Section 144B of Income Tax Act: Faceless Assessment
Section 144B of Income Tax Act: Faceless Assessment
Section 144B of Income Tax Act introduces a transformative approach to income tax assessments by emphasising transparency, efficiency, and accountability. Under section 144B, the Central Government’s Faceless Assessment Scheme aims to eliminate the direct interface between the Assessing Officer and the assessee, enhancing the process through technology. This optimises resource utilisation by leveraging economies of scale and functional specialisation. Additionally, it facilitates a team-based approach for determining the arm’s length price with dynamic jurisdiction, thus modernising and streamlining income tax proceedings. This article elaborates on the faceless assessment scheme under Section 144B of Income Tax.
What is Section 144B of Income Tax Act?
Section 144B of the Income Tax Act outlines the procedure for conducting faceless assessment, which is part of the government’s initiative to enhance transparency and efficiency in tax administration. This section prescribes the process for assessments conducted electronically, without any direct interaction between the taxpayer and the tax authorities. It mandates that all communication between the taxpayer and the income tax department be conducted through the National Faceless Assessment Centre (NFAC). The section includes provisions for issuing notices, submitting responses, and conducting hearings, if required, all through digital means. The aim is to reduce personal biases, curb corruption, and streamline the assessment process to make it more taxpayer-friendly.
Importance of Section 144B of the Income Tax Act
Section 144B of the Income Tax Act is a provision that outlines the procedural framework for conducting faceless assessments of income tax returns in India. This section has significantly reformed the traditional assessment process to enhance taxpayer convenience. Here’s why it is important:
- Transparency and Objectivity: Section 144B ensures that assessments are conducted transparently, reducing the chances of bias or corruption. The process’s faceless nature eliminates direct interaction between taxpayers and tax officials, minimizing the scope for undue influence.
- Efficiency and Timeliness: By digitising and automating the assessment process, Section 144B speeds up the resolution of cases. This leads to quicker assessments and faster closure of pending cases, reducing the overall burden on the tax administration system.
- Taxpayer Convenience: The faceless assessment system allows taxpayers to handle their cases online without needing physical visits to tax offices. This particularly benefits individuals and businesses in remote areas or those with busy schedules.
- Uniformity and Consistency: The section introduces a standardised assessment procedure across the country, ensuring uniformity in tax administration. This reduces discrepancies and variations in how cases are handled across different regions.
- Reduced Litigation: Income tax act Section 144B helps reduce disputes and litigation by providing a clear and structured assessment process. Taxpayers are more likely to accept the outcomes of assessments that are fair and impartial.
- Enhanced Accountability: The digital trail created by the faceless assessment process ensures that all actions taken by tax officials are recorded, enhancing accountability and making it easier to address any issues that arise.
What are the Provisions of Income Tax Act Section 144B?
These are the key provisions outlined in the Section 144B of Income tax act,
- Faceless Assessment: Section 144B introduces a faceless assessment mechanism, eliminating physical interaction between taxpayers and tax authorities.
- National e-Assessment Centre (NeAC): The NeAC is established to facilitate the faceless assessment process, serving as the central authority.
- Assessment Units: These units are responsible for conducting the assessment, examining evidence, and drafting assessment orders, with no direct interaction with taxpayers.
- Review Units: Separate units review the draft assessment orders to ensure accuracy and fairness before finalisation.
- System-Driven Allocation: The allocation of cases to assessment and review units is done through an automated system, ensuring impartiality.
- Electronic Communication: All notices, orders, and communications between the taxpayer and the tax authorities are exchanged electronically.
- Opportunity for Hearing: If taxpayers request one, they have the right to a virtual hearing, ensuring their representation.
- Rectification Mechanism: The assessment order contains a provision for rectification of errors, ensuring fairness and accuracy.
Faceless Assessment Under the Section 144B
Faceless Assessment under Section 144B is a system where income tax assessments are conducted electronically without any direct interaction between the taxpayer and the assessing officer. The entire process, from scrutiny to order issuance, is handled by different teams of tax officials located at different places, ensuring transparency and minimizing the potential for corruption. This system aims to streamline the assessment process, reduce harassment of taxpayers, and enhance tax compliance.
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Key Features of Faceless Assessment
Several key features characterise faceless assessment:
- No Human Interface: The assessment process is conducted electronically without directly interacting with the taxpayer and the assessing officer.
- Team-Based Assessment: A dedicated team of tax officials handles the assessment process, bringing specialised expertise.
- Dynamic Jurisdiction: Assessment cases are not assigned based on geographical location but on workload and expertise.
- Use of Technology: Advanced technologies like data analytics and artificial intelligence are employed to scrutinise tax returns efficiently.
- Transparency and Accountability: The process is designed to be transparent with clear audit trails, reducing the scope for corruption.
- Ease of Compliance: Taxpayers can interact with the tax department electronically, saving time and effort.
- Expeditious Disposal of Cases: The streamlined process aims for quicker resolution of assessment cases.
Procedure of Faceless Assessment by NFAC
The faceless assessment process involves several key stages:
1. Case Selection and Notice
- Case Selection: NFAC selects cases for faceless assessment based on specific criteria.
- Notice Issuance: Under Section 143(2) of the Income Tax Act, a notice is served on the assessee informing them about the selection for faceless assessment.
2. Case Allocation and Assessment Unit
- Case Assignment: NFAC assigns the case to a specific assessment unit within a Regional Faceless Assessment Centre (RFAC) through an automated system.
- Information Gathering: The assessment unit can request additional information, documents, or verification from the assessee or other parties.
- Technical Assistance: Technical units can be involved in specialised assistance.
3. Draft Assessment Order
- Order Preparation: The assessment unit prepares a draft assessment order specifying any proposed penalties.
- NFAC Review: NFAC examines the draft order based on risk management parameters.
- Review Unit (Optional): In certain cases, the draft order may be sent to a review unit for further evaluation.
4. Show Cause Notice (if required)
- Assessee Opportunity: If the proposed changes are prejudicial to the assessee’s interest, a show cause notice is issued.
- Assessee Response: The assessee can submit a response to the show cause notice.
5. Final Assessment Order
- Order Finalization: NFAC finalizes the assessment order based on the assessment unit’s findings, the assessee’s response, and any review unit recommendations.
- Communication to Assessee: The final assessment order and demand or refund notices are sent to the assessee.
6. Dispute Resolution Panel (DRP)
- Objections: Eligible assessments can raise objections to the assessment order with the Dispute Resolution Panel (DRP).
- DRP Directions: If the DRP issues directions, the assessment unit revises the draft order accordingly.
7. Case Closure
- Record Transfer: Electronic records are transferred to the jurisdictional Assessing Officer once the assessment is complete.
Centres and Units For Faceless Assessment
The Faceless Assessment Scheme mandates the establishment of specific centres and units to streamline the assessment process. These entities are designed to operate independently, ensuring objectivity and transparency.
National Faceless Assessment Centre
The National Faceless Assessment Centre (NFAC) is a central hub that oversees the entire faceless assessment process. It has the authority to initiate assessments and coordinate activities across different regions. The Centre is crucial in maintaining consistency and uniformity in applying tax laws.
Regional Faceless Assessment Centres
Regional Faceless Assessment Centres are established within the jurisdiction of Principal Chief Commissioners to facilitate efficient management. These centres handle assessments within their regions, reducing geographical constraints and improving accessibility.
Assessment Units
These units are the core of the assessment process. They are responsible for identifying tax implications, gathering relevant information, analysing data, and preparing draft assessment orders. Assessment units operate independently to ensure impartiality in decision-making.
Verification Units
Verification units are deployed to conduct inquiries, examine records, and collect evidence when required. These units assist assessment units in corroborating information and building a strong case.
Technical Units
Technical units are established to address complex technical issues. They provide expert advice on legal, accounting, forensic, IT, valuation, transfer pricing, and other specialised areas, enhancing the accuracy and reliability of assessment decisions.
Review Units
Review units scrutinise draft assessment orders to maintain quality control. They verify the correctness of factual findings, legal interpretations, and arithmetic calculations, playing a vital role in ensuring the fairness and accuracy of assessments.
By establishing these specialised centres and units, the Faceless Assessment Scheme aims to create a robust and efficient tax administration system that protects the interests of both taxpayers and the revenue authorities.
Electronic Communication and Process in Faceless Assessment
Section 144B mandates that all communication and processes under the faceless assessment regime be conducted electronically. These provisions aim to ensure efficiency, transparency, and speed of the assessment process.
- Electronic Record Authentication: All electronic records, including notices, orders, and responses, must be digitally signed by the National Faceless Assessment Centre or the concerned taxpayer. This ensures the authenticity and integrity of the documents.
- Electronic Communication: Notices, orders, and other communications are delivered electronically through registered accounts, email, or mobile apps. This eliminates the need for physical document exchange.
- Electronic Response: Taxpayers must submit their responses electronically through their registered accounts. Once acknowledged by the National Faceless Assessment Centre, the response is deemed authentic.
- Time and Place of Communication: The time and place of electronic communication are determined in accordance with the Information Technology Act, 2000.
- No Personal Appearance: Taxpayers are not required to appear physically for any proceedings related to faceless assessment. All interactions occur electronically.
- Video Conferencing for Hearings: While the general principle is to avoid personal appearances, taxpayers can request a personal hearing under specific circumstances. Such hearings must be conducted through video conferencing.
- Infrastructure for Video Conferencing: The income tax department is obligated to provide necessary infrastructure for video conferencing to ensure that taxpayers are not disadvantaged due to lack of access.
- Standards and Procedures: The income tax authorities are responsible for establishing standards, procedures, and processes for the effective functioning of the faceless assessment system, including electronic communication, document management, and grievance redressal.
CBDT Notification on Section 144B of Income Tax Act
On August 1, 2024, the Central Board of Direct Taxes issued a new order granting expanded powers to Income Tax Verification Units. The order, issued under the provisions of sub-section 5 of Section 144B of the Income Tax Act, 1961, outlines specific circumstances where physical verification can be conducted, even in the context of the faceless assessment regime.
Previously, the focus on digital processes and the faceless assessment system had limited the scope of physical verification. However, the new order recognises that certain situations may necessitate on-ground investigation.
Key circumstances permitting physical verification include:
- Absence of Digital Footprint: When there is insufficient digital information available about the taxpayer or related parties.
- Non-Compliance with Notices: If the taxpayer fails to respond to electronic or online verification requests.
- Requirement of Physical Inspection: In cases where physical examination of assets, premises, or individuals is deemed essential, regardless of the availability of digital data.
This expanded authority aims to improve the tax department’s ability to conduct thorough investigations and ensure accurate tax compliance.
Below, we have attached the official CBDT Notification on Section 144B of the Income Tax Act,
CBDT-notification-Section-144B-income-tax-act-faceless-assessment-scheme