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February 3, 2021

Change in Assessment and Appeals in Budget 2021

by CA Shivam Jaiswal in Budget

Change in Assessment and Appeals in Budget 2021

The Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialised before the beginning of new financial year in April. India’s Finance Minister Nirmala Sitharaman announced the annual budget on February 1, 2021 – paperless for the first time in the history of India.

Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the declining economy amid the Covid-19 pandemic and boost spending across sectors. Budget 2021 focused on the seven pillars for reviving the economy – Health and Wellbeing, Physical and Financial Capital and Infrastructure, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D, and Minimum Government Maximum Governance. Several amendments in assessment and appeals were also proposed.

Changes announced by Finance Minister Nirmala Sitharaman include a lower limitation period for reopening tax cases, easier compliance for senior citizens, focus on faceless dispute resolution, consolidation of capital market laws, how goodwill is treated in M&As, and a friendlier regime for single-person companies. Let us learn about these in detail in this article:

Reduction in time limit for reopening of cases

  • The Finance Bill, 2021 proposed to introduce a completely new procedure of assessment in case of search and income escaping assessment.
  • The new system is focused on less litigation and providing ease of business by reducing the time limits to issue notice for assessment or reassessment.
  • In normal cases, no notice shall be issued if three years have elapsed from the end of the relevant assessment year (the time limit before was 6 years)
  • However, if the income escaping assessment exceeds or is likely to exceed Rs. 50 lakhs, the notice can be issued within 10 years from the end of the relevant assessment year.

Reduction of time limit for completion of the assessment proceedings

  • Prior to the budget, assessment under section 143(1) and Section 144 had to be completed within a period of one year from the end of the financial year in which the return of income was filed.
  • Now, due to Budget 2021, the time limit for completion of scrutiny assessment under Section 143 and Best Judgment Assessment under Section 144 is proposed to be further reduced by 3 months.
  • Now, the time for completion of assessment shall be 9 months from the end of the assessment year in which the income was first assessable

Faceless scheme for ITAT appeal

  • The Central Government has been empowered to notify a faceless scheme for disposal of appeal by the ITAT.
  • To eliminate physical interface between tax officials and taxpayers, the income tax department made its appeals systems anonymous to move to the faceless regime.
  • It is expected that the taxpayers under the faceless system would face lower incidents of corruption as the new system is expected to make the system more transparent.
  • The faceless assessment of tax will ‘honour honest income tax payers in the country’
  • Under the Faceless Appeals, everything from e-allocation of appeal, e-communication of notice/ questionnaire, e-verification/e-enquiry to e-hearing and finally e-communication of the appellate order, the entire process of appeals will be online, dispensing with the need for any physical interface between the appellant and the Department.
  • There will be no physical interface between the taxpayers or their counsel/s and the Income Tax Department.
  • The taxpayers can make submissions from the comfort of their home and save their time and resources.
  • This shall eliminate the interface between the ITAT and parties to the appeal to the extent technologically feasible.

Constitution of DRC for small and medium taxpayers

  • The Union Budget 2021 has proposed to set up a Dispute Resolution Committee for small taxpayers.
  • The provision is aimed to help people with a taxable income up to Rs. 50 lakh and disputed income up to Rs. 10 lakhs.
  • Moreover, the committee is stated to be faceless in order to ensure efficiency, transparency and accountability.
  • The assessee would have an option to opt or not to opt for the dispute resolution through the DRC.

Discontinuance of Income-tax Settlement Commission

  • The Income Tax Settlement Commission (ITSC) was a quasi-judicial body set up under the Income Tax Act.
  • The objective of setting up of ITSC was to settle the tax liabilities in complicated cases, avoiding endless and prolonged litigation.
  • The taxpayer could approach the ITSC during the pendency of assessment proceedings, subject to certain prescribed conditions. 
  • ITSC is proposed to be discontinued with effect from 01-02-2021 and an Interim Board of Settlement is to be constituted for pending cases.
  • The Central Government is empowered to notify a scheme for settlement in respect of pending applications by the Interim Board.

Constitution of the Board for Advance Ruling

  • A resident taxpayer may have some taxation issues in respect of a transaction which has been undertaken or proposed to be undertaken with a non-resident.
  • Similarly, a non-­resident may have some taxation issues in respect of transaction which has been undertaken or proposed to be undertaken by him in India.
  • In order to get clarification on taxation of those transactions, a person can make an application to the Authority for Advance Rulings (AAR).
  • To provide an alternative method of providing advance ruling which can give rulings to taxpayers promptly, a Board of Advance Ruling is proposed to be constituted as per Budget 2021
  • The Authority for Advance Rulings shall cease to operate with effect from the notified date.
  • The Central Government is empowered to notify a scheme to give advance ruling by the Board of Advance Ruling.

The new provisions will come to effect from 1st April 2021.

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