By Neelam Rani and P P Singh
In a speech on July 5 2019, Union finance minister Nirmala Sitharaman expressed concerns over the high level of personal interaction between the taxpayer and government officials. The government introduced a scheme of faceless assessment in electronic mode involving no human interface to eliminate undesirable consequences. Under this initiative, cases selected for scrutiny will be allocated to assessment units in a random manner and notices will be issued electronically by a central cell, without disclosing the name, designation or location of the assessing officer. The central cell will be the single point of contact between the taxpayer and the department. The introduction of e-assessment will represent a paradigm shift in the functioning of the income tax Department as envisaged by Sitharaman.
Two Central processing units (CPC) — one in Bengaluru for the processing of income tax returns and the other in Ghaziabad, for processing of TDS statement – are already functioning. As an extension to the CPCs, the Union government has now set up a national e-assessment centre in New Delhi and eight regional centres for handling the assessment without human interface, or minimum interface with video conferencing/ video callings. Enabling provisions have been made and the government will act upon appellate proceedings with least human interaction,
What is E- assessment?
It is important to understand the term assessment. Assessment means the determination of income or the losses of taxpayer after allowing all deductions and exemptions under the provisions of the Income Tax Act. E-assessment means the assessment proceedings conducted electronically in e-proceeding facility through the assessee’s registered account. The government has shifted from manual assessment process to e-assessments for several reasons discussed in the following paragraphs.
E-assessment is required to impart greater efficiency, transparency and accountability by way of (i) eliminating interface between assessing officer and the assessee to the extent technologically feasible, (II) optimising the utilisation of resources through economies of scale and functional specialisation of tax officers, and (iii) by Introducing team-based assessment with dynamic jurisdiction. The success of the scheme will depend on the cooperative attitude of tax officers as well as the success of the technological systems and the hassle-free support to the taxpayers in the initial years of the system.
Legal framework of e-assessments: Amendments have been made in the Income Tax Act for the e-assessments scheme. Three new subsections have been inserted in Section 143.
Power to make scheme: Section 143(3A) [(3A) empowers the central government to make a scheme, by notification in the official gazette, for the purpose of making assessment of total income or loss of the assessee under Section 143(3) so as to impart greater efficiency, transparency and accountability by:
- eliminating the interface between the assessing officer and the assessee in the course of proceedings to the extent technologically feasible;
- optimising utilisation of the resources through economies of scale and functional specialisation;
- Introducing a team-based assessment with dynamic jurisdiction.
Considering the above power, notification no 61/2019 dated 12-09-2019 has been issued, enabling e-assessment scheme that has detailed provisions pertaining to the scheme.
Section 143(3B) empowers to modify the applicability of the other provisions of the Income Tax Act to implement the e-assessment scheme by notification in the official gazette relating to assessment of total income or loss. Accordingly, provisions will apply such exceptions, modifications and adaptations as may be specified in the notification. To implement that notification no 62/2019 dated 12-09-2019 as corrected by notification no 86/2019 issued modifying the applicability of other provisions of the IT Act like modifications of provisions of section 2(7A), section 92CA, section 120, section 124, section 127, section 129, section 131, section 133, section 133A, section 133C, section 134, section 142, section 142A, section 143, section 144A, section 144BA section 144C and Chapter XXI of the Act. Further, the government has fixed a timeline that no direction shall be issued after the 31st day of March, 2022.
Further, for the empowerment of the notification issued, provisions have been made in Section 143 (3C) that notifications issued u/s 143(3A) or (3B) shall be laid down in Parliament as soon as the notification is issued.
E-assessment structure
E-assessment organisation’s structure shall consist of (a) taxpayer who interacts with national e-assessment centre – NeAC, (b) regional e-assessment centre – ReAC having 4 units like assessment unit, verification unit, technical unit and review unit.
Functions of NeAC at New Delhi will be (a) to Specify format, mode, procedure and processes, (b) send all notices/communication electronically to the taxpayer, (c) assign cases to assessment unit (ReAC) through automated allocation system, (d) allocate cases to verification unit, technical unit through automated allocation system, (e) select draft assessment orders for review and allocate to review unit through automated allocation system, (f) providing opportunity to taxpayer before finalising assessment order, (g) finalise assessment orders, and (h) transfer all electronic records to jurisdictional AO for post assessment work like imposition of penalty, collection and recovery of demand, rectification of mistake if any in the order u/s154, giving effect to appellate orders, submission of remand report if so required by appellate authority like CIT (appeal), or any other report to be furnished, or any representation to be made, or any record to be produced before the commissioner (appeals), appellate tribunal or courts as the case may be, proposal seeking sanction for launch of prosecution, and filing of complaint before the court.
NeAC and ReACs will not do any post assessment work, it will be performed by jurisdictional tax officer. As even the penalty proceedings will be in the office of jurisdictional tax officer, this may lead to the harassment of the taxpayer.
The number of regional e-assessment centres (ReAC) may increase in the future. Currently, there are eight ReACs in operation at Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bangalore, and Hyderabad. These centres have four units for different functions such as assessment unit to identify issues in the case , seek information and analyse material and to frame draft assessment orders, verification unit to conduct enquiry, examination of books of account, examination of witnesses and recording of statements, technical unit to provide advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, and the review unit to review the draft assessment order, whether material evidence is brought on record, points of facts and law are incorporated, application of judicial decisions considered, arithmetic correctness etc. All these units will interact electronically to the NeAC.
Benefits of e-assessment
It is expected that taxpayers would be able to devote more time to his/her business, profession or employment rather than visiting the tax department and waiting for a long time there. Further there will be enhancement of specialisation in the tax department and the efficiency will also improve. Some other benefits are also expected, such as end of harassment since there is no human interface, increase in transparency and efficiency, functional specialisation of officers, resulting in the improvement in quality of assessment, focussed risk-based approach to detect leakage of revenue, systematic and specific verification, standardisation and quality management, better monitoring, and speedy disposal of cases.
Conclusions
It is not an easy task to implement the scheme successfully because there are so many divergent views of different courts and tribunals in different income tax cases. In the case of dynamic jurisdiction, the officers may not be aware of the judicial precedents applicable on a particular taxpayer. The technological upgradation across India is not uniform, therefore, taxpayers may find difficulties in filing documents particularly when large files need to be uploaded. At the same time, tax officers also face difficulties in understanding all the information in the voluminous documents provided by the taxpayer. So personal hearing is desirable in such cases. Assessment could not be finalised merely on the basis of written submissions without oral discussion. Further, natural calamities in different parts of the country may lead to non-compliance within the specified time period of 15 days for compliance. The period for submission should be reasonable because sometimes the taxpayer has to source documents and information from others.
Only written submissions can’t be the base to complete the assessment. It is essential to provide personal hearing also, if there is anything against the assessee in the draft assessment order. This is needed to follow the principle of natural justice as it ruled by the Supreme Court in several judgements. There are chances that the tax officer may not understand the written submissions in the right sense. There are divergent views of different high courts and tax officers must take care of judicial precedent while finalising assessment order.
(Dr Neelam Rani is Associate Professor (finance) at the Indian Institute of Management, Shillong. PP Singh is a chartered accountant based in New Delhi.)
Dr Neelam Rani is an Associate Professor in the area of Finance at IIM Shillong.