The direct tax in India was introduced in first Union Budget on 07April 1860 by Sir James Wilson. Initially it was divided into four schedules viz., Income from landed property, Income from professions and trades, Income from Securities and Income from salaries and Pensions.
In Present Income Tax Act there are 23 chapters, 298 sections and fourteen schedules. The income has been categorized into five heads viz., Income from Salary, Income from House Property, Income from profits and gains of Business or profession, Income from Capital Gains, Income from other sources.
Over the years there has been consistent change in the Direct Tax regime which is more visible after the introduction of digital developments. The Direct Tax authority have been relying more on AI (Artificial Intelligence) technology and automation for assessments. The Central Government had launched faceless programme or e-assessment in 2019 to eliminate physical interface and stop the personal biasness in tax assessment proceedings by randomly allocating cases to field officers. The launch of faceless assessment on 13.08.2020 is a step to eliminate human interface between department and tax payers aimed to provide better facility, greater transparency and optimize the utilization of resources through economies of scale and to honouring the honest tax payers. All the assessment and penalty up to the level of Commissioner of Income Tax has been made faceless.
National e-Assessment Centre (NeAC) is established at National level and Regional e-Assessment Centre(ReAC) for regional level that will facilitate faceless assessment. In addition to this four other units have also been established for doing the assessment; these are- Assessment Unit, Verification Unit, Technical Unit and Review Unit.
Fist the assessment goes to NeAC → NeAC allots the assessment case to ReAC (ReAC allotment is not known to anybody) → The ReAC refers the file to Assessment Unit → After assessment it is sent to NeAC → NeAC transmits it to verification Unit to check the correctness (record of statement, witness etc.) and then to technical unit to check any technical issue like accounting, legal etc. and thereafter to review unit which makes an draft order and send to NeAC → NeAC sends to the assessee.
It is understood that between 50000 to 60000 cases have identified for faceless assessment and in around 25000 cases final order has been passed in first phase. The explanation given to the tax payers through e-mail notices have been accepted and no addition of income or imposition of penalty has been made in the final orders of around 95% of the cases. In the remaining 1,500 cases which are nearly 6% of the cases wherein final order was issued and penalty was imposed due to either understatement of income or necessary addition of income is required .
The Central Board of Direct Taxes has issued notification of Faceless Penalty Scheme(FPS) 2021 in Jan 2021. Under the FPS 2021, penalties shall be awarded to assesses in digitalize mode. Under this scheme The Board has been empowered to set up the following units:-
National Faceless Penalty Centre (NFPC): It is a National felicitator body and it facilitates the conduct of penalty proceedings in centralized manner and vests it with the jurisdiction to impose penalty in accordance with the provision of the scheme.
Regional Faceless Penalty Centers (RFPC): It will facilitate the conduct of penalty proceedings which shall be vested with the jurisdiction to impose penalty.
Penalty Units: to facilitate the conduct of faceless penalty proceedings, to draft penalty order, to seek any clarification or information on points being identified, to provide the taxpayer an opportunity of being heard and to analyze the documents provided by the taxpayers.
Penalty Review Units (PRU): to perform the function of review of draft penalty order whether the relevant points of fact and law having been duly incorporated in the draft order. It will also ensure whether the issues have been discussed where the penalty was imposed and also will conduct scrutiny of computational errors of penalty, if any.
The Central Government has also launched faceless appeal in September 2020 where after the processing of all appeals will be done though electronic medium. Three units have been established for processing of appeal, these are; National Faceless Appeal Centre (NFAC) and Regional Faceless Appeal Centre (RFAC). Both the bodies will facilitate the main unit which will be known as Appeal Unit.
Advantage of electronic Assessment and penalty:
Corruption Free:- As the e-assessment eliminates human intervention on many issues and deals through electronic medium, it leads to transparency in proceedings and rationalization of penalty which reduces scope of personal biasness.
Cost Effective:- Since the assessment and penalty have become paperless through electronic system, it reduces the manpower thereby reducing cost on account of salary and allowance of hiring of huge manpower being engaged in assessment and penalty. In many cases interest refunds were made in two to three years wherein the delay of assessment attracted interest payment creating burden to Income tax department. Automation of this process will potentially impact the cost involved in assessment in a positive way.
Time saving:- Past experiences reflects that in manual system, assessments were used to be pending for long time. There used to be huge backlog in assessment, orders of penalty got to be issued with abnormal delay. Migration to electronic medium will save time of both the assessee and tax payers.
Challenges before electronic Assessment and penalty:
Offices are Traditional: – the traditional offices do not have sufficient infrastructure as well as experience to handle processing of voluminous documents in electronic mode. Hence, digitization of nodal centers and up-gradation of skill of employees will play a key role.
Difficult to Explain: – As the IT department is marching on digital platform it is equally important that the tax payers who have to use the platform must also be equally equipped to make the best use of the changes. It is a common practice to visit income tax offices and submit the documents with proper explanation whereas in electronic medium taxpayers would have to be explained virtually up to their satisfaction to avert complaints and grievances.
Technical Glitch: – The success of e-assessment and processing would largely depend on the access to internet and its bandwidth available to last mile users. It has been usually seen that Income Tax site gets slowed down when time of tax payment nears more so in the penultimate days of tax payment. Many a times IT authorities defer the last date due to technical issues. The data flow and user connectivity through internet will play an important role for which the government would require to brace up the IT infrastructure also.
The faceless assessment, appeal and penalty scheme has already implemented in our country and our nation is first nation to adopt randomized faceless assessment although countries like, Singapore, Brazil, Japan, South Korea and other countries had already adopted the faceless schemes. Introduction of these changes can be seen as a welcoming change in the scheme for assessment in income tax which will enhance transparency and efficiency, improve the quality and compliance and provide fast assessment too.
Sunil Kumar Azad
Director, SBILD Deoghar.
