Income Tax Taxation

Faceless Penalty Scheme: Boosting Transparency and Compliance

With a view to further digitize the interaction between the taxpayers and income tax authorities, the Indian government recently notified of the faceless penalty scheme. Before this, the government has already launched a faceless assessment and faceless appeal scheme. In this article, we shall discuss how the faceless penalty scheme is expected to boost transparency and compliance.

Faceless Penalty Scheme: Multi layered scheme

The income tax department may levy penalties under different provisions of the Income Tax Act, 1961^[1] against a taxpayer. Under the scheme, the penalty orders that are issued shall be reviewed, and all the penalty related proceedings shall be taken care of digitally.   

Under this scheme, different aspects of penalty related proceedings regarding the communication exchange, including the issuance of show cause or initiating penalty proceedings, obtaining information or any evidence from the assessee taxpayer or tax department etc. shall be through the electronic mode.

This scheme shall be managed centrally by the National Faceless Penalty Centre. This scheme has been structured in a way that the National Faceless Penalty Centre will have the authority to disagree with the proposal of the National Faceless Assessment Centre to initiate penalty.

National Faceless Penalty Centre shall be a centralized unit and shall be the sole point of contact between the penalty unit and the penalty review unit or the PRU or the taxpayer or any other person or the income tax authority or the National Faceless Assessment Centre with respect to the information/documents/ evidence or any other details needed for imposing penalty under the scheme.

As of now, Regional Assessment Faceless Centre will coordinate with the National Faceless Assessment Centre instead of the Regional Faceless Penalty Centre.

Drafting the penalty orders by penalty units will include identification of points or issues for penalty imposition under the Income Tax Act, seeking information or clarification on points or issues so identified and providing the opportunity to be heard to the assessee or any other person and analyzing the material furnished by the assessee or by others and other functions that is required for imposing penalty.

Faceless Penalty Scheme: Exempted from Appearance

The taxpayer is not required to appear personally or through an authorized representative in front of the income tax authority at National Faceless Penalty Centre, Regional Faceless Assessment Centre, PU, or PRU due to any proceedings under the scheme.

However, it may be noted that the taxpayer can request for a personal hearing in order to make oral submissions or to present his case before the PU. The acceptance of the request of the taxpayer for a personal hearing shall be at the discretion of the chief commissioner or director general in charge of Regional Faceless Penalty Centre.

Increase in Transparency

The Faceless Penalty scheme is expected to reduce the chances of error in the penalty orders. It also rules out any bias on the part of tax officers by reducing human interaction that can lead to taxpayer’s harassment. The cases shall be decided in a uniform and standardized manner on their merits and without any subjectivity.

The taxpayer can benefit from the overall objective of fairness in the orders of penalty as the scheme enhances the degree of transparency, accountability, and efficiency in the order.

By bringing objectivity in the penalty related proceedings can smoothen taxpayers experience and can help in gaining better compliance.

Procedure of imposing penalty under the Faceless Penalty Scheme

The following procedure shall be followed:

• Tax authority or the National Faceless Assessment Centre may initiate penalty related proceedings and issue a show cause notice for imposing penalty or;
• The National Faceless Penalty Centre may assign case to a specific penal unit in any regional faceless penalty centres via an automated allocation system in case any reference has been received;
• The penal unit shall be required to initiate punitive proceedings against such a unit;
• The penal unit will decide the case after the evidence is examined.
• The penal unit can initiate proceedings of sentencing when the case has been decided by the penal unit.
• Finally, the penal unit shall summon the assessee or any other person and shall prepare a draft notice.

How is the Faceless Penalty Scheme similar to other faceless schemes?

The scheme has following similarities with other faceless schemes:

• Unit based penalty proceedings;
• All communication between the taxpayers or the penalty units or the National Faceless Assessment Centre shall be through National Faceless Penalty Centre;
• Notices can be delivered through e-mail, SMS or through the registered account of taxpayers e-filing portal;
• Request for personal hearing can be made by the taxpayers. It shall be granted through video conferencing. It shall be as per the rules framed by the Chief Commissioner or Director General in charge of the regional faceless penalty centre;
•  All communications by the income tax authority/ National Faceless Assessment Centre/ National Faceless Penalty Centre shall be with a Document Identification Number;
• Likewise, all responses that are filed by taxpayers should be electronically signed by Digital Signatures or through electronic verification Code.

How does the new income tax returns faceless scheme help taxpayers of the country?

The new income tax returns faceless scheme helps taxpayers of the country in the following ways:

• Provide fair, courteous, and a reasonable treatment;
• Treat tax payers as honest;
• Provides a mechanism for appeal and review;
• Provides complete and accurate information;
• Provides timely decision;
• Respects the taxpayers’ privacy;
• Holds its authorities accountable;
• Maintains confidentiality;
• Enables representatives of choice;
• Has a mechanism to lodge complaints;
• Boasts of a fair and just system;
• Publish standards of service and reports periodically;
• Is expected to reduce compliance cost.

Conclusion

This (Faceless Penalty Scheme) is an additional step to improve compliance and transparency. It is intended to enhance the faceless tax assessment scheme by managing penalty related guidelines. As a form of tax reform, the Indian government introduced the faceless tax assessment scheme last year.

Read our article:E-assessment Scheme for Scrutiny Under the Income Tax Act