With a view to promote digitalisation and enforce its vision of eliminating corruption, the Central Government has taken a number of measures like direct benefit transfer scheme, incentives on usage of digital payment modes, etc.
The intent of the government is clearly visible in the revolutionary amendments brought in the taxation laws of the Country in the recent times. With a view to reduce the interface between the Income Tax department ('IT department') and the taxpayer, the Central Government initially started with e-assessments on a pilot basis in 2016 for a few cities which was then extended to 102 cities in the year 20171. However, it was only vide the Finance Bill, 2018, that the enabling provisions for implementation of e-Assessment were incorporated in the Income-tax Act, 1961 ('IT Act') leading to introduction of sub-sections (3A), (3B) and (3C) to Section 143 of the IT Act. The objective was to achieve greater degree of efficiency and transparency at the IT department level while dealing with taxpayers. Thereafter, in the Budget speech of 2019, Hon'ble Finance Minister gave a brief insight of the proposed faceless e-assessment scheme to be introduced in a phased manner.
Finally vide Notification number 61/2019 dated 12 September, 2019, the Central Government introduced the faceless e-assessment scheme ('the Scheme').
Scope of the Scheme
The assessment under the Scheme shall be made in respect of territorial areas, persons, income or cases as may be specified by the Central Board of Direct Taxes ('CBDT'). Further, 'assessment' under the scheme is defined to mean only the assessment under section 143(3) of the IT Act. However, Finance Bill 2020 has proposed to include 'best judgement assessment' under section 144 of the IT Act under the scheme.
Structure of e-Assessment under the Scheme
The CBDT has set up the below 'Centres' and 'Units' for the conduct of e-assessments:
Centres vested with the jurisdiction to make assessment in accordance with the provisions of the Scheme
- A 'National e-Assessment Centre' ('NeAC')2 to facilitate centralised conduct of e-assessment proceedings.
- 'Regional e-Assessment Centres' ('ReAC')3 under the jurisdiction of the regional Principal Chief Commissioner for making assessment.
Units conferred with the responsibilities to perform functions in accordance with the Scheme
- 'Assessment Units' to identify the points or issues material for the determination of any liability (including refund) under the IT Act, seeking and analysing information, and such other functions as may be required.
- 'Verification Units' to enquire, cross verify, examine books of account, witness and record statements and such other functions, as may be required.
- 'Technical Units' to provide technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter.
- 'Review Units' to review the draft assessment order and to check whether the relevant and material evidence, facts, provisions of law have been incorporated in the draft assessment order and the applicable judicial precedents have been considered in the draft order.
NeAC is the communication channel between the above units as well as with the taxpayer.
The procedure for e-assessment as per the Scheme is as below:
- NeAC shall issue a notice under section 143(2) of the IT Act, specifying the issues for selection of taxpayer's case for assessment.
- The taxpayer may file a response within 15 days with the NeAC.
- The NeAC shall assign the selected case to a specific Assessment Unit in any one of the 'ReAC' through an automated allocation system.
- The Assessment Unit may request the NeAC to:
- Obtain further information, documents or evidence from the taxpayer or any other person, as it may specify;
- Conduct certain enquiry or verification by Verification Unit; and
- Seek technical assistance from the Technical Unit.
- Depending upon the request by the Assessment Unit, the NeAC may:
- Issue notice or requisition to the taxpayer or any other person for obtaining the information, documents or evidence; or
- Assign the request to a Verification Unit; or
- Assign the request to a Technical Unit in any one ReACs, as the case may be
- The Assessment Unit shall, after taking into account all the relevant material gathered as above, pass a draft assessment order either accepting the returned income of the taxpayer or modifying the returned income of the taxpayer, as the case may be, and send a copy of the order to the NeAC.
- Details of penalty proceedings to be initiated, if any, are required to be provided by the Assessment Unit in the draft assessment order.
- The NeAC shall examine the draft assessment order in accordance with the risk management strategy specified by the CBDT, including by way of an automated examination tool. It may decide to:
- Finalise the assessment as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, on the taxpayer, along with the demand notice; or
- Provide a show cause notice to the taxpayer, if any modification is proposed; or
- Assign the draft assessment order to a Review Unit in any one ReAC through the automated allocation system
- The Review Unit may concur with the draft assessment order and intimate the NeAC or suggest modifications and communicate its suggestions to NeAC.
- If concurrence is received from Review Unit then NeAC shall forward order/ show cause notice to the taxpayer. However, in case of receipt of suggestions, from the Review Unit, the NeAC shall communicate the same to the Assessment Unit which shall, after considering the modifications suggested by the Review Unit, send the final draft assessment order to the NeAC.
- The NeAC shall, upon receiving final draft assessment order, finalise the draft assessment order or provide an opportunity to the taxpayer in case a modification is proposed.
- The taxpayer may, upon issue of notice for making submissions against the draft assessment order, furnish his response to the NeAC which would then forward the same to the Assessment Unit.
- If no response is received from the taxpayer to the show cause notice, then the draft assessment order shall be finalised and sent to the taxpayer along with penalty/ demand notice
- Where response is received from the taxpayer, the Assessment Unit shall consider such response and send the revised draft assessment order to the NeAC.
- Where a modification prejudicial to the taxpayer is proposed, NeAC shall give appropriate opportunity to the taxpayer and thereafter finalise the assessment and serve a copy of the assessment order with a penalty, if any, and demand notice.
- The NeAC, after completion of the assessment, shall transfer all electronic records to the jurisdictional tax officer for imposition of penalty, recovery of demand, rectification of mistake, giving appeal effect orders, submission of remand reports, prosecution proceedings, etc.
- The NeAC is empowered to transfer the case, at any stage, to the jurisdictional tax officer, if considered necessary.
The Scheme just mentioned that the appeals against the orders of NeAC shall lie before the Commissioner (Appeals) having jurisdiction over the jurisdictional Assessing Officer. However, faceless mechanism was not introduced for appellate proceedings.
Exchange of communication exclusively by electronic mode
All communications between NeAC and the taxpayer or his authorised representative as well as the internal communications amongst the NeAC, ReAC and all the units to happen in e-mode only.
E-filing account, registered e-mail id, phone number etc. are used as modes of communication with the taxpayer.
No personal appearance
The taxpayer is not required to appear personally or through an authorised representative in relation to any proceedings under the Scheme before any tax authority, NeAC, ReAC or units set up under the Scheme.
In a case where a modification is proposed in the draft assessment order, and an opportunity is provided to the taxpayer by serving a notice, the taxpayer or his authorised representative, as the case may be, shall be entitled to seek personal hearing so as to make his oral submissions or present his case before the Income Tax Authority in any Unit under this Scheme.
Any personal hearing shall be conducted exclusively through video conferencing, in accordance with the procedure laid down by CBDT. Further, the CBDT shall establish suitable facilities for video conferencing and video telephony at such locations as may be necessary.
Circular no. 27/2019 dated 26 September 2019
Subsequently, vide the above circular, CBDT brought in guidelines for implementation of e-proceedings for assessments to be framed during FY 2019-20 under section 143(3) of the IT Act. Vide the said circular, the CBDT has specified
- The cases under which the e-proceeding shall not be mandatory;
- The cases under which a personal hearing may be allowed even though assessment is carried out in electronic manner
Proposed measures in the Finance Bill, 2020
In order to take the reforms initiated by the Central Government to the next level and to eliminate human interface, Finance Bill 2020 has proposed to insert enabling provisions in the IT Act for conducting appellate proceedings in a faceless manner. Accordingly, Section 250 (6A) is proposed to be introduced in the IT Act to:
- Empower Central Government to notify an e-appeal scheme for disposal of appeals pending with Commissioner (Appeals).
- Eliminate the interface between the Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent technologically feasible.
- Introduce an appellate system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner (Appeals).
Central Government shall issue directions under the Scheme by way of notification in an official gazette. Such directions shall be issued on or before 31 March 2022.
With the same objectives as provided for e-Appeals, enabling provisions are proposed to be inserted in the IT Act for conduct of penalty proceedings in a faceless manner. Accordingly, sub-section (2A) to section 274 of the IT Act is proposed to be introduced and the Central Government has been empowered to issue directions under the above scheme as well on or before 31 March 2022.
Some key considerations with the e-proceedings
- Though the Central Government is giving a push to digital reforms, the infrastructure is not yet ready in a complete manner to support this initiative. Specially, the smaller jurisdictions lack the facilities required for smooth flow of data transfer and the proceedings.
- There are many details which are required to be scanned and adjusted to meet the specifications for uploading on the e-filing portal. Sometimes the volume of data is too much to be supplied through e-modes and may not justify the time and cost involved.
- At present, there is no single source for picking the contact details of the taxpayer. There have been cases where notices have been sent to the e-mail id of directors of a Company who signed the tax return but are no more associated with the Company at the time of assessment even after updating of contact details on the e-filing website.
- The CBDT has not yet come up with the procedures for personal hearing through video conferencing. The same is very crucial from the taxpayer's perspective to avoid any random adjustments to the total income due to lack of understanding or misinterpretation of data.
- In practical experience, the notice for initiation of scrutiny assessment under section 143(2) of the IT Act was issued by NeAC, but the taxpayers have received subsequent notice from the jurisdictional assessing officer only, thereby, defeating the purpose of the Scheme to a certain extent.
- The migration of jurisdiction in case of change in registered office of the Company is not yet enabled in e-mode. The same is still a long drawn manual process which requires several follow ups with the IT department. Further, the same poses many issues after the case is transferred to the jurisdictional assessing officer particularly with respect to rectification of assessment orders.
While the introduction of e-appeals and e-penalty is a welcome move, one should be mindful of the fact that appellate/penalty proceedings require thorough discussion and paperwork. Accordingly, the Central Government will have to provide a robust mechanism to implement these schemes. Upon successful implementation, the schemes may bring a radical change in the efficiency in disposal of appeals and make the process even more taxpayer friendly.
1. Budget speech of 2018
2. Setup at Delhi and headed by Principal Chief Commissioner of Income-tax
3. Setup at Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bengaluru and Hyderabad and headed by Chief Commissioner of Income-tax