Articles

Faceless Assessments: Few Critical Suggestions to Make Them Flawless!!

“Even perfection has room for improvement.”- Ty Warner

Faceless Assessments are indeed a revolutionary and path-breaking initiative of the Government, aimed at reforming and overhauling the tax administration system and curbing the undesirable practices prevailing in the system, by eliminating the personal interface between the assessee and the assessing authority.

However, it is not uncommon for any new reform-oriented initiative to face some teething problems during the initial stages of its implementation and practice.

In this Article, an honest and sincere effort has been made to bring out all the critical and crucial issues in the current scheme of faceless assessments which may require a reconsideration or review by the concerned law-making authorities, in order to enable the faceless assessments regime to live up to its true potential and to make this bold reform initiative a grand success.

Accordingly, such critical areas where there is still scope of some improvement are discussed as under:

a. Right of Personal Hearing via Video Telephony to the Assessee in All Cases should be Re-instated and it should be provided before passing of the Draft Assessment Order.

 In the new Faceless Assessment Scheme, 2019, the assessee is not having any ‘by-default’ right of personal hearing and the assessee may only request for a personal hearing by way of video conferencing/telephony, in case of disagreement with the additions/disallowances proposed in the draft assessment order. The Chief Commissioner or the Director General, ReAC, may approve such request for personal hearing, if he is of the opinion that the case falls in the list of specified circumstances as notified by CBDT. The circumstances where the request of the assessee for personal hearing via video conferencing may be approved are yet to be notified by CBDT.

In the old E-Assessment Scheme, 2019, by virtue of a right vested in the scheme, the assessee was entitled to personal hearing, by way of video conferencing/telephony, in case of disagreement with the additions/disallowances proposed in the draft assessment order, in all assessment cases.

Thus, a suitable clarification concerning the specified circumstances wherein the request of personal hearing of the assessee may be approved by the CCIT ReAC is desirable.

It is pertinent to note here that the Hon’ble Madras High Court in a recent order in the case of ‘Salem Sree Ramavilas Chit Company vs DCIT [2020]’, have observed and stated that the faceless tax-assessment system can lead to erroneous assessment, if officers are not able to understand the transactions and statement of accounts of an assessee without a personal hearing.

Thus, in order to reduce litigations and tussles, the CBDT may reconsider and review the amended provision of conditional grant of opportunity of personal hearing via video telephony to the assessee, only in certain specified circumstances, and may restore the earlier provision of grant of such opportunity of personal hearing via video telephony to the assessee, in all cases, wherein the assessee asks for it in writing.

Further, in the current framework, the opportunity of personal hearing may be granted to the assessee only after passing of the draft assessment order by the assessment unit in the ReAC and not before that. In order to make this right of personal hearing more effective and meaningful, such an opportunity should be granted to the assessee before passing of the draft assessment order.

b. Provision of Alternative Mode of Uploading Files as Attachments along with e-Submissions, other than the Scanned Files.

In the existing ‘schema’ and ‘semantics’ of the ‘e-Proceedings’ functionality, the maximum number of attachments or files which can be attached along with a single ‘response’ to any notice is ‘TEN’ (10) and the maximum ‘size’ of one attachment which can be attached along with a single ‘e-response’ is ‘10 MB’ of data. Earlier the maximum size of one attachment which can be attached along with a single ‘e-response’ was 5 MB only. So, in the new scheme of ‘E-assessment 2019’ the issue of space constraint has been resolved to some extent.

However, the assessees can attach scanned documents only in .pdf, .xls, .xlsx, .csv format. At times, the process of scanning of files or their conversion into pdf files for the purpose of uploading is very cumbersome and tedious process and involves a lot of time. So, this file conversion becomes an irritant and hinders the smooth and uninterrupted uploading of supporting attachments to be attached `along with the response to any query to a notice.

The requirement of scanning of files or the conversion of files into pdf version to make them up-loadable should be done away with and instead a standard file format like ‘XML’ in line with the International Best Practice of ‘Standard Audit File for Tax’ (SAF-T), should be adopted and implemented for uploading files and attachments, by aligning and integrating the ‘e-proceedings’ functionality of the ITBA module with that of the natural accounting systems of assessees.

c. Clarification on Exercise of Revisionary Powers of CIT u/s 263/264 and Assessing Officer’s Rectification Powers u/s 154 of the Income Tax Act, under the Faceless Assessments Scheme, 2019

CBDT in its Notification bearing F.No. 173/165/2020-ITA-I, dated 14.8.2020, has prescribed Guidelines for Implementation of Faceless Assessment Scheme, 2019, and has specified certain specific functions of the Field Formations outside the NeAC/ReAC Hierarchy. The Exercise of Statutory Powers u/s 263/264 of the Income Tax Act, and Rectification Proceedings have been included in such specified functions, which shall be carried out by Field Formations outside the NeAC/ReAC Hierarchy, under the Cadre Controlling Authority of PCCIT, in a faceless manner.

The USP of this new scheme of Faceless Assessments is its ‘Team/Group based conduct of assessments by multi-level and multi-layered assessment units viz. National e-Assessment Centre (NeAC) and Regional e-Assessment Units (ReAC) including Technical Unit, Verification Unit and Review Unit, in place of the existing individual jurisdictional Assessing Authority (AO).

A suitable clarification concerning the composition of such Field Formations outside the NeAC/ReAC hierarchy, i.e. whether such Field Formations will consist of jurisdictional assessing officers of the assessees, is desirable.

Further, if the final assessment order after being passed by the above multiple assessment units after a comprehensive and diligent review process as underlined in this new scheme, is still being amenable to be revised by the Field Formations outside the NeAC/ReAC Hierarchy, under the Cadre Controlling Authority of PCCIT, either u/s 154 or u/s 263/264, then the finality and conclusivity of such team-based final assessment order passed by the NeAC/ReAC Hierarchy, will still rest upon the discretion of such field formations, which is contrary to the very underlying principle of team-based assessments of this new scheme of faceless e-assessments, and as such suitable clarification from CBDT is desired in this regards.

d. Ensuring Adoption & Consideration of Jurisdictional Legal Precedents in the Conduct of Faceless Assessments, by the ReACs located in different locations.

The characteristic feature of the new Faceless Assessment Scheme, 2019, as proclaimed by all senior authorities is the abolition of territorial jurisdiction for instance the scrutiny case of a Delhi based assessee may be assigned by NeAC on random allocation basis to say a Mumbai based Assessment Unit of ReAC, and it may be reviewed by a Review Unit based in Chennai and the Final Assessment Order may be prepared by the Assessment Unit of ReAC located in say Kolkata.

So, now if say a Delhi based assessee is being assessed by a Mumbai based ReAC based on random allocation system, then Mumbai based ReAC will naturally be guided and influenced by the legal precedents of Mumbai High Court on several crucial scrutiny issues involving interpretation of Law, in conducting the faceless assessment, which may differ from the legal precedents of Delhi High Court, on those issues, and applicable on Delhi based assessee. So, these may result in undue hardships for the Delhi based assessee.

Thus, it is desirable that the nodal unit i.e. the NeAC should ensure adoption, and consideration of the binding legal precedents of the jurisdictional appellate authorities including ITATs and the High Courts, of the assessees in the conduct of their faceless assessments by the assessment units in ReACs, located in different locations.

e. Clarification on Mode of Communication between the Verification Unit (VU) & the Assessee:

In the new Faceless Assessment Scheme, 2019, all communications between the assessee, NeAC, ReAC, Technical Unit and Review Unit, shall be exchanged exclusively by electronic mode. However, a categorical exception to the exclusive mode of electronic communication between the assessee and income tax authorities have been provided in the cases of enquiry or verification being conducted by the Verification Unit, in certain specified circumstances, yet to be notified by CBDT.

Accordingly, a suitable clarification from CBDT concerning those notified cases where the mode of communication between the assessee and the Verification Unit will not be electronic, is desired and awaited and further whether the allowability of physical interface between the assessee and the Verification Unit will not defeat the purpose of Faceless Assessments.   

f. Clarification concerning the lawful Substitution of National e-Assessment Centre (NeAC), with the Jurisdictional Assessing Officer, where Law mandates Formation of Independent Reasonable Belief and Recording of Independent Satisfaction by the Jurisdictional Assessing Officer.

In the new Faceless Assessment Scheme, 2019, it has been stipulated that,

“where the assessee –

(a) has furnished his return of income under section 139 or in response to a notice issued under subsection (1) of 142 or sub-section (1) of section 148; and a notice under sub-section (2) of section 143 has been issued by the Assessing Officer or the prescribed income-tax authority, as the case may be; or

(b) has not furnished his return of income in response to a notice issued under sub-section (1) of section 142 by the Assessing Officer; or

(c) has not furnished his return of income under sub-section (1) of section 148 and a notice under subsection (1) of section 142 has been issued by the Assessing Officer;

The National e-assessment Centre shall intimate the assessee that assessment in his case shall be completed under this Scheme.”

Further all the communications/interfaces will take place between the NeAC and the assessee and from the assessment point of view the NeAC shall be the assessing authority.

However, since it has been mentioned that reassessment proceedings u/s 147/148 will be continued under the new Faceless Assessment Scheme, 2019, once a notice u/s 148 has been issued by the jurisdictional assessing officer.

So, it implies that the formation of reasonable belief concerning the escapement of income will be that of the jurisdictional assessing officer, who has issued the notice u/s 148, and not that of NeAC. CBDT may consider reconsidering this position and the right to issue Notice u/s 148(1) should also be vested with NeAC only, as all the subsequent adjudication and conduct of re-assessment proceedings including disposal of the legal objections of the assessee against initiation of re-assessment proceedings, shall be conducted by NeAC only and not by the jurisdictional AO.

Further, there are several provisions in the Income Tax Act, where Law mandates Formation of Independent Reasonable Belief and Recording of Independent Satisfaction by the Jurisdictional Assessing Officer.

So, it will be interesting to know that whether the NeAC can effectively and lawfully serve as an effective substitute for the jurisdictional AOs so as to fulfil the binding legal conditions of recording of independent satisfaction by the jurisdictional AO as envisaged in several legal provisions of the Income-tax Act.

One such instance is Recording of satisfaction by the AO under section 14A read with Rule 8D: As pronounced in numerous judgments, it has become a well settled and well-established Rule of Law that for making any lawful disallowance under section 14A, the jurisdictional AO has to record his satisfaction in the assessment order, regarding his disagreement with the assessee’s claim of non-incurring of any expenditure in earning any exempt income. Therefore, in the new Faceless Assessment Scheme, 2019, it would be interesting to know as whether the satisfaction recorded by the NeAC under section 14A or other similar provisions, will muster the test of binding legal precedents.

g. Clarification on Circumstances, wherein the Scrutiny Cases may be transferred by NeAC to the Jurisdictional AOs, after obtaining prior approval of CBDT

In the new Faceless Assessment Scheme, 2019, the Principal Chief Commissioner or Principal Director General, NeAC, is authorised to transfer certain assessment cases to the jurisdictional assessing officers, only after getting the prior approval of the Board (CBDT). The situations and circumstances in which NeAC may transfer the assessment cases to the jurisdictional assessing officers, with the prior approval of CBDT, are yet to be notified by CBDT. So, a suitable clarification from CBDT in this regard, is desirable.

Concluding Remarks:

The concerned Legislative Authorities should immediately address the above stated grey areas and litigative issues concerning this path-breaking and revolutionary initiative of faceless assessments so as to ensure their timely redressal and avoidance of opening up of the unnecessary pandora box of litigations.

“Less regulation plus less taxation plus less litigation always equals more innovation and job creation.” --Marsha Blackburn

Useful Reference

For More Details and Complete Understanding of the nitty-gritties and nuances of the New “Faceless Assessments Scheme, 2019”, the recently published Book titled “Faceless Assessment Ready Reckoner with Real Time Case Studies ”, authored by the author of this article Sh. Mayank Mohanka, FCA, and published by Taxmann Publications, may be referred, which is a ready reckoner and a referencer and user manual to help and assist the assessees and the assessing authorities in their ‘faceless assessment pursuits’. An honest and sincere effort has been made in this Book to explain and demonstrate the practical aspects and nitty-gritties of ‘faceless assessments’ in a ‘step-by-step-manner’ through ‘real-time practical case studies’ encompassing crucial and significant scrutiny issues having immense relevance and practical utility for all the assesses and the assessing authorities. The manner and practical aspects of ‘e-filing of Rectification Application’ u/s 154 of the Act and ‘e-filing of Responses against the outstanding Income Tax demand have also been explained and demonstrated in a ‘step-by-step’ manner.

This Book characterizes a ‘natural blend of law and practice’ concerning the New “Faceless Assessments Scheme, 2019”, and also includes the Country-specific Best International Practices in Tax Administration and the measures taken up by the Indian Tax Administration Authorities to ramp up the effectiveness and efficiency of the governance levels and to transform into a ‘digitally mature’ tax administration.