E-assessment Scheme for Scrutiny Under the Income Tax Act

Ruchi Gandhi

21 Jan, 2021

To enable the electronic conduct of income tax assessment proceedings, a faceless scheme of scrutiny was launched by CBDT. With the introduction of such a scheme, Assessing Officers of the Income Tax Department have no recourse left, but to rely on communications backed by electronic media, for examining all cases of scrutiny assessment.

In September 2019, the e-assessment scheme was propagated by the Finance Minister with a view to curb certain undesirable practices adopted by tax officials in discharging their functionalities, the risk of which was higher due to high level of personal interaction in the existing system of scrutiny assessment.

Insertion of new provisions

A new sub-section (3A) in Section 143 has been added by the Finance Act, 2018 to provide a scheme of e-assessment so as to impart greater efficiency and transparency in assessment proceedings of income tax cases. This scheme aims to remove the human interface between the Assessing Officer and the taxpayer during the course of proceedings.

According to CBDT instructions, all scrutiny assessments excluding the search related ones need to be executed through the e-proceeding facility available at e-filing portal of the department’s website (i.e., www.incometaxindiaefiling.gov.in). It should be noted that e-assessment scheme applies only to scrutiny cases under Section 143(3) and not to other kinds of assessment like income escaping assessment or best judgment assessment.

The CBDT had issued the instructions and notice formats for conducting scrutiny assessments electronically. With such faceless assessment, an unprecedented attempt is made to almost nullify the degree of person-to-person interaction so that assessment proceedings can be resorted to a fair, speedy and paperless conduct.

Setting up of e-assessment centres and different units therein  

To ameliorate the current assessment system, a centralized organization named ‘National E-assessment Centre (NEC)’ is set up at Delhi to act as the nodal agency to facilitate e-assessment proceedings. The CBDT further sets up different Regional E-assessment Centres (RECs), each with a controlling region headed by a Principal Chief Commissioner of Income Tax. Under every REC, the following four units are empanelled:

• Assessment units (designated with the responsibilities of determination of tax liability, refund, etc.)
• Verification units (designated with the responsibilities of cross examination of books of account, statements, etc.)
• Technical units (designated with the responsibilities of advising on valuation, forensic aspects, etc.)
• Review units (designated with the responsibilities of reviewing the draft assessment order)

Procedure of faceless assessment

The following procedure shall be adopted by the NEC:

• After selection of the cases for assessment, a notice under Section 143(2) shall be served to the concerned assessees, within a period of 6 months from the close of the financial year in which the return is filed. The concerned assessees need to furnish their response to the NEC within 15 days of receipt of notice.
• By utilizing the services of an automated allocation system, the NEC would allocate the case to any REC on a random basis. It is not necessary that taxpayers belonging to a specific region get assigned to the corresponding REC having jurisdictional control over such region.
• The assessment unit of REC may request the NEC to derive any further evidence or documents from the taxpayer, to conduct certain verification by the verification unit, or to seek some technical assistance from the technical unit.
• The assessment unit of REC shall, after either accepting or modifying the assessee’s income, shall issue a draft assessment order to NEC.
• On receipt of the draft assessment order, NEC may either assign the same to the review unit for detailed review or finalize such order.
• The suggestions, if any, proposed by the review unit shall be communicated by NEC to the assessment unit for redrafting the final assessment order.
• Lastly, NEC shall serve the final order on the assessee (with service of any penalty/demand notice to the taxpayer, if needed).

Mode of communication

It has been clearly provided that all sorts of communications among different units of REC, or with the assessee for finalizing an assessment, shall be routed only through the NEC. In other words, to ensure stringent transparency, the NEC shall act as the mediator, both within the internal units of REC and also for communicating with the taxpayer on behalf of REC. Moreover, the exchange of documents/notices/orders between NEC and the taxpayer takes place only through electronic mode.

The notices and orders are delivered to the taxpayers by electronic means, i.e., either through uploads on the assessee’s e-filing account or notifications on his registered e-mail. Thus, it can be clearly judged that this scheme shall not apply to cases where the taxpayer does not hold a PAN, or files his return manually, or does not have an e-filing account with the department.

Under this scheme of faceless assessment, the assessees are debarred from appearing personally or through their authorized representatives before any tax authority, NEC, REC or units set up under them. If any oral submission is required though, it can be streamlined only through video conferencing or trusted telecommunication software.

Conclusion

The e-assessment scheme is aimed at minimizing hassles for the assessees and eliminating the scope for malpractices on the part of the income tax department. The scheme runs on the patterns of dynamic jurisdiction wherein assessment cases of one region of the country can be handled by any part of the country. Moreover, the assessee shall not be aware of the Assessing Officer who conducts his assessment since he may be from any region of the country.    

The government has selected around 58,322 cases for faceless assessment in the first phase of the scheme. For this purpose, e-notices have been sent to the concerned assessees before September 30, 2019, for the cases related to income tax returns filed for the AY 2018-19. Thus, the new scheme of e-assessment brought in by CBDT is likely to bring a paradigm shift in the assessment proceedings of the income tax department.