The government of India has over the last few years taken various steps to reduce human interface between the tax administration and the taxpayers and bring in consistency and transparency in various tax matters through use of Information Technology.
In 2015, a pilot project was introduced to conduct assessment proceedings with respect to income tax returns through an ‘email-based assessment’ and later taxpayers in seven metro cities in India were provided an option to avail the same.
Subsequently, ‘Income Tax Business Application’ (ITBA, or e-filing portal) was developed as an integrated platform to conduct various tax proceedings electronically. Under this process, the tax officers are required to communicate through emails and through the taxpayer’s account on the e-filing portal (i.e., the tax department’s website www.incometaxindiaefiling.gov.in). Upon receipt of communication from tax department, a taxpayer is required to submit the response, along with required attachments, by uploading the same on the e-filing portal. The taxpayer’s response is viewed by the tax officer electronically on the ITBA and any further information is also sought through the ITBA platform, including communication through emails.
A paradigm shift in e-assessment
Between 2016 and 2018, the Central Board of Direct Taxes (CBDT), which is the apex tax administrative body, progressively amended rules, notified various procedures and issued the required guidelines to increase the scope of e-proceedings.
The CBDT also issued instructions that income-tax assessment proceedings to be framed in the year 2018-19 and 2019-20, shall be conducted through the e-proceeding facility. Exceptions were carved out for certain types of proceedings such as search and seizure cases, re-assessments, best judgement assessments, etc., where the assessment would be done through personal hearing process.
CBDT also specified certain situations where taxpayer may be required to appear in person although the assessment is being carried out through e-proceedings.
However, under this framework, the element of personal interaction with the tax department was always present as the entire tax assessment was carried out by the tax officer having jurisdiction over the taxpayer.
The government’s objective was, therefore, to move from ‘e-proceedings’ towards an ‘e-assessment’ mechanism where the tax officer conducting the assessment would not be known to the taxpayer.
Towards this objective, the Finance Act, 2018, amended the provisions of the Income-tax Act, 1961, (Act) to empower the government to notify a new tax assessment scheme, whereby the proceedings will be conducted entirely in an electronic mode.
The finance minister while presenting the Union budget in July also stated that the new scheme would be launched in a phased manner in the current financial year, i.e., financial year 2019-20.
The new scheme was slated to bring in a paradigm shift in the way tax assessments were carried out in India by eliminating person-to-person contact to the extent it is technologically feasible, providing a fair and transparent framework of assessments, ensuring the tax assessments were technically sound and that consistent tax positions were taken.
New e-assessment scheme
In September 2019 the government notified the ‘E-Assessment Scheme, 2019’ (Scheme) laying down the framework to carry out the ‘e-assessments’.
As intended, the scheme brings in a 360-degree change in the way tax assessments will be carried out in future.
Under the new scheme, a taxpayer would not be aware of the tax officer who carries out the assessment, as it could be an officer located in any part of the country. Towards this end, the scheme comprises a framework of e-assessment centres at the national and regional levels, supported by specialized units in the tax department for carrying out specific functions related to various aspects of an assessment.
The following distinct centre and units have been set up under the scheme:
— National e-assessment centre
— Regional e-assessment centre
— Assessment units
— Verification units
— Technical units
— Review units
The key functions to be carried out by the centres and units set up under the scheme are discussed below:
National e-assessment centre
The National e-assessment centre (NeAC) located at Delhi would be the nodal point for all the communication between the tax department and the taxpayer, and would facilitate the conduct of tax assessments in a centralized manner.
An automated system would form the basis for selection of cases for tax assessment and allocation of such cases to assessment units through the regional e-assessment centre.
The NeAC would be responsible for issuing notices/other communication to the taxpayer’s registered email address and receiving response from taxpayers. The NeAC would also coordinate between the different units in the tax department for gathering information, seek technical inputs on tax positions, verification and review of the information submitted by taxpayers, review of draft orders framed by the assessment units, etc.
Based on the outcome of the assessment, a taxpayer would be provided an opportunity of submitting a response against the draft assessment order. Finally, NeAC will also take steps to issue the final assessment order, along with the demand notice if applicable, and issue the notice for initiating any penalty proceedings.
Regional e-assessment centre
Eight regional centres have been set up at New Delhi, Mumbai, Chennai, Kolkata, Ahmedabad, Pune, Bangalore and Hyderabad which would work in tandem with the NeAC to facilitate the conduct of e-assessment proceedings. The regional centres would be under the regional jurisdiction of a chief commissioner of income tax and shall house the specialized units i.e., assessment unit, verification unit, technical unit and review unit.
The assessment units will facilitate the conduct of e-assessment and would function under the instructions of the NeAC and regional centre. The tax officers in the assessment units will review the tax return, identify issues to determine any liability (including refund) under the Act, seek information or clarification from taxpayers on identified issues, analyse the information furnished by the taxpayer, etc. Based on the assessment of information received from the taxpayers, the unit would frame the draft assessment order and share the same with the NeAC for its review and communication with the taxpayer. If required, the assessment units may modify or revise the draft assessment order under direction from the NeAC.
Verification units will facilitate the conduct of e-assessment by the assessment unit. Their function will include enquiry, cross verification, examination of books of accounts, examination of witnesses and recording of statements, and such other functions as may be required for the purposes of verification.
Technical units will support the assessment units with assistance on various tax positions. This would include any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter which may be required under this scheme.
The review units would assist the NeAC in carrying out any review of the draft assessment order submitted by the assessment units. Apart from checking for arithmetical correctness of modifications proposed in the draft order, the review unit would also check whether the relevant material evidence has been brought on record, the relevant points of fact and law have been duly incorporated in the draft order, and the issues on which addition or disallowance should be made have been discussed in the draft order. The review unit will also check whether applicable judicial decisions have been considered and dealt with in the draft order.
E-exchange of communication
All the communication, whether internal between the various centres and units or externally with the taxpayer, shall be carried out only by electronic mode. The electronic modes include emails, upload of documents on e-filing portal, mobile app, real time alerts and messages to taxpayers, etc.
Personal appearance by taxpayer
Under the scheme, a taxpayer shall not be required to appear in person or through his authorized representative before any tax authority in connection with the tax assessment. However, in case a modification is proposed in the draft assessment order, and an opportunity is provided to the taxpayer to make his submissions, the taxpayer may seek a personal hearing to make oral submissions or present his case before the income-tax authority in any unit under this scheme. The scheme provides that such hearing will be facilitated only through a video conference or video telephony and there will be no scope for a physical appearance or interaction with the tax officer.
The government launched the scheme on 7 October and has selected 58,322 cases for assessment under it in the first phase. For this purpose, e-notices have been served on taxpayers for the cases related to tax returns filed for financial year 2017-18.
Accordingly, the taxpayers have been advised to check their registered e-filing accounts/email ids and furnish their response within 15 days. It is important for taxpayers to ensure that their contact details are updated on the e-filing portal so that communication is received on a real time basis. It is hoped that the new scheme would help reduce litigation at the first level and provide the taxpayers a fair, transparent and efficient assessment process.
Rajashree Karnik Sarna contributed to this article.
Vikas Vasal is national leader of tax at Grant Thornton India LLP. You can send your queries to firstname.lastname@example.org