also not clear. Once the review unit has suggested some modification, the draft order along with the comments is required to be sent to the Assessment unit other than the Assessment unit which had prepared the draft order. It is however, not clear whether that Assessment unit is bound to follow the modification suggested or can ignore the same. It is also necessary that Review unit should have officers senior to the officers in Assessment units who will prepare the draft. Review has to be by the officer of higher rank, not of the same rank. Suggestion / modification of Review unit should be binding on the Assessment unit so as to avoid any ambiguity in this regard.
8. As per the scheme there is no provision for extension of time limit beyond 15 days for submitting details by the assessee in response to the notice issued under section 143(2) of the Act whereas there is provision for extension of time for submitting reply to show cause notice issued on draft assessment order. Time of 15 days is too short to reply the first notice and submitting details, documents and explanation to the issues raised in the notice.
9. In many cases in order to substantiate the claim it is necessary to submit voluminous documents / details. There are likely to be practical difficulties to assesses or their representatives to scan the same and load on the system There may also be limit to load documents on the system. Department should provide facility to upload replies / documents through their facilitation centres, which should be set up at each office of the department.
10. It is not clear for re-opening the case in terms of section 147 of the Act, who will record the reasons and will issue the notice under section 148 and who will pass the order on objections filed by an assessee. Jurisdiction of NeAC commences from issue of notice under section 143(2) of the Act, which will be necessary only after notice under section 148 is issued, return is filed, copy of reasons is made available to assessee and objection filed by the assessee are disposed of by passing a speaking order.
11. Search cases assigned to Central Charges are Before cases of a group are centralised pursuant to search certain action needs to be taken. It is not clear that who will conduct the search, who will record satisfaction, who will issue notice for filing return and who will issue notice for assessment. How the cases will be centralized and at what stage. In fact, action for search should now be taken by a central wing, may be Investigation Department only and after the search cases should automatically be deemed to be under the Jurisdiction of Central Charge, but the issue of which Central Charge will still be there, as assesses located in different jurisdiction might be searched and will have to be assessed together.
12. It also needs to be clarified how the provisions of section 144A can be invoked by the assessee. Above section provides for reference to Additional CIT by the assessee for directions to AO. This section may not now be applicable in the cases processed under the Scheme. But notification states that Section will be applicable to assessment made under the Scheme, subject to the exceptions, modifications and adaptations provided in the Scheme. There is no mention in the Scheme of above Section.
13. Similarly, procedure for applicability of provisions of section 144BA, holding an arrangement as impermissible avoidance arrangement, needs to be specified.
14. It also needs to be clarified that reference to Technical Unit for the purpose of determination of arm’s length price will be deemed to be reference to Transfer Pricing Officer for all purposes under the Act and report of technical unit will be considered to be order of TPO and consequences will follow. Further, draft order in such a case has to be served on assessee and procedure for filing objections before DRP can be followed. How TP proceedings will be conducted by TU also need to be specified.
15. Process of proceeding before Dispute Resolution Panel is not clear. Since transfer pricing cases, except those assigned to International Tax Division are to be done under the Scheme, procedure in this regard should be clarified and jurisdiction of DRP should also be specified.
16. How set-aside cases pursuant to order passed by ITAT, High Court or the Supreme Court will be finalised also need to be clarified. It is very important to provide proper opportunity to an assessee in these cases pursuant to directions of Appellate Authority.
17. Jurisdiction of NeAC to pass the penalty orders under the Scheme should also be clarified. In terms of para 6 of Notification dated 12.09.2019 read with notification dated 13.08.2020 any unit can only recommend for initiating penalty proceedings for non-compliance of any notice, order or communication of NeAC under the Scheme. Hence, penalty can only be levied for such default and not for any other matter.
Issues in respect of Faceless Appeal Scheme
1. As per the scheme all communications from Appeal unit to the appellant or any other person or to NeAC or to AO and also vice versa shall be through National Faceless Appeal Centre (NFAC) only. It appears to be impracticable, unreasonable and ineffective to decide an appeal without direct communication between the appellant and the Adjudicating authority. For the purpose of appreciation of contention of the appellant and the issues involved therein there should be direct communication between the Commissioner (Appeals) assigned the appeal and the appellant, may be, the name of Commissioner (Appeal) and his location is not disclosed to the Appellant.
2. In the process of adjudication of appeals personal hearing is very important. In the absence of personal hearing contention and issues may not be appreciated by the concerned Commissioner (Appeal). Section 250 of the Act specifically require personal hearing. As per the scheme even the request of the appellant for grant of hearing is to be decided by the CCIT of DGIT in charge of RFAC only in the circumstances to be specified. In this regard it is stated that:
a. It is inappropriate that request for hearing is decided by an authority different then an authority assigned the appeal, for the obvious reason that CCIT or the DGIT, who is not directly involved and would not have gone through the grounds of appeal and the submissions made by the appellant, cannot appreciate the reason for which request for hearing has been made.
b. Appellant cannot be denied the right to argue the appeal personally, may be through video conferencing, and therefore, no such request can be rejected.
c. There is no process provided in the scheme to raise the grievance before any higher authority if request for personal hearing is rejected.
It is suggested that request for grant of hearing should be decided by the Commissioner (Appeals) who is assigned the appeal. Hearing should be granted in all the cases wherever the request has been made by the appellant.
3. The scheme does not provide for issuing any notice to the appellant on application for condonation for delay or application for admitting the appeal without payment of tax payable by the assessee. It only provides that firstly, such application shall be decided by the Appeal Unit. Decision on the same shall be communicated to the appellant through NFAC. Thereafter, appeal will be deemed to be admitted and will be proceeding with. It means that the appellant will have no opportunity to make his factual and legal submissions on application for condonation of delay or for non-payment of tax. It is against the principle of natural justice to adjudicate the application without providing any opportunity to the appellant.
4. In respect of appeal which has been admitted also the scheme provides for issuance of notice by NFAC to the appellant for submission of such further information, documents or evidence as may be specified by the Appeal Unit. It means that the appellant will be called upon to submit only such further information etc. as may be required by the Appeal Unit and the assessee will get no opportunity to make his first detailed submissions on the facts and on the legal position, as are being submitted presently. Hence, the procedure provided in the scheme is not clear. In fact, the first notice should be issued to the appellant to make his submissions along with documents and evidence, which is relied upon. It is important to state that for the purpose of adjudication of appeal it is necessary that the appellant should be given an opportunity to explain his contentions and also submit that why view of the AO is not factually or legally correct. It appears from the scheme that Appeal unit on its own will consider the grounds and the submissions made by the assessee before the AO and the view taken by AO in the order and will decide the appeal.
5. The scheme though refers to filing of additional grounds and also the additional evidence by the appellant but there is no procedure mentioned in the scheme for filing the same. At present when notice for hearing is issued by CIT(A), in response the Appellant submits additional ground as well as additional evidence alongwith detailed submissions and paper book containing copy of relevant documents relied upon. When matter is fully explained, importance and relevance of additional ground and of additional evidence can be appreciated by CIT(A) and decision can be taken in a more logical manner. The scheme also does not provide for making available report of NeAC or the AO on the issue of admission of additional grounds or additional evidence and also report of NeAC or the AO on merits of additional evidence. It appears that the appeal unit will decide on additional ground as well as additional evidence without providing any opportunity to the appellant. Hence, the procedure needs to be clarified.
6. The scheme provides for calling of report on the issues involved in the appeal from NeAC or the AO. As per the Scheme for Faceless Assessment, after the assessment has been completed electronic record is to be transferred to the AO and all further proceedings as per IT Act are required to be taken by the jurisdictional AO. Accordingly, it is not clear how NeAC or any Assessment unit will be in a position to submit its report in regard to appeal proceedings. Further, the report will not be given by NeAC itself but same is to be given by the Assessment unit. The scheme for Faceless Assessment does not provide for any procedure regarding the appeal proceedings and submission of report by the Assessment Unit.
7. Once the draft order has been prepared by the Appeal unit same shall be sent to NFAC. In case issues disputed in appeal are for more than a specified amount or the draft order is covered under the risk management strategy, NFAC will send the draft order to a different Appeal unit for review. In case Appeal unit on review of the order suggest variation, same along with the suggested variance will be sent to still another Appeal Unit (third Appeal Unit) for considering the suggestions and prepare revised draft. It means that draft order prepared by one Commissioner (Appeal) shall be reviewed by another Commissioner (Appeal) and the revised draft shall be prepared by third Commissioner (Appeal). It appears quite unlikely that 2nd or 3rd Commissioners will make any variation in the order prepared by the officer of same rank and the procedure provided in the scheme will serve any fruitful purpose. In case, government is serious about review of the draft, same should be done by an officer of higher rank and not by the officer of the same rank. In fact, if a committee of three members consisting of two Pr.CIT and one independent professional is constituted for review the draft order that may be really effective and will serve the purpose.
In conclusion, it is stated that though the scheme for Faceless Assessment appears to be effective and may be in the interest of assesses as well as of the department in case same is implemented properly and departmental officers conduct the proceedings with a positive mind set and taking a reasonable and logical view. Technical units will have important role to play in settling the disputed issues and also providing assistance to Assessment units on the technical matters. In case services of experts in various fields are taken by the department on technical matters there are good chances that assessments will be made in a reasonable manner and unnecessary litigation can be avoided. Role of the Verification units and Review units need to be properly specified and be restricted. Scheme for Appeal proceedings, however, does not appear to be laying down the proper procedure for adjudication of appeals. It appears that the scheme is only for review of assessment orders. The appellant is not being provided proper opportunity to put fourth his submissions. It appears that scheme has been framed with the presumption that appeal unit has only to consider submissions already made before the AO and no further contention or submission needs to be submitted by the appellant. It is against the principles and the practices for adjudication of appeal by an appellate authority. Hence, the scheme needs to be preferably modified and communication between the Appeal unit and the Appellant and also between the Appeal unit and AO should be direct, may be the location and the name of the concerned Commissioner (Appeal) may not be disclosed to the appellant. Review of the draft order should be by the committee, consisting of members of higher rank and not by another Commissioner (Appeal), who is the officer of same rank. Personal hearing in any case needs to be provided. The Scheme, as notified, is likely to be challenged before the Courts and in fact, a Writ Petition on the issue of personal hearing has already been filed before Hon’ble Delhi High Court, titled Lakshya Budhiraja v. UOI and Anr. WP(C) No.8044/2020, on which notice has already been issued and next date is 15.12.2020.