INTRODUCTION
The Government of
India has, over the last few years, taken various steps to reduce human
interface between the tax administration and the taxpayers and to bring in
consistency and transparency in various tax administrative matters through the
use of Information Technology. This has been very pronounced in the matter of
scrutinies being conducted by tax officers under the Income-tax Act, 1961 (the
Act). This article traces the history of E-assessments and takes a peep into
what the coming days will bring.
RECENT
HISTORY
When we look at the
recent past, one of the initial impacts of technology in the income tax
scrutiny assessment procedures was the implementation of the Computer-Assisted
Scrutiny Selection (CASS) scheme for selection of cases. The process of
selection of cases based on scrutiny on random basis was gradually dispensed
with and was replaced by a system-based centralised approach. Under CASS, the
selection of income tax returns for the purpose of scrutiny was based on a
detailed analysis of risk parameters and 360-degree data profiling of the
taxpayers.
The CASS
substantially reduced the manual intervention in the selection process of cases
for assessment proceedings. Nonetheless, some cases were manually picked up by
the taxmen on the basis of pre-determined revenue potential-based parameters.
The CASS provided
greater transparency in the selection procedures as the guidelines of selection
were placed in the public domain for wider information of taxpayers. The entire
process was made quite transparent and scientific.
In order to address
the concerns of taxpayers with respect to undue harassment and to ensure proper
tax administration, the Board, by virtue of its powers u/s 119 of the Act and
in supersession of earlier instructions / guidelines that in cases selected for
scrutiny during the Financial Year 2014-15 under CASS, on the basis of either
AIR data or CIB information or for non-reconciliation with Form 26AS data,
ensured that the scope of inquiry should be limited to verification of those
particular aspects only. The Assessing Officers (AOs) were instructed to
confine their questionnaire and subsequent inquiry or verification only to the
specific point(s) on the basis of which the particular return was selected for
scrutiny.
Apart from this,
the reason(s) for selection of cases under CASS were displayed to the AOs in
the Assessment Information System (AST) application and notices for selection
of cases of scrutiny u/s 143(2) of the Act, after generation from AST, were
issued to the taxpayers with the remark ‘Selected under Computer-Aided Scrutiny
Selection (CASS)’.
PILOT
PROJECT
In order to further
improve the assessment procedures and usher in a paperless environment, the
Department rolled out the E-assessment procedures via a pilot project wherein
the AOs conducted their inquiry by sending queries and receiving responses
thereto through e-mails.
The cases covered under the pilot project were initially those which had
been selected for scrutiny on the basis of AIR (Annual Information Return) /
CIB (Central Information Branch) information or non-reconciliation of tax with
Form 26AS data. However, the Department ensured that the consent of the
taxpayers was sought for their scrutiny assessment proceedings to be carried
out under the newly-introduced E-assessment proceedings and only willing
taxpayers were considered under the pilot run.
New Rule 127 was
inserted by the Income Tax (Eighteenth Amendment) Rules, 2015 w.e.f. 2nd
December, 2015 which gave the framework for issue of notices and other
communication with the assessee. It prescribes the rule for addresses
(including address of electronic mail or electronic mail message) to which
notices or any other communication may be delivered.
Between the years
2016 and 2018, the CBDT progressively amended rules, notified various
procedures and issued the required guidelines to increase the scope of
E-proceedings on the basis of the pilot study. Notification No. 2/2016 dated 3rd
February, 2016 and Notification No. 4/2017 dated 3rd April, 2017
were very important and provided the procedures, formats and standards for
ensuring secured transmission of electronic communications.
The Finance Act,
2016 introduced section 2(23C) in the Act to provide that the term ‘hearing’
includes communication of data and documents through electronic mode.
Accordingly, to facilitate the conduct of assessment proceedings
electronically, CBDT issued a revised format of notice(s) u/s 143(2) of the
Act.
The scope of
E-assessment proceedings was extended vide Instruction No. 8/2017 dated 29th
September, 2017 to cover all the cases which were getting barred by limitation
during the financial year 2017-18 with the option to the assessees to
voluntarily opt out from ‘E-proceedings’.
The CBDT later
issued Instruction No. 1/2018 dated 12th February, 2018 through
which the proceedings scheme was stretched to cover all the pending scrutiny
assessment cases. However, exceptions were carved out for certain types of
proceedings such as search and seizure cases, re-assessments, etc., where the
assessments were done through the personal hearing process. Further, there
remained an option to object to the conduct of E-assessment.
Thereafter,
Instruction No. 03/2018 dated 20th August, 2018 issued by the Board
carved out the way for all cases where assessment was required to be framed u/s
143(3) during the year 2018-19. It provided that assessment proceedings in all
such cases should mandatorily be through E-assessment
NEW
E-ASSESSMENT SCHEME
In September, 2019
the CBDT notified the ‘E-Assessment Scheme, 2019’ (scheme) laying down the
framework to carry out the ‘E-assessments’. As anticipated, the scheme was
churned out with the intention to bring about a 360-degree change in the way
tax assessments will be carried out in future.
The scheme is in line with the recommendations of the Tax Administration
Reforms Commission (TARC) which was formed with the intention to review the
application of Tax Policies and Tax Laws in the context of global best
practices and to recommend measures for reforms required in tax administration
in order to enhance its effectiveness and efficiency. An extract of the TARC
report is as under:
‘Currently, the
general perception among taxpayers is that the tax administration is focused on
only one dimension – that of revenue generation. This perception gains strength
from the manner in which goals are set at each functional unit of both the
direct and indirect tax departments. These goals, in turn, drive the
performance of individual tax officials. Therefore, the whole system of goal
setting, performance assessment, incentivisation and promotion appears to be
focused on only this dimension. This single-minded revenue focus can never meet
the criteria of the mission and values mentioned above. What is required is a
robust framework that is holistic in its approach to issues of performance
management.’
As the phrase
‘faceless’ suggests, under this scheme a taxpayer will not be made aware of the
AO who would be carrying out the assessment in his case. It could be an officer
located in any part of the country.
The prime objective
of the Government in introducing the E-Assessment Scheme, 2019 has admittedly
been to eliminate the interface between the taxpayers and the tax department
and to impart greater transparency and accountability. The scheme would also
help in optimising the utilisation of resources of the tax department, be it
human or technical, through economies of scale and functional specialisation.
The scheme envisages a team-based assessment with dynamic jurisdiction. It is
also intended to ensure the tax assessments are technically sound and that
consistent tax positions are taken on various issues to avoid prolonged and
unnecessary litigations for both the taxpayer as well as the tax officers.
The then Hon’ble
Finance Minister, the late Mr. Arun Jaitley, said in his Union Budget speech
for the financial year 2018-19:
‘E-assessment
We had
introduced E-assessment in 2016 on a pilot basis and in 2017 extended it to 102
cities with the objective of reducing the interface between the department and
the taxpayers. With the experience gained so far, we are now ready to roll out
the E-assessment across the country which will transform the age-old assessment
procedure of the income tax department and the manner in which they interact
with taxpayers and other stakeholders. Accordingly, I propose to amend the
Income-tax Act to notify a new scheme for assessment where the assessment will
be done in electronic mode which will almost eliminate person to person contact
leading to greater efficiency and transparency.’
In the above
background, two new sub-sections, (3A) and (3B), were introduced in section 143
of the Act enabling the Central Government to come out with a scheme for the
faceless electronic assessments which was finally notified as ‘E-Assessment Scheme, 2019’ vide Notification No. 61/2019
and 62/2019, dated 12th September, 2019 to conduct
E-assessments with effect from 12th September, 2019.
The scheme has laid out a functional structure of the E-assessment
centres at the national and the regional levels. The framework also provides
for specialised units in the Regional E-assessment Centre for carrying out
specific functions related to various aspects of an assessment. The proposed
structure is depicted as under:
The functions of
these centres and units set up under the scheme are discussed below:
NATIONAL E-ASSESSMENT CENTRE (NeAC)
NeAC will be an
independent office and a nodal point which would oversee the work of the
E-assessment scheme across the country. All the communications between the
income tax department and the taxpayers would be made through the NeAC, which
will enable the conduct of tax assessment in a centralised manner.
On 7th
October, 2019 the Revenue Secretary, Mr. Ajay Bhushan Pandey, inaugurated the
NeAC in Delhi. He stated that the setting up of the NeAC of the Income Tax
Department is a momentous step towards the larger objectives of better taxpayer
service, reduction of taxpayer grievances in line with the Prime Minister’s
vision of ‘Digital India’ and promotion of the Ease of Doing Business.
The NeAC in Delhi
will be headed by the Principal Chief Commissioner of Income Tax (Pr.CCIT) and
would coordinate between the different units in the tax department for
gathering information, coordination of assessment, seeking technical inputs on
tax positions, verification and review of the information submitted by
taxpayers, review of draft orders framed by the assessment units, etc.
REGIONAL
E-ASSESSMENT CENTRE
The Regional
E-assessment centre would comprise of (a) Assessment unit, (b) Review unit, (c)
Technical unit, and (d) Verification unit. Eight Regional E-assessment Centres
(ReAC) have already been set up in Delhi, Mumbai, Chennai, Kolkata, Ahmedabad,
Pune, Bengaluru and Hyderabad. Each of these ReACs will be headed by a Chief
Commissioner of Income Tax (CCIT).
(a) Assessment
units
Assessment units
under the E-Assessment Scheme will perform the function of making assessments,
which will include identification of points or issues material for the
determination of any liability (including refund) under the Act, seeking
information or clarification on points or issues so identified, analysis of the
material furnished by the assessee or any other person, and such other
functions as may be required for the purposes of making assessment. In simple
terms, the Assessment units will largely perform the functions of an AO.
(b) Verification
units
Verification units,
as the name suggests, will carry out the function of verification, which
includes inquiry, cross-verification, examination of books of accounts,
examination of witnesses and recording of statements, and such other functions
as may be required for the purposes of verification. This may also include site
visits for examining and verifying facts for carrying out assessments.
(c) Technical
units
Technical units
will play the role of experts by providing technical assistance which includes
any assistance or advice on legal, accounting, forensic, information
technology, valuation, transfer pricing, data analytics, management or any
other technical matter which may be required in a particular case or a class of
cases under this scheme. This apparently will include the functions of a
Transfer Pricing Officer in a transfer pricing assessment.
(d) Review units
The Review units
would perform the function of review of the draft assessment order, which
includes checking whether the relevant and material evidence has been brought
on record, whether the relevant points of fact and law have been duly
incorporated in the draft order, whether the issues on which addition or
disallowance that should be made have been discussed in the draft order,
whether the applicable judicial decisions have been considered and dealt with
in the draft order, checking for arithmetical correctness of modifications
proposed, if any, and such other functions as may be required for the purposes
of review.
As notified in
Notification No. 61/2019, the Assessment units, Verification units, Technical
units and Review units will have the authorities of the rank of Additional /
Joint Commissioner, or Additional / Joint Director, or Assistant / Deputy
Director, or Assistant / Deputy Commissioner, amongst other staff /
consultants.
The CBDT vide
Notification No. 77/2019 has already notified 609 tax officers to play the role
of Assessment, Technical, Verification and Review Units. As per the said
notification, these officers will concurrently exercise the powers and
functions of the AO to facilitate the conduct of E-assessment proceedings in
respect of returns furnished u/s 139 or in response to notice under sub-section
(1) of section 142 of the said Act during any financial year commencing on or
after the 1st day of April, 2018.
The E-Assessment
Scheme also provides for levy of penalty for non-compliance of any notice,
direction and order issued under the said scheme on any person including the
assessee. Such penalty order after providing adequate opportunity of being
heard to the assessee, will be passed by the NeAC.
After the
completion of assessment proceedings, the NeAC would transfer all the
electronic records of the case to the AO having jurisdiction over such case to
perform all the other functions and proceedings such as imposition of penalty,
collection and recovery of demand, rectification of mistake, giving effect to
appellate orders, submission of remand report, etc. which are otherwise
performed by an AO.
The notification
has also carved out an exception for cases wherein the NeAC may, at any stage
of the assessment, if considered necessary, transfer the case to the AO having
jurisdiction over such case.
DIGITAL
SERVICE OF NOTICE / RECORDS
All notices or records
or any other communication will be delivered to the assessee by electronic
means, viz. by placing it on the E-proceeding tab available on the income-tax
E-filing portal account of the assessee, or by sending it to the e-mail address
of the assessee or his authorised representative, or by uploading on the
assessee’s mobile application.
Notice or any
communication made to any person other than the assessee would be sent to his
registered e-mail address. It also provides that any delivery would also have
to be followed by a real-time alert to the addressee.
The date and time
of service of notice will be determined in accordance with the provisions of
section 13 of the Information Technology Act, 2000. As per the said section,
the time of receipt of an electronic record shall be, if the addressee has
designated a computer resource for the purpose of receiving electronic records,
the time when the electronic record enters the designated computer resource,
otherwise, the time when the electronic record is retrieved by the addressee.
E-RESPONSE
TO NeAC
Under this scheme, the assessee, in response to notice or any other
communication received from the NeAC, shall file his response only through the
E-proceedings tab on his income-tax e-filing portal account. Any other person
can respond to the NeAC using his registered e-mail address.
PERSONAL HEARINGS
Generally, no personal hearings will be required between the assessee /
authorised representative and the income tax department in the course of the
E-assessment proceedings under this scheme. However, in the following cases,
the assessee by himself or through his authorised representative will be
entitled for hearings which will be conducted exclusively through video
conferencing:
(i) Where a modification is proposed in the draft
assessment order, the assessee or his authorised representative in response to
show-cause notice may request a hearing;
(ii) In the case of examination or recording of the
statement of the assessee or any other person (other than statement recorded in
the course of survey u/s 133A of the Act).
APPELLATE
PROCEEDINGS
The E-Assessment
Scheme has clarified regarding the filing of appeals u/s 246A of the Act
against the E-assessment orders passed by NeAC, which shall be filed with the
Commissioner (Appeals) having jurisdiction over the jurisdictional AO in such
case.
ISSUES
IN E-ASSESSMENT SCHEME
The E-Assessment
Scheme, 2019 is not a separate code by itself. It is a part of the existing
statute and therefore the scheme must gel well with the existing statute. Any
conflict there would create legal friction and attract litigation on the
validity of the very assessment.
Provision of the
newly-inserted sub-sections (3A), (3B) and (3C) to section 143 of the Act:
‘(3A) The
Central Government may make a scheme, by notification in the Official Gazette,
for the purposes of making assessment of total income or loss of the assessee
under sub-section (3) so as to impart greater efficiency, transparency and
accountability by
(a) eliminating
the interface between the Assessing Officer and the assessee in the course of
proceedings to the extent technologically feasible;
(b) optimising
utilisation of the resources through economies of scale and functional
specialisation;
(c) introducing
a team-based assessment with dynamic jurisdiction.
(3B) The Central
Government may, for the purpose of giving effect to the scheme made under
sub-section (3A), by notification in the Official Gazette, direct that any of
the provisions of this Act relating to assessment of total income or loss shall
not apply or shall apply with such exceptions, modifications and adaptations as
may be specified in the notification:
Provided that no
direction shall be issued after the 31st day of March, 2020.
(3C) Every
notification issued under sub-section (3A) and sub-section (3B) shall, as soon
as may be after the notification is issued, be laid before each House of
Parliament.’
The entire
E-Assessment Scheme, 2019 is born out of the provision of sub-section (3A) of
section 143 of the Act which empowers the Government to make a scheme for the
purposes of making assessments under sub-section (3) of section 143(3) of the
Act. Thus, although the assessments u/s 144, section 147 and section 153A etc.
are carried out conjointly u/s 143(3) of the Act, it appears from the scheme
that such assessment originating from the said sections would currently be
outside the ambit of the said scheme.
The E-Assessment
Scheme is based on the concept of dynamic jurisdiction. The Notifications No.
72 and 77 of 2019 have specified various income tax authorities in the NeAC (9)
and ReAC (609) which have been empowered with the concurrent powers and
functions of an AO in respect of returns furnished u/s 139 and section 142(1)
of the Act during the financial year commencing on or after 1st
April, 2018.
At this point, it is relevant to refer to the provisions of section 120
of the Act which deals with the jurisdiction of income tax authorities.
Sub-section (5) of the said section deals with concurrent jurisdiction. It
empowers the Board to allow concurrent jurisdiction in respect of any area or
persons or class of persons or incomes or classes of income or cases or classes
of cases, if considered necessary or appropriate. Under the scheme, the Board
has already allowed concurrent jurisdiction to over 600 income tax authorities.
Whether this is in line with the provision of section 120(5) of the Act is the
question that perhaps will be answered by the Courts in course of time.
The scheme in its holistic structure, despite having multiple units,
viz. Verification unit, Review unit, NeAC, Technical unit, still leaves the
entire discretion to complete the assessment to the Assessment unit. The
suggestions of the other units like the Technical unit which also appears to be
performing the functions of a Transfer Pricing Officer will not be binding on
the Assessment unit. This deviates from the existing provision of section 92CA
of the Act.
Under sub-section
(3B) of the Act, the Government has also been authorised to come out with such
notifications till 31st March, 2020 which may be necessary to give
effect to the E-Assessment Scheme by making exceptions, modifications and
adaptations to any provision of the Act. It still remains to be evaluated
whether this would amount to excessive delegation of power as the power to make
law is the jurisdiction of the Parliament. It is only the implementation of
such law that lies with the Government. Vide this provision, the Government is
allowed to make changes in the Act merely by way of notification. Although the
intention behind such provision is to ensure smooth implementation of the
scheme, one cannot deny the fact that there is also a possibility of it being
misused.
Although
sub-section (3C) of section 143 of the Act requires all such the notifications
to be tabled before each House of Parliament, it has not specified any
time-frame. Further, it does not necessitate discussion of such notifications
in the Parliament, which could prompt insightful debates and allow the Houses
to make necessary changes in the notifications. Thus, this provision appears to
be more routine in nature. Also, this arguably endows the power to make law to
the Board.
Section 144A of the
Act allows an assessee to approach the jurisdictional Joint Commissioner of
Income-tax requesting his authority to examine the case and issue necessary
directions to the AO for completion of assessment. With the advent of the
E-Assessment Scheme, this provision will more likely lose its relevance as all
the specified income tax authorities under the scheme, including Joint
Commissioners, will concurrently hold the power and perform the functions of an
AO.
The scheme provides
for review of assessment orders by the Review unit if considered necessary by
the NeAC. The Review unit, upon perusal of the draft assessment order, would
share its suggestions. However, the scheme does not provide that such
suggestions would be mandatory for the Assessment unit to follow while passing
the final draft assessment order.
At present, the
scheme covers only limited scrutiny cases as all the notices issued u/s 143(2)
of the Act in accordance with the scheme must, as mentioned in the Notification
Nos. 61 and 62 of 2019, have to specify the issue/s for selection of cases for
assessment. However, it is seen in some cases that such issues mentioned in
notices u/s 143(2) of the Act have been very general and vague; for example,
‘business expenses’, ‘import and export’,
etc. Thus, it needs to be seen whether such issues can even be termed as
specific if they are not broad and are imprecise.
Further, it does not visualise conversion of limited scrutiny cases to
complete scrutiny cases. However, it allows the NeAC to transfer cases to the
jurisdictional assessing officer at any given point of time during the course
of assessment. Needless to say but upon transfer, the jurisdictional assessing
officer can take necessary recourse under the Act for conversion of a case to
complete scrutiny. Further, it would require compliance of provision of section
127 of the Act for transfer of cases to the jurisdictional assessing officer.
An assessee under the circumstances specified in the scheme will be
allowed to represent his case in person or through his authorised representative
via video conferencing which will be attended by the Verification unit. It will
be interesting to see whether a recording of the discussion is forwarded to the
Assessment unit to avoid any spillage of information in the process.
The scheme provides for the Assessment unit to share with the NeAC, along
with the draft assessment order, details of penalty proceedings to be initiated
therein, if any. NeAC is then authorised to issue show cause on the assessee
for levy of penalty under the Act. It will have to be seen who, under this
scheme, will be considered to record satisfaction for levy of penalty. If such
satisfaction is held to be recorded by the Assessment unit, a show-cause notice
issued by the NeAC will be held as invalid since as per the current settled
position of laws, recording of satisfaction and issue of show cause notice for
levy of penalty have to be carried out by the same AO.
At present, the provision of section 264 empowers the Pr. Commissioner of
Income Tax or the Commissioner of Income Tax to call for and examine the record
of any assessment proceedings carried out by any income tax authority
subordinate to him, other than cases to which the provision of section 263
applies, and pass such order not being prejudicial to the assessee. With the
advent of faceless E-assessments, it would be interesting to see whether such
an order u/s 264 is passed by the Pr. Commissioner of Income Tax or the
Commissioner of Income Tax having jurisdiction over the Assessment unit, or the
one having jurisdiction over the jurisdictional assessing officer. As yet, the
scheme has not visualised such circumstances.
The provision of section 144C requires mandatory passing of a draft
assessment order in the case of foreign companies and cases involving transfer
pricing assessment. In such cases, the assessee has the option to choose to
file an application before the dispute resolution panel and it is only after
the direction of the dispute resolution panel that the final assessment order
is passed by the AO. It is quite clear that the scheme currently does not have
scope for carrying out assessment in these cases.
CONCLUSION
The scheme has been launched by the Government on 7th October,
2019 and 58,322 cases have already been selected for assessment under it in the
first phase by issue of e-notices on taxpayers for the cases related to tax
returns filed u/s 139 of the Act since 1st April, 2018.
There is no doubt that the scheme has conceptualised a complete paradigm
shift in the way assessments will be carried out in future. The assessments
have been centralised and made faceless. Exchange of communication between
taxpayers and the tax department as well as amongst the income tax authorities
in the tax department has been centralised. The allocation of cases by the NeAC
would be based on the automated allocation system. Thus, it goes without saying
that both the taxpayers and the tax department will need to gear up their
systems to adapt to the scheme.
