The Government has framed Scheme for Assessment in faceless manner with a view to eliminate human interface between the tax payers and the Department to the extent technologically feasible and provide for optimal utilisation of resources and for making team-based assessment with dynamic jurisdiction. For this purpose, faceless assessment scheme, 2019 was notified. Subsequently vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 Section 144B was inserted to provide the procedure for faceless assessment w.e.f. 01.04.2021. Vide Finance Bill, 2022 Section 144B is proposed to be amended / substituted. The Scheme for assessment, however, continues to be same by and large, subject to certain amendments. The Scheme after the proposed amendments will be as under:
Scheme of faceless assessment after proposed amendments
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All assessment for determination of income on assessment, re-assessment or re-computation under sub-section (3) of section 143 or u/s 144 or u/s 147 in cases as may be specified by the Board shall be completed in faceless manner.
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A case shall be assigned to a specific Assessment Unit (AU) through an automated allocation system and intimation shall be given to the assessee that his case shall be completed in accordance with procedure laid down u/s 144B of the Act.
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A notice shall be served on the assessee though NaFAC u/s 143(2) or u/s 142(1) and the assessee may file his response to the notice within the date specified therein.
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NaFAC shall forward the response to AU.
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The AU to whom the case is assigned may make a request though NaFAC for:-
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Obtaining such further information, documents or evidence from the assessee or any other person, as it may specify.
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Conducting of inquiry or verification by Verification Unit (VU);
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Seeking technical assistance in respect of determination of Arms’ length price, valuation of property, withdrawal of registration, approval or exemption or any other technical matter by referring to Technical Unit (TU).
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Where a request is made for obtaining information or documents or evidence from the assessee, a notice shall be issued to the assessee for the same and the assessee shall file his response to such notice within the time specified therein or such time as may be extended on the basis of application in this regard to NaFAC. Response received from the assessee shall be forwarded to the AU. In case no response has been received from the assessee NaFAC shall intimate such failure to AU.
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Where request was received for making reference to VU or TU, NaFAC shall assign the same to a VU or TU though an automated allocation system and report received from VU or TU will sent to AU.
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In case no response to the notice u/s 143(2) or 142(1) was earlier received from the assessee the AU through NaFAC serve a notice u/s 144 giving an opportunity to show cause why assessment should not be made to the best of its judgement. The Assessee has to give its response within the time specified in the notice or within the time, as may be extended on the basis of application, in this regard. Response received from the assessee shall be forward by the NaFAC to AU and in case no response is received the NaFAC shall intimate the AU accordingly.
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The AU after considering all the relevant material available on record will prepare in writing: –
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An income or loss determination proposal where there is no variation and send the same to NaFAC; or
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Shall prepare a show cause notice stating the variation in the income of the assessee calling upon him to submit as to why the proposed variation should not be made.
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In case of variation proposed by AU, show cause notice shall be served on the assessee for giving his response within the time specified therein or such time, as may be extended on the basis of application, in this regard. Response received shall be forwarded by NaFAC to the AU. In case assessee fails to give response, same shall be intimated to the AU.
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The AU after considering the response in this regard though NaFAC shall prepare an income or loss determination proposal and send the same to NaFAC.
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NaFAC on receipt of income or loss determination proposal, whether with variation or without variation may: –
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convey to the AU to prepare draft order in accordance with income or loss determination proposal; or
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assign the income or loss determination proposal to a RU though an automated allocation system for conducting review of such proposal.
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The RU shall conduct review of the Income or loss determination proposal assigned to it by NaFAC and shall prepare and send its review report to NaFAC. Same shall be sent by NaFAC to same AU which had prepared the Income or loss determination proposal.
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The AO after considering the review report shall accept or reject some or all the modifications proposed therein and after recording the reasons in case of rejection of such modification shall prepare a draft order.
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The draft order prepared by AU shall be sent to NaFAC.
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NaFAC in the cases covered by Section 144C shall serve the draft order on the assessee and in other cases shall convey to the AU to pass the final assessment order.
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The final assessment order received from AU shall be served on the assessee along with notice for penalty proceedings and demand notice determining demand or refund, as the case may be.
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Where the draft order has been sent to the assessee in terms of section 144C the final order shall be made as per procedure laid down under above section.
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The Scheme also provides that AU having regard to the nature and complexity of accounts can also after recording its reasons refer the case to NaFAC for conducting special audit in terms of section 142(2A) of the Act. In such a case as per procedure provided in sub-section (7) of section 144B of the Act the Pr. CIT in-charge of NaFAC shall forward the reference received from AU to Pr. CIT having jurisdiction over such case and shall inform the AU accordingly and will also transfer the case to jurisdictional AO. In such case assessment shall be competed accordingly.
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In case there is a variation proposed by the AU and an opportunity is provided to an assessee, the assessee or his authorised representative may request for personal hearing so as to make his oral submissions. In case such request has been made, the Income Tax Authority of relevant Unit shall allow such hearing through NaFAC through video conferencing or though video telephony to the extent technologically feasible, in accordance with the procedure laid down by the Board.
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NaFAC after completion of assessment shall transfer all the electronic records of the case to the AO having jurisdiction over the said case for such action as may be required under the provisions of this Act.
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Since the record after completion of assessment will be transferred to the jurisdictional AO, all subsequent action, such as, rectification, appeal effect, recovery of demand etc. will be taken by the jurisdictional AO.
Variation in the proposed Scheme as compared to earlier Scheme and in provisions of Section 144B
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Now there are no Regional Faceless Assessment Centres. Earlier AU were under ReFAC now same are directly under NaFAC.
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Under the old Scheme 1st notice was required to be replied within 15 days from the date of receipt of notice. Now there is no specific time limit and notice is to be replied within the date specified therein.
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The scope of technical unit has been specifically provided so as to include technical assistance in respect of determination of arms’ length price, valuation of property, withdrawal of registration, approval or any other technical matter.
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In the earlier Scheme after collecting the necessary details the AU had to prepare draft assessment order and same was to be sent to NaFAC. On receipt of the draft order NaFAC may either advise the AU to finalise the assessment, in case there is no variation or provide an opportunity to the assessee in case there is variation or assign the draft assessment order to a RU.
In the proposed Scheme instead of draft order the AU will prepare income or loss determination proposal where there is no variation and it will be sent to NaFAC. In a case of variation a show cause notice stating the variation shall be served on the assessee through NaFAC. After receipt of reply to show cause notice AU shall prepare income or loss determination proposal.
After the receipt of income or loss determination proposal whether without variation or with variation, NaFAC may on the basis of guidelines issued by the Board convey the AU to prepare the draft order or assign the proposal to review unit through an automated allocation system for conducting review of such proposal.
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As per the proposed Scheme the RU shall submit its report on the income or loss determination proposal and such report shall be sent to AU which has the power to accept or reject all or some of the modifications proposed by the RU. As per the language it appears that review unit will have power to consider only variation proposed by AU and in case RU suggest for deletion of any variation AU will have power to reject the same. As per the earlier scheme RU had power to make any variation either for increase or decrease in variations and report of RU was to be sent to different AU and revised draft was to be prepared on the basis of modifications proposed by the RU and there after another opportunity was to be provided to the assessee for such variations which are prejudicial to the interest of assessee. Since, as per the proposed Scheme only the variations will be proposed by AU in respect of issues on which show cause notice was earlier given and review unit will have no power to make any new variation, no further opportunity has been provided for to the assessee.
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Under the old scheme there was option of the Chief Commissioner of Assessment Unit to grant personal hearing or not to the assessee or to his authorised representative. Under the amended Scheme opportunity shall be provided, if ask for.
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Sub-section (9) of section 144B which was providing that in case the order has not been passed as per scheme same shall be deemed to be non-est is proposed to be deleted w.e.f 01.04.2021.
Issues / suggestions
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In regard to response to 1st notice earlier 15 days time was available to the assessee. Now the assessee has to reply within the time specified in the notice, which may be less than 15 days. There is no provision for extension of the time also. In the 1st notice it is stated that in respect of what issues case has been taken for security and clarification is required on these issues and in case of big corporates details / documents required for submitting clarification may be voluminous. Therefore, there should be provision for allowing 15 days time in the notice subject to further extension on making the application by the Assessee.
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As per the Scheme it appears that after examining the details a show cause notice will be given for variation and there can be no further increase in the variations. If it is so, it is a welcome step. It would also mean that RU will have no power to propose any new variation. In that case one issue, however, arises that why a reference is necessary to the RU even in the case where there is no variation proposed by AU. In case RU also has power increase the amount of variation or to propose variation on new point, why opportunity to the assessee should not be given.
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Report of a RU as per the proposed scheme will be sent to the same AU and AU has the power to reject any modification proposed by RU. Though it is understood that RU will only suggest for deletion of a variation since there is no power to propose any variation but still why the report of RU should not be considered by another AU as was the earlier position.
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Even in cases where variation has been proposed NaFAC can direct the AU to prepare the draft order and assessment will be finalised accordingly. It is reasonable and justified that all the cases where variation has been proposed, income or loss determination proposal should be referred to the RU. It will keep check on the powers of AU and variations proposed will be examined by another officer.
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The Scheme provides power to AU to reject the modification proposed by RU. Unless the proposal is considered by different AU there should be no power to reject the modification proposed by RU.
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After finalisation of assessment, order is to be prepared by AU and same will be served through NaFAC on the assessee along with determination of demand or refund. It has been the experience in the cases of assessments last year that in many cases determination of demand or refund was not in accordance with income determined in the final assessment order. It is necessary that there should be some mechanism provided in the Scheme for checking of determination of demand or refund pursuant to the order of assessment.
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Pursuant to deletion of sub-section (9) of section 144B regarding the non-est status of assessment order, in case procedure is not followed it is understood that the assessment order shall be deemed to be valid even if proper procedure is not strictly followed. It can, however, be said that in case principles of natural justice are not followed, the order can be said to be invalid and in such cases the courts would normally provide an opportunity to the department to make fresh assessment after following the principle of natural justice. Indirectly, it will amount to provide second inning to the department and time limit will also stand extended for making the assessment. Unless provisions are required to be strictly followed there is bound to be violation of principles of natural justice by the department. Hence, earlier provision was justified and would have enforce the completion of assessment in accordance with the procedure. It is dilution of intention expressed while introducing the scheme of faceless assessment. The provisions of sub-section(9) were in line with the demand of professional organisations like ours that the department should be held accountable for their actions of omission and commission.