Know how 7116 faceless scrutiny under 1st phase disposed by Income Tax Dept

Finance Minister Nirmala Sitharaman had announced the faceless assessment scheme also known as the e-assessment scheme in her Budget speech on July 5, 2019, which was subsequently inaugurated on October 7, 2019. This was aimed at moving to faceless scrutiny and elimination of human interface in assessment proceedings.

The scheme was set to bring in a “paradigm shift” in taxation by eliminating human interface in the income tax assessment system. The Ministry of Finance vide Central Board of Direct Taxes (CBDT) notification No 61 & 62 dated 12th September 2019 has respectively notified the E-assessment Scheme 2019 & given directions for its implementation.

Since its launch on October 7, 2019 and implementation of first phase, faceless scrutiny assessment scheme has provided for assessment of income tax in electronic mode, where taxpayers need not see face-to-face any tax officer or visit an I-T office and can e-file reply on the income tax portal.

All the communications with taxpayers is made electronically by a central cell in Delhi and identity of all assessing officers remains unknown to taxpayers at all times. This scheme is a welcome relief in the backdrop of the COVID pandemic where social distancing is mandated as a means of safety.

Situation Prior to Faceless Assessment

• Earlier during assessment proceedings in scrutiny cases, taxpayers or tax professional/s were required to make multiple visits to the income tax office.
• There were allegations and some incidences of discretion and subjective approach which often resulted into high-pitched assessments. In tax recovery proceedings, almost similar types of allegations were being made.
• These concerns will be addressed when the income tax process becoming faceless.

First Phase of faceless assessment

In the first phase of faceless assessment, a total of 58,319 cases were assigned in an automated way randomly and these were kept away from the geographical jurisdiction of the case, based on computer algorithms. Out of this:-

• 7,116 cases as on date have been disposed of with assessment orders issued without any additions
• 291 cases, wherein additions are proposed to be made, have been submitted to Risk Management unit.

Cases are centrally selected for scrutiny using computer aided selection for scrutiny. Some scrutiny cases are also selected manually on the basis of specified criteria. Old assessments can also be re-opened if the assessing officer has sufficient reason to believe that some income has escaped assessment.

In all the cases, the grievances of over-pitched assessment or harassment of taxpayers/tax professional have been almost eliminated.

Separately, a Finance Ministry official said that now almost 99% returns are e-filed. Out of more than 6 crore returns filed annually, only about 3 lakh returns come under scrutiny on the basis of select risk parameters.

The government has already notified revised Form 26AS which would have additional details on taxpayers’ high-value financial transactions, like cash deposit/withdrawal, property purchases, undertaken during a financial year and would facilitate voluntary compliance and ease of e-filing of I-T returns. This will also help in verifying all available information in faceless manner and help in seamless implementation of first phase of faceless assessment. The taxpayers have been advised to check their registered e-filing accounts/email ids for notices or updates.

Let us learn more in detail about the Faceless Compliance Scheme or e-assessment scheme.

Most important feature of E-assessment Scheme – No personal appearance in the Centre’s or Units

1. A person shall not be required to appear either personally or through authorised representative for any proceedings before the income-tax authority at the National e-assessment Centre or Regional e-assessment Centre or any unit set up under this Scheme.
2. If a modification is proposed in the draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show-cause as to why the assessment should not be completed as per the draft assessment order, the assessee or his authorised representative, 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.
3. Such hearing shall be conducted exclusively through video conferencing, including use of any telecommunication application software which supports video telephony
4. Any examination or recording of the statement of the assessee or any other person (other than statement recorded in the course of survey under section 133A of the Act) shall be conducted by an income-tax authority in any unit, exclusively through video conferencing, including use of any telecommunication application software which supports video telephony.
5. The Board shall establish suitable facilities for video conferencing including telecommunication application software which supports video telephony at such locations as may be necessary, to ensure that the assessee, or his authorized representative, or any other person is not denied the benefit of this Scheme merely on the consideration that such assessee or his authorised representative, or any other person does not have access to video conferencing at his end.

How is the exchange of communication to be carried out under this Scheme?

1. Communications between the National e-assessment Centre and the assessee, or his authorized representative, shall be exchanged exclusively by electronic mode; and
2. Internal communications between the National e-assessment Centre, Regional e-assessment Centre’s and various units shall be exchanged exclusively by electronic mode.

How are Electronic records authenticated under this Scheme?

1. An electronic record shall be authenticated by the originator by affixing his digital signature in accordance with section 3(2) of the Information Technology Act, 2000.
2. In case of the originator, being the assesse or any other person, such authentication may also be done by electronic signature or electronic authentication technique in accordance with section 3A(2) of the said Act.

How are notices or orders delivered under this Scheme?

1. Every notice or order or any other electronic communication under this Scheme shall be delivered to the the assessee, by way of-
2. placing an authenticated copy thereof in the assessee’s registered account; or
3. sending an authenticated copy thereof to the registered email address of the assessee or his authorized representative; or
4. uploading an authenticated copy on the assessee’s Mobile App followed by a real time alert.
5. Every notice or order or any other electronic communication under this Scheme shall be delivered to any other person, by sending an authenticated copy thereof to the registered email address of such person, followed by a real time alert.
6. The Assessee shall file his response to any notice, order or any other electronic communication, under this Scheme, through his registered account.
7. Once an acknowledgement is sent by the National e-assessment Centre containing the hash result generated upon successful submission of response, the response shall be deemed to be authenticated.

What is the procedure of assessment under this Scheme?

The assessment under this Scheme shall be made as per the following procedure:-

Step 1 – Issue of Notice on Assessee

1. National e-Assessment Centre shall serve a notice on the assessee under section 143(2), specifying the issues for selection of his case for assessment
2. Assessee may, within 15 days from the date of receipt of notice, file his response to the National e-assessment Centre

Step 2 – Case to be assigned to Assessment Unit

1. National e-assessment Centre shall assign the case selected for the purposes of e-assessment to a specific assessment unit in any one Regional e-assessment Centre through an automated allocation system
2. Where a case is assigned to the assessment unit, it may make a request to the National e-assessment Centre for:-
3. obtaining such further information, documents or evidence from the assesse or any other person
4. conducting of certain enquiry or verification by verification unit
5. seeking technical assistance from the technical unit
6. Where a request for obtaining further information, documents or evidence from the assessee or any other person has been made, the National e-assessment Centre shall issue appropriate notice or requisition to the assessee or any other person for obtaining the information, documents or evidence requisitioned by the assessment unit
7. Where a request for conducting of certain enquiry or verification by the verification unit has been made, the request shall be assigned by the National e-assessment Centre to a verification unit through an automated allocation system
8. Where a request for seeking technical assistance from the technical unit has been made, the request shall be assigned by the National e-assessment Centre to a technical unit in any one Regional e-assessment Centre through an automated allocation system
9. The assessment unit shall, after taking into account all the relevant material available on the record, make in writing, a draft assessment order either accepting the returned income of the assessee or modifying the returned income of the assessee, and send a copy of such order to the National e-assessment Centre with details of the penalty proceedings to be initiated therein, if any

Step 3 – Draft Assessment Order

1. National e-assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to:-
2. finalise the assessment as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, alongwith the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment, or
3. provide an opportunity to the assessee, in case a modification is proposed, by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the draft assessment order, or
4. assign the draft assessment order to a review unit in any one Regional e-assessment Centre, through an automated allocation system, for conducting review of such order;
5. Review unit shall conduct review of the draft assessment order, referred to it by the National e-assessment Centre whereupon it may decide to:-
6. agree with the draft assessment order and intimate the National e-assessment Centre about such agreement; or
7. suggest such modification, as it may deem fit, to the draft assessment order and send its suggestions to the National e-assessment Centre;
8. National e-assessment Centre shall, upon receiving concurrence of the review unit, follow the procedure laid down in sub point (a) or (b) of point (1), as the case may be
9. National e-assessment Centre shall, upon receiving modification suggestions from the review unit, communicate the same to the Assessment unit
10. Assessment unit shall, after considering the modifications suggested by the Review unit, send the final draft assessment order to the National e-assessment Centre
11. The National e-assessment Centre shall, upon receiving final draft assessment order, follow the procedure laid down in sub point (a) or (b) of point (1),as the case may be
12. The assessee may, in a case where show-cause notice has been served upon him, furnish his response to the National e-assessment Centre on or before the date and time specified in the notice
13. The National e-assessment Centre shall,-
14. in a case where no response to the show-cause notice is received, finalise the assessment as per the draft assessment order; or
15. in any other case, send the response received from the assessee to the assessment unit;
16. The assessment unit shall, after taking into account the response furnished by the assessee, make a revised draft assessment order and send it to the National e-assessment Centre

Step 4 – Final Order and Completion of Assessment

1. The National e-assessment Centre shall, upon receiving the revised draft assessment order:-
2. in case no modification prejudicial to the interest of the assessee is proposed with reference to the draft assessment order, finalise the assessment or
3. in case a modification prejudicial to the interest of the assessee is proposed with reference to the draft assessment order,provide an opportunity to the assessee
4. the response furnished by the assessee shall be dealt with as per the procedure laid down in point 7, 8, 9 of Step 3
5. The National e-assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over such case for:
6. imposition of penalty
7. collection and recovery of demand
8. rectification of mistake;
9. giving effect to appellate orders
10. submission of remand report, or any other report to be furnished, or any representation to be made, or any record to be produced before the Commissioner (Appeals), Appellate Tribunal or Courts, as the case may be
11. proposal seeking sanction for launch of prosecution and filing of complaint before the Court;
12. National e-assessment Centre may at any stage of the assessment, if considered necessary, transfer the case to the Assessing Officer having jurisdiction over such case.

Can any penalty be imposed under this Scheme?

1. Any unit may, for noncompliance of any notice, direction or order issued under this Scheme on the part of the assessee or any other person, send recommendation for initiation of any penalty proceedings, against such assessee or any other person, as the case may be, to the National e-assessment Centre, if it considers necessary to do so.
2. The National e-assessment Centre shall, on receipt of such recommendation, serve a notice on the assessee or any other person, calling upon him to show cause as to why penalty should not be imposed on him under the Act.
3. The response to show – cause notice furnished by the assessee or any other person, if any, shall be sent by the National e-assessment Centre to the concerned unit which has made the recommendation for penalty.
4. The said unit shall, after taking into consideration the response furnished by the assesse or any other person:-
5. make a draft order of penalty and send a copy of such draft to National e-assessment Centre; or
6. drop the penalty after recording reasons, under intimation to the National e-assessment Centre.
7. The National e-assessment Centre shall levy the penalty as per the said draft order of penalty and serve a copy of the same on the assessee or any other person, as the case may be.

Is there any option available for a person aggrieved with the order under this Scheme?

An appeal against an assessment made by the National e-assessment Centre under this Scheme shall lie before the Commissioner (Appeals) having jurisdiction over the jurisdictional Assessing Officer.

The faceless assessment system of Income Tax Department has been a game changer in the arena of direct taxation. It has empowered the taxpayers and has, as a foremost mechanism, altered the facets and perception of overall tax administration in India.