Amendment to the Faceless Assessment Scheme vide Finance Bill 2022

Ashish M. Shaji

10 Sep, 2022

The faceless assessment scheme was introduced in 2020, and after two years of its operation, Finance Bill 2022 intends to simplify and rationalise the provisions relating to the operation of this scheme. The bill proposes to amend the existing provisions of Section 144B of the Income Tax Act with effect from FY 2021-22. Let us look at the changes proposed in the Faceless Assessment Scheme.

Finance Bill 2022: Amendments proposed in the faceless assessment

Some of the amendments proposed under Section 144B of the IT Act are as follows:

• Inclusion of Reassessment

Earlier, the provisions of Section 144B of the IT Act only dealt with the faceless assessment under Section 143(3) or 144 of the IT Act. Now the finance bill seeks to extend this provision to include reassessment or re-computation under Section 147 of the Income Tax Act.

• Streamlining the procedure

Earlier, the provisions provided for multiple levels of review, which included review by Assessment Units and then by Review Units. This has made the entire process tedious. This procedure was lengthy, and it was not possible to undertake such procedure within the timeline prescribed. This can lead to non-adherence of the procedure, due to which many writ petitions came up before the High Court. Hence Finance Bill seeks to simplify this tedious procedure by reducing the number of reviews.

Moreover, earlier, the National Faceless Assessment Centre used to decide directly whether a particular case should be referred to Review unit without considering the taxpayers’ reply to the show cause notice. Now the Finance Bill proposes to issue the show cause notice, and NFAC should consider the taxpayers’ reply before referring the case to Review Units.

• Requirement of issuing the show cause notice

The taxpayers had complained about the non-issuance of show cause notice before passing the assessment order in respect of which various writ petitions were filed. Hence in view of this, the finance bill seeks to modify the procedure for faceless assessment. It proposes to have a specific requirement for issuance of the show cause notice to the taxpayer before any adjustment to the taxpayer’s income is made.

• Grant of Personal Hearing on request

Another area of concern has been the refusal of granting the right to personal hearing/virtual hearing, despite requests being made. This violates the principle of natural justice as the order is passed without granting an opportunity to be heard. Hence the Finance Bill provides that it is mandatory for tax authority of the relevant unit through National Faceless Assessment centre to permit such request for hearing.

• Initiating special audit

The finance bill 2022 seeks to bestow power to Assessment Units to commence special audit in case where Assessment units having regard to the complex nature of the accounts, doubts the accuracy of accounts, volume of accounts, multiplicity of transactions in the accounts or specialised nature of taxpayers’ business activity and in the interests of the tax authority, believes that it is necessary to do so.

• Removal of Section 144B (9)

As per Section 144B (9) of the IT Act, the assessment proceedings will be void in case where the procedure laid down in the section is not adhered to. Taxpayers complained about the issue regarding violation of the procedure laid down under Section 144B of the IT Act. Hence, the Finance Bill 2022 has omitted sub-section 9 of Section 144B from its date of inception.

Additional guidance required

Although the Finance Bill 2022 has addressed a significant areas of concern, there remain a few challenges which need to be looked at. Some of them are as follows:

• The timeline of filing reply against the notice doesn’t seem feasible;
• After sharing the draft order with the taxpayer, another questionnaire is shared with them on different points against those mentioned in the draft order that was shared earlier with the taxpayer. This leads to additional round of assessment proceedings;
• Sometimes notices are sent to incorrect email Id which leads to failure in compliances by taxpayers and waste of time;
• The maximum limit per attachment is 5 MB because of which bulky submissions cannot be uploaded;
• Technical glitch is another major area of concern due to which taxpayers fail to file their response within the prescribed timeline;
• No acknowledgement of successfully filed submissions. It is neither available on the portal, nor any emails are sent to the taxpayers in respect of the same, and as the submission is not reflected on the portal, the order is passed without consideration.

Takeaway

Faceless Assessment Scheme was introduced at a time when Covid-19 cases were spiking at a tremendous rate. Hence the need to visit tax office was eliminated. However, there were certain contentions of the taxpayers which has been attempted to be addressed in the Finance Bill 2022^[1]. However, there are few other areas of concern that needs to be addressed to strengthen the trust of the taxpayers.

Read our Article:Highlights of the Faceless Assessment (1st Amendment) Scheme, 2021