The COVID-19 pandemic has extended an opportunity to the government to revamp its interaction and engagement with the taxpayers. The 'Transparent Taxation-Honouring the Honest Platform' introduced Faceless Assessment Scheme 2020, Faceless Appeal Scheme 2020, and also the Taxpayer's Charter. Post that, the next obvious step was the introduction of the Faceless Penalty Scheme. Recently, the CBDT announced Faceless Penalty Scheme 20211 (Scheme), which is discussed as under:

Mechanics

The penalty proceedings under the domestic income tax laws would be spearheaded by the National Faceless Penalty Centre (NFPC). The mechanics of the Scheme are summarized as under:

  • Penalty proceedings initiated or recommended by an income tax authority or by the National Faceless Assessment Centre (NFAC) will be transferred to the NFPC;
  • Upon receipt thereof, NFPC will allocate the case to a specific penalty unit in any one of the Regional Faceless Penalty Centre (RFPC), using an automated allocation system:
    • In case of recommendation, the penalty unit will examine the records and may 
      • concur with the initiation of penalty proceedings; or 
      • disagree with the recommendation, in which event, it would have to provide reasons for such dissent;
    • In case of initiation or concurring with the recommendation, the penalty unit will prepare a draft notice for the taxpayer to show cause as to why penalty should not be initiated and forward the same to the NFPC;
  • NFPC will then issue the show cause notice to the taxpayer;
  • In response to the show cause notice, the taxpayer may file its response within the time specified in the notice or within such extended time as may be permitted;
  • During the course of the penalty proceedings, the penalty unit may request for:
    • submission of information or documents or evidences from the taxpayer or any other person;
    • calling of information or records or documents or evidences from any income tax authority or the NFAC;
    • seeking technical assistance or conducting verification;
  • In case of a request for information from any person or any income tax authority or the NFAC, the NFPC would issue appropriate notice or requisition as the case may be;
  • Similarly, for any technical assistance and verification, the NFPC would raise a requisition to the NFAC who will forward the same to the respective technical or verification units;
  • Upon receipt of the response from the taxpayer/any person/any income tax authority/NFAC and after due examination of the documents/evidence on records, the penalty unit may propose:
    • imposition of penalty and prepare a draft penalty order; or 
    • non-levy of penalty along with reasons thereof;
  • NFPC, upon receipt of the above proposal or draft penalty order from the Penalty Unit, will examine it using risk management strategy whereby it may:
    • issue the penalty order, where it concurs with the imposition of penalty; or
    • not issue any order, where it concurs with non-imposition of penalty; or
    • forward the proposal to a penalty review unit for review of the proposal;
  • Penalty review unit may concur with the proposal, in which case, NFPC will adopt the proposal, or the review unit may suggest modifications in the proposal;
  • Where modification has been proposed in the proposal, NFPC will assign the case to a penalty unit other than the penalty unit to which it was originally assigned;
  • The new penalty unit will, upon receipt of the proposal and examination of the records, including suggestions for modifications and reasons recorded by penalty review unit may:
    • where the suggestions for modifications are prejudicial to the taxpayer in comparison to the original proposal, issue a notice to the taxpayer and follow the above-mentioned procedure and prepare a revised draft penalty order;
    • where the suggestions for modifications are not prejudicial to the taxpayers, prepare a revised draft penalty order;
    • propose not to impose penalty with reasons in writing;
  • NFPC, upon receipt of the revised draft penalty order or the proposal for non-imposition of penalty, from the penalty review unit, pass the appropriate orders under intimation to the taxpayers/any other person/any income tax authority/NFAC;
  • NFPC, wherever it considers necessary, may transfer the penalty proceedings, at any stage, to any income tax authority having jurisdiction over the person on whom penalty proceedings have been initiated or Faceless Assessment Centre.

Similarities with other Faceless Schemes
 

The Scheme has the following similarities with Faceless Assessment and Faceless Appeal Schemes:

  • Unit-based penalty proceedings ;
  • Every communication amongst the taxpayers or the penalty units or the NFAC will be through NFPC;
  • Notices may be delivered via email, SMS or the registered account of the taxpayers' e-filing portal (www.incometaxindiaefiling.gov.in). The only mode of communication available to the taxpayers is filing of responses to the notices issued by National Faceless Penalty Centre via e-filing portal (www.incometaxindiaefiling.gov.in);
  • Request for personal hearing may be made by the taxpayers, which shall be granted via video conferencing, in accordance with the rules to be framed by Chief Commissioner or Director-General in-charge of the Regional Faceless Penalty Centre;
  • All communications by the income tax authorities/NFPC/NFAC would carry a Document Identification Number (DIN);
  • Similarly, all responses filed by taxpayers must be electronically signed either by way of Digital Signatures or by way of Electronic Verification Code (EVC).


Rectification Proceedings

  • Taxpayers or any income tax authority or NFAC or the penalty unit or penalty review unit aggrieved by the penalty order may file an application for rectification of the penalty order with the NFPC;
  • Upon receipt of the rectification application, NFPC may assign the case to a specific penalty unit in anyone of the RFPC;
  • Penalty Unit, upon receipt of the rectification application, will prepare a draft notice for issuance to:
    • taxpayers where such application has been filed by any income tax authority or NFAC or the penalty unit or penalty review unit; or
    • any income tax authority or NFAC or the penalty unit or penalty review unit, where such application has been filed by the taxpayers; 
  • NFPC, upon receipt of the draft notice, will serve the notice upon the above-mentioned persons who will furnish their responses to the NFPC within the time specified in the notice;
  • Penalty Unit, upon receipt of the response(s) and examination of the records, will prepare a draft rectification order accepting the rectification application or rejecting the rectification application;
  • NFPC will prepare the rectification order based on the draft rectification order and communicate the same to the taxpayer and any income tax authority or NFAC.

Our Comments

The Scheme has been drafted on parameters similar to the Faceless Assessment and Faceless Appeal Schemes and appears to be a final major reform in the digital drive of the CBDT. One may expect clarifications on the following aspects in the near future:

  • Faceless Assessment Scheme and Faceless Appeal Scheme provide a mechanism for penalty proceedings in the event of non-compliance to the notices. On the other hand, the Faceless Penalty Scheme provides a mechanism for penalty proceedings under XXI of the Income Tax Act, 1961. Under such a scenario, it remains to be seen whether penalty proceedings for non-compliance with notices would be conducted under the Faceless Penalty Scheme or Faceless Assessment/Appeal Schemes;
  • Appropriate changes in the Faceless Assessment Scheme to incorporate the additional scope of National Faceless Assessment Centre or technical unit or verification unit as provided under the Faceless Penalty Scheme.

With this, the circle of faceless interaction with the revenue authorities may be expected to be completed.

Footnote

1. CBDT Notification No. 03/ 2021 dated 12 January 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.