What does India's Faceless Penalty Scheme 2021 mean for tax payers

Assessees in India often have to face harassment from the tax officials and henceforth for the benefit of such assessees, the GOI in September 2020 introduced the faceless Income tax assessment. The article explains the working of the faceless scheme along with its potential benefits. The article also provides a comparison between the faceless and conventional scheme to better gauge the impact of the new scheme.

Thu Jul 07 2022 | Govt. Agencies and Taxation | Comments (0)

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Assessees in India often have to face harassment from the tax officials and hence,  for the benefit of such assessees, the GOI, in September 2020, introduced the faceless Income tax assessment. Previously, the assessee had to go see the office of the I-T department if there was an error in the return and the same was the case if there is a dispute with a rule. The system will help for faceless tax assessments.

What are Faceless Income Tax Assessments and the latest update on it?

The procedure for the imposition of the penalty (for the underreporting of or misreporting of revenue u/s 270A) provided for in Section 274 of the Income Tax Act in accordance with Chapter XXI of the Act. In response to a notice issued by the Assessing Officer (AO), the assessee or his authorized representative was still required to visit the Assessing Officer's office. With the advent of the Faceless Assessment Scheme in 2019, and in order to ensure that the reforms initiated by the Department to remove the human interface from the system reach the next level, it was important to launch the Faceless Penalty Scheme in the context of the Faceless Assessment Scheme in 2019.

The Finance Act 2020 has introduced an allowable provision in the form of a new subsection (2A) in section 274 to provide that, in order to provide greater performance, transparency and accountability,   the Central Government can notify an e-Scheme for the purposes of penalty imposition.

  • remove, to the technical extent practicable, the interface between the appraising officer and the appraiser during the procedure;
  • optimized use of capital by scale economies and functional expertise;
  • Implementation of a penalty system with dynamic jurisdiction in which one or more income tax authorities shall levy penalties.

How Does the Faceless IT Assessment Work in India?

A central machine gathers tax returns for review based on risk criteria and mismatch under faceless scrutiny evaluation, and then assigns them to a team of officers randomly. This allocation is checked by officers at another randomly chosen location and a note is submitted by the centralized computer system only if it is accepted. It is possible to respond electronically to all such notices without the necessity of visiting a tax office or meeting any official. The only regulatory body for the faceless IT evaluation framework is the National E-Assessment Centre, Delhi. The Authority's regional centers will be located in Mumbai, Kolkata, Hyderabad, Chennai, Pune, Ahmedabad and Bengaluru.

Advantages of Faceless Assessment Scheme

  • As per the GOI officials, honest taxpayers will be relieved by the latest appraisal system. The tax department and officials will take bribery in the current assessment scheme, but in the faceless assessment, it would be easier for honest taxpayers to send their tax returns directly without even knowing to whom they are submitting, thus eradicating the chances of bribery.
  • The faceless appeal would not only offer tremendous convenience for taxpayers, but also guarantee fair appeal orders and minimize any further litigation. The new framework would also lead to greater efficiency, openness and accountability in the operation of the Department of Income Taxation.

Due Process of the new Faceless Tax Assessment:

  • National e-Assessment Centre ( NEAC ) will issue the notice.
  • Receiving Assessee will then be required to reply within 15 days of the notice.
  • The centre will appoint an official for the case in Assessment Unit i. e. Regional Electronic Assessment Center(REAC)
  • NEAC would then connect with Assesse through its verification unit and technical unit.
  • All details will then be submitted to NEAC by these units.
  • All this information will be gathered by NEAC and submitted to REAC.
  • REAC will prepare a draft evaluation order after reviewing all the material.
  • The draft evaluation order will now be submitted to NEAC.
  • Depending in each case, the assessee will be given a chance to defend his case and the fine will be paid.

Benefits of Faceless Income Tax Assessment for Taxpayers

  • Previously, the taxpayers had to visit the department's office for scrutiny, which resulted in an increase in corruption cases. This is where faceless assessment comes in. It is an online mode in which no official must face the assessee and register his grievance.
  • Anytime you like, you can contact the department at your home. On his registered email ID, the assessee will receive the answer to his question. Both answers will be available online and it will eliminate the need to contact an official.
  • The GOI uses state-of-the-art emerging technologies for the evaluation of a risk management system. The Income Tax Department will ensure that there is no human involvement or less intrusion from the Automated Inspection Method, Artificial Intelligence, and Machine Learning. Faceless tax assessments would provide the system with greater accountability and efficiency.

Conventional Penalty Proceedings versus the new Faceless Penalty Proceedings under Faceless Penalty Scheme, 2021

Comparison of Faceless Penalty Proceeding to the Conventional Penalty Proceeding

 

S. No.ParticularsConventional Penalty ProceedingsFaceless Penalty Proceedings under Faceless Penalty Scheme, 2021
1.ApplicabilityAll Penalty Proceedings disposed of up till 11.1.2021All pending and new Penalty Proceedings w.e.f. 12.1.2021.
2.Penalty Adjudicating AuthorityJurisdictional AODynamic authority under the overall monitoring and oversight of the National Faceless Penalty Centre in every Penalty Unit in the Regional Faceless Penalty Centre (RFPC) (NFPC).
3.Penalty Notice Issuing AuthorityJurisdictional AONational Faceless Penalty Centre (NFPC)
4.Assignment of Penalty ProceedingsThere was no assignment of penalty proceedings and, in accordance with the assessment order, the Jurisdictional AO had a by-default and intrinsic right to initiate and adjudicate penalty proceedings.By an automated random allocation scheme, the NFPC assigns the Penalty Proceedings to any Penalty Unit located in any one Regional Faceless Penalty Centre.
5.Inquiries/Adjudication during the course of penalty proceedingsFor lack of more information/documents/records from the assessee, Jurisdictional AO used to issue Notices under section 274 read with 270A.Reasonable notice or request u/s 274 read with 270A may be given by the NFPC to the assessee or NFAC/AO to obtain any further details, documents or facts, as requested by the Penalty Unit in the Regional Faceless Penalty Centre to which the NFPC has assigned the penalty proceedings.
6.Provision of Draft Penalty OrderThere was no specific provision of passing a Draft Penalty Order.The draft Penalty Order is to be adopted at the Regional Faceless Penalty Centre by the Penalty Unit to which the NFPC has allocated the penalty proceedings. NFPC will review this Draft Penalty Order on the basis of risk management criteria, and NFPC can submit this Draft Penalty Order to the Penalty Review Unit for review.

 

What is the Hierarchy of the new National Faceless Penalty Proceedings?

In order to execute penalty proceedings in a faceless way, the CBDT establishes:

  • The National Faceless Penalty Centre, to promote, in a centralized manner, the conduct of faceless penalty proceedings and to vest it with the power to enforce penalties in compliance with the provisions of this Scheme;
  • Regional Faceless Penalty Centres, as may be deemed appropriate, for the purpose of facilitating the conduct of face-to-face penalty proceedings with the competence to enforce penalties in compliance with the provisions of this Scheme;
  • Penalty Units, as may be deemed appropriate, to facilitate the conduct of faceless penalty proceedings, to carry out the purpose of drawing up penalty orders, including identifying points or issues for the imposition of penalties under the Act, claiming information or clarification on points or issues so identified, and giving the assessee with an opportunity to be heard and examination
  • In order to facilitate the conduct of faceless penalty proceedings, penalty review units may consider it appropriate to perform the functions of reviewing the draft penalty order, which involves checking whether the relevant material evidence has been registered, whether the relevant points of fact and law have been properly incorporated in the draft order, whether the issues on which the penalty is to be impaired, Checking, and determining their respective authority, the arithmetical accuracy of the measurement of the penalty, if any, and any other functions as may be necessary for the purposes of analysis.

A taxpayer may face difficulties such as taxpayers who are not tech-savvy may be hesitant to reply online or they will have to appoint a specialist to assist with online responses, although the faceless assessment software has been launched in order to make it easier for taxpayers and tax authorities. In addition, because there is no face-to-face contact, the online submission must be well drawn up and detailed for the tax officer to better grasp the submissions and statements of taxpayers.

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