First Season of Faceless Assessments: A Mixed Basket of Sweet & Sour Offerings!!
This Article authored by our Founder Director Sh. Mayank Mohanka, FCA, has been published in taxmann.com with the citation (2021) 127 taxmann.com 40 (Article). Since knowledge multiplies manifold by sharing, therefore, this Article is shared here for the benefit of our Readers.
The Hon’ble Delhi High Court in a Writ Petition W.P.(C)4774/2021, filed to it in the case of ‘M/s KL Trading Corporation vs. National e-Assessment Centre’, by its Order dated 16.4.2021, has stayed the operation of the assessment order dated 31.3.2021, passed u/s 143(3A), for the AY 2018-19 by the National e-Assessment Centre, in the case of the petitioner M/s KL Trading Corporation.
The petitioner has contended that the impugned assessment order has been passed in breach of the principles of natural justice as engrafted in the Faceless Assessment (1st Amendment) Scheme, 2021 [2021 Scheme].
The petitioner has contended that since there was a variation made to the declared income of the petitioner qua the assessment year 2018-2019, (assessed income at Rs. 3,50,79,205 as against the returned income of Rs. 2,00,76,180), a show-cause notice should have been issued, in terms of subclauses (b) and (c) of clause 2(xvi) of the ‘2021 Scheme’, before finalizing the variation, and passing of the final assessment order by the National e-Assessment Centre.
Taking cognizance of these contentions of the petitioner, the Hon’ble Delhi High Court has held as under:
“4. Given the foregoing, we are of the view, that at least, at this stage, the petitioner has been able to set up a prima-facie case for issuance of notice and grant of an interim order.
5. Accordingly, issue notice to the respondents. [the National e-Assessment Centre].
5.3. In the meanwhile, the operation of the assessment order dated 31.3.2021(Annexure P-1) shall remain stayed till the next date of hearing.
6. List the matter on 21.5.2021.” [emphasis supplied].
For ready reference of our Readers, the above judgement of the Hon’ble Delhi High Court in W.P.(C)4774/2021, in the case of ‘M/s KL Trading Corporation vs. National e-Assessment Centre’, dated 16.4.2021, is enclosed as per the PDF file below.
The time barring completion period of regular assessments for AY 2018-19 has been extended till 30.6.2021, so the regular assessments for the AY 2018-19 and onwards are now covered by the provisions contained in newly inserted section 144B of the Income Tax Act, which mandates the conducting of the regular assessments in a faceless manner.
‘The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020’, as passed by the Parliament on 22.9.2020, has inserted a new section 144B, w.e.f. April 1, 2021, in the Income Tax Act, 1961.
The newly inserted section 144B starts with a non obstante clause and stipulates that notwithstanding anything to the contrary contained in any other provision of the Income Tax Act, w.e.f. 1.4.2021, the assessment u/s 143(3) (i.e. regular assessment) or u/s 144 (i.e. best judgement assessment), shall be made in a faceless manner.
In pursuance of sub-section (2) of Section 144B of the Income-tax Act, 1961, the Central Board of Direct Taxes has specified that all the assessment proceedings pending as on 31-3-2021 and the assessment proceedings initiated on or after 1-4-2021 (other than those in the Central Charges and International Taxation charges) which fall under the following class of cases shall be completed under section 144B of the Act in a faceless manner:
where the notice under section 143(2) of the Act was/is issued by the (erstwhile)NeAC or by the National Faceless Assessment Centre (NaFAC);
where the assessee has furnished her/his return of income under section 139 or in response to a notice issued under section 142(1) or section 148(1); and a notice under section 143(2) of the Act, has been issued by the Assessing Officer or the Prescribed Income-tax Authority, as the case may be;
where the assessee has not furnished her/his return of income in response to a notice issued under section 142(1) of the Act by the Assessing Officer;
where the assessee has not furnished her/his return of income under section 148(1) of the Act and a notice under section 142(1) of the Act has been issued by the Assessing Officer.
This order shall come into force with effect from the 1st day of April, 2021.
Audi Alteram Partem: Hear the Other Side: Experience of the First Season of the Full-Fledged Faceless Assessments for the AY 2018-19
With the time barring completion period for regular assessments for AY 2018-19, fast approaching, and most of such regular assessments conducted in a faceless manner, being concluded now, the overall experience of the assessees during this first season of faceless assessments, has been good and smooth, as the faceless income-tax authorities i.e. faceless assessment units in the regional faceless assessments centres and the national faceless assessment centre, have accepted the submissions of the assessees, if found meritorious, and have accepted the returned incomes of the assessees.
However, in the cases, where the application of this maxim ‘audi alteram partem’ was actually needed, that is, in the cases, where the variations have been proposed by the faceless assessing authorities in the returned income in the form of proposed additions or disallowances, it has been seen that the assessees have not received the show cause notices or even the draft assessment orders in cases of proposed additions/disallowances to the returned income, as contemplated by the faceless assessment scheme, and now in section 144B of the Income Tax Act w.e.f. 1.4.2021, but have directly received the final assessment orders with such additions/disallowances. The above case of the petitioner is one such case.
Further, in many cases where the draft assessment orders have been passed, very less or inadequate time has been provided to the assessee to respond to or to object to such proposed additions or disallowances in the draft assessment order. There have been cases where such notices were received on a Friday evening, asking for a response by Monday.
In almost all the cases, the draft assessment orders more or less, have turned out to be the final assessment orders, as the objections/ submissions filed by the assessees in response to such draft assessment orders, have been altogether ignored and disregarded by the faceless income tax authorities, which suggests that even the mandated procedure of sending such draft assessment orders to another review unit followed by another assessment unit in the regional assessment centre, has not been adhered to, and thereby making the exercise of issue of such draft assessment orders merely an empty ritual or formality.
It appears that due to paucity of time for completion of assessment during this first season of faceless assessments for AY 2018-19, even though such time period has been first extended from 31.12.2020 to 31.3.2021 and further to 30.4.2021, the prescribed procedure of conducting of the faceless assessments requiring the issue of show cause notices along with the draft assessment orders proposing any additions/disallowances, to the assessees, and sending of the assessees corresponding replies to such SCN and draft assessment orders, in cases where these have been issued, to the review unit and further to any other assessment unit in the regional faceless assessment centre, other than the original assessment unit which has prepared such draft assessment order, has not been adhered to, in toto.
Further, another safeguard for providing suitable opportunity of being heard to the assessees, in the faceless assessments, i.e. the facility of providing video conferencing facility to the assessees to make their representations before the income-tax authorities, in this first season of faceless assessments, has been provided very rarely to only a handful of assessees, and even in cases where the request for video conferencing of the assessees has been approved by the income-tax authorities, the final assessment orders have been passed even before the allotted scheduled date of video conferring hearing, thereby again making such grant of opportunity of suitable hearing to the assessee merely an empty formality.
It appears that the intention of the Law Makers has been good, but at the ground level implementation by the faceless assessment units in the regional assessment centres, in some cases as above, due to the paucity of time with the faceless income-tax authorities, or may be even due to lack of awareness or training concerning the mandated procedure of the conduct of such faceless assessments, the final assessment orders have been passed without adhering to the mandated procedures for the conduct of these faceless assessments and thereby without granting the suitable opportunity of being heard to the assessees.
Suggestions for Improvement
No doubt, the overall experience of the conduct of the faceless assessments in its full-fledged avatar, during its first season for AY 2018-19 has been good and smooth, but nonetheless, in order to make this experience more pleasant and flawless, it is desirable that firstly atleast the already stipulated or mandated procedures for the conduct of these faceless assessments should be strictly adhered to, by the concerned income-tax authorities both in the National Faceless Assessment Centre and the Regional Faceless Assessment Centres.
Secondly, in the procedure of Faceless Assessments enshrined in section 144B of the Income Tax Act (inserted w.e.f. 1.4.2021), the Show Cause Notice (SCN) is being issued to the appellant only after passing of the Draft Assessment Order by the Assessment Unit in the Regional Faceless Assessment Centre (RFAC). Further 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, RFAC, 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 and in order to do away with the ambiguity, a suitable clarification by the CBDT concerning the specified circumstances wherein the request of personal hearing of the assessee may be approved by the CCIT RFAC is desirable.
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.
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 ’, 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 appellant 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 appellant, only in certain specified circumstances, and may restore the earlier provision of grant of such opportunity of personal hearing via video telephony to the appellant, in all cases, wherein the appellant asks for it in writing.
Thirdly, in the current framework, the opportunity of personal hearing is granted to the assessee only after passing of the draft assessment order by the assessment unit in the RFAC 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.
Experience of the First Season of Faceless Appeals
Well Yes Friends, it’s more than 6 months since the PAN India rolling out of the Faceless Appeal Scheme, 2020 implemented w.e.f. 25.9.2020, but till date not even one single Faceless Appeal Order has churned out of the new regime of faceless appeal.
The primary reason for this delay in disposing of the appeals by the CIT(Appeals) even in the Faceless Appeal Regime is perceived to be the Vivad se Vishwas (VsV) Settlement Window. It is being said that the appeals of assessees are not being disposed of till the time this VsV Settlement window remains open, so as to mobilise as much revenue as possible out of this VsV settlement window.
It is being said that the Appeals before the CIT(Appeals) are just being lingered on since last year from March 2020, when 31.3.2020 was the last date for this VsV window. The dates in VsV window have been extended time and again during the corona pandemic.
It is pertinent to mention here that the CBDT vide its Notification No. 9/2021 dated February 26, 2021 has further extended the Due Dates under the Direct Tax Vivad se Vishwas Act, 2020 as under:
(i) The Last Date for Filing Electronic Declaration Form 1 for Opting under the VsV Scheme has been further extended from 28.2.2021 to 31.3.2021.
(ii) The Last Date for Making Payment of 100% of the Disputed Tax in non search cases and 125% in search cases (i.e. without additional payment) has been further extended from 31.3.2021 to 30.4.2021. This due date has now been further extended till 30.6.2021 vide CBDT's Press Release dated 24.4.2021.
Clearly, the mandated faceless assessments’ procedure and process needs to be implemented in a very careful and thoughtful manner, considering the reality of complicated and ever dynamic business transactions.
All the stakeholders involved i.e. the taxpayers, the tax professionals, the assessing authorities, the regulatory body CBDT, the Finance Ministry and the Government should embrace this radical, revolutionary and path-breaking reform of ‘faceless assessments’ in good and positive spirits and should work collectively and cohesively to make this initiative a grand success.
It is only then perhaps that the process of ‘Faceless Assessment’ will really live up to its true potential, and taxpayers as well as the tax administration authorities will reap the benefits that it is supposed to provide.