In the present article, I’m dealing with the proposed amendments in the scheme of assessments. There are two amendments. Firstly, we shall deal with e-assessments.

E-assessments.

The Government is all set to roll out faceless, nameless, paperless and jurisdictionless assessments under the income tax law. The intention of the Government to bring about transparency and accountability in assessments under the income tax law was made very clear immediately after the Modi Government came into power. Let us have a look at the chronology of events in respect of e-assessments.

In October 2015, the CBDT initiated the concept of using email-based communication for paperless scrutiny proceedings. It was decided to launch a pilot project, comprising non corporate taxpayers in 5 cities, namely, Delhi, Mumbai, Bengaluru, Ahmedabad and Chennai. It was decided that initially 100 taxpayers would be identified in each of the cities from the cases which have been selected for scrutiny and with the consent of the selected taxpayers, tax officials would conduct the e-hearing through emails. The initiative was launched to reduce visits by taxpayers to I-T offices and their interface with the taxman, thereby curbing corruption.

Pursuant thereto, CBDT notified the procedures and the standards to be followed to ensure secured transmission of electronic communication vide Notification no. 2/2016 dated February 3, 2016. Also CBDT had issued a Notification dated 02.12.2015 by which it amended the Income-tax Rules, 1962 to provide that for purposes of section 282(1) of the Act, service of notice, summons, requisition, order and other communication may be done by email.

Thereafter, CBDT issued Instruction No.8/2017, dated 29-9-2017. In the said instruction, the Board stated that its Income-Tax Business Application (lTBA) project was available, which provides an integrated platform to conduct various tax proceedings electronically through the 'e-Proceeding' facility available on it, in an end to end manner. Accordingly, it decided to utilize it in a widespread manner for conduct of proceedings in scrutiny cases getting time barred on 31.12.2017.

The first hint of faceless and nameless e-assessments was given by the Board in December last year, when it notified a nine- member committee headed by a Principal Chief Commissioner rank officer to prepare a quick roadmap for the implementation of such e-assessments. Such committee was required to submit the report by end of February 2018.

With all the preparations, the only thing left was to give the concept of faceless and nameless assessments legitimacy under the Income-tax Act. It was expected that some major announcement would be made in this regard by our Hon’ble Finance Minister in the Budget for the year 2018.

And as expected, the Hon’ble Finance Minister stated in his budget speech that “We had introduced e-assessment in 2016 on a pilot basis and in 2017, extended it to 102 cities with the objective of reducing the interface between the department and the taxpayers. With the experience gained so far, we are now ready to roll out the E-assessment across the country, which will transform the age-old assessment procedure of the income tax department and the manner in which they interact with taxpayers and other stakeholders. Accordingly, I propose to amend the Income-tax Act to notify a new scheme for assessment where the assessment will be done in electronic mode which will almost eliminate person to person contact leading to greater efficiency and transparency”

Accordingly, section 143 has been proposed to be amended to introduce three new sub-sections viz. (3A), (3B) and (3C). Section 143(3A) provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of making assessment of total income or loss of the assessee under sub-section (3) so as to impart greater efficiency, transparency and accountability by–

(i) eliminating the interfacebetween the Assessing Officer and the assessee in the course of proceedings to the extent technologically feasible;

(ii) optimising utilisation of the resourcesthrough economies of scale and functional specialisation;

(iii) introducing a team-based assessmentwith dynamic jurisdiction

Section 143(3B) enables the Government to direct that any of the provisions of the Act relating to assessment shall not apply or apply with such exceptions, modifications and adaptations as may be specified in the notification to give effect to the scheme prescribed u/s 143(3A). However, such directions can be given only upto 31.3.2020.

Section 143(3C) provides that every notification issued under sub-section (3A) and sub-section (3B) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.

Thus, in so far the proposed amendment is concerned, nothing concrete is conveyed in the same, except for the fact that Government has to prescribe a scheme after taking into consideration the guidelines given in section 143(3A). We have to wait for the actual blue print of the scheme which the Government would come out with.

Nonetheless, it can be discerned from the above that the object of such scheme is to impart efficiency, transparency and accountability. Further, the object is to eliminate the interface between the officer and assessee to the extent it is technologically feasible. We have to wait for the guidelines to understand as to in which scenario personal hearing would be allowed and whether, the Department is obliged to give a personal hearing if the assessee so desires. Further, they have stated that there should be optimum utilisation of resources, which implies that the Department is going to deploy the man power in such a manner so to effectively utilise the same. Most importantly, team based assessment with dynamic jurisdiction is proposed to be introduced. We have to await for further guidelines to understand the concept of team based assessment. However, it seems that the Department shall constitute teams which shall be scrutinising the cases in a detailed manner at the backend.

Having understood the above background, it would be pertinent to understand the issues or complications which should be taken into consideration while framing the scheme. Some of the issues are discussed hereunder:

Primarily, a jurisdiction-free assessment implies that a taxpayer in Mumbai, for instance, could be assessed by a tax officer randomly selected by the online system of the tax department and located in any other part of the country. The identity of the Officer is not known which is why the assessment is called faceless and nameless. Such an assessment is aimed at minimising the scope for corruption and discretion by the tax officers and in turn, reduce the harassment for the taxpayers. Howsoever good the intention is behind the introduction of such assessments, there are bound to be glitches in implementation of the same.

As everyone is aware, the whole e-assessment procedure revolves around effective implementation of technology. In case of GST implementation, we have faced a lot of system issues and the incapacity of the system was exposed several times. Similar issues can surface in e-assessments also. When the number of users accessing the site at the same time is more, the system may run the risk of shutdown. Same thing happens at the time of filing the income tax returns on the last date of filing return of income. Similarly, in case of e-assessment, as and when the time barring date is nearing, most of the assessees would be filing submissions and details as sought by the Department, in which scenario system may run the risk of being shut down due to its incapacity.

Further, in some cases bulky and voluminous details may be called for like in case of builders, the sale agreements running into 100 pages may be called for, or in case of MNC’s copies of vouchers and other bulky details may be called for. Filing of such details, online would pose a problem. It would be laborious as one has to scan the entire stuff and then upload the same. Further, the same would depending upon the speed of uploading. In such cases, the assessees would prefer filing of physical photocopies of such bulky details.  

In some cases, it is observed that inter-personal hearing makes a difference. When the assessee wants to explain some issues, personal hearing is considered effective. Absolute negation of personal hearing would sometime be detrimental to the interest of the assessees. As of now we are not aware whether any personal hearing would be granted or not, however, we hope that if the assessee desires to be heard in person, such opportunity should be provided. It can also be seen that the proposed section intends to reduce the interface to the extent it is technologically feasible. Thus, feasibility of technology would be a relevant factor determining the requirement of interface between the assessee and the Department.

In search cases where assessments u/s 153A or 153C for seven years go on simultaneously, e-compliance would become confusing and cumbersome. Such assessments should be excluded from the ambit of e-assessments.

Also, the assessments for the AY 2016-17 which are to be completed by 31.12.2018, the notices have been issued u/s 143(2) and the submissions and hearings have started. One has to see as to how the normal assessment which are currently in progress are integrated with the online assessment system.  

The above issues would get clarified once the Government comes out the scheme. Further, since it is for the first time a revolutionary step is taken, it is bound to face resistance from those habituated with the traditional practice. Just like in case of GST implementation, one may face many issues initially which would be resolved by the Government as time passes. The Government would endeavour to make a robust system so that there are no technical glitches in future. Let us hope, that the objective with which e-assessments are introduced get the desired results.

Amendment in section 143(1)

Another important amendment has been proposed in respect of summary assessment u/s 143(1). Vide Finance Act, 2017, the scope of adjustment u/s 143(1) was expanded. With effect from AY 2017-18, adjustment could have been made to the returned income in respect of income appearing in Form 26AS, Form 16A and Form 16 if the said income was not included in the returned income. However, such adjustment could have been made only after giving an intimation in writing to the assessee and after considering the response furnished by the assessee. In case no response was received then the adjustment was to be made within 30 days of issue of such intimation.

Number of representations were made against the said amendment. This was because, firstly, the information contained in Form 26AS is not full proof. Secondly, there are number of reasons why an income on which tax has been deducted at source would not be included in the total income of a person like, if an assessee is following cash system, then the income will not be included till it is received or where the receipt of income is itself doubtful, then the income would not be included on the basis of real income theory etc. Thus, non-inclusion of income reflected in Form 26AS or Form 16 or 16A would be because of multiple reasons and a summary adjustment u/s 143(1) would not have been the correct method to tackle such discrepancy. Further, everyone is aware about the pain it takes in convincing the CPC people about the reasons for exclusion and their stubbornness in not accepting the same.

In the current Finance Bill, it has been proposed to do away with the above adjustment w.e.f. AY 2018-19. Thus, the power to make the said adjustment prevails for only one year i.e. AY 2017-18. I’m of the view that the said power should have been withdrawn with retrospective effect instead of from AY 2018-19, considering its draconian nature. One can take a view that the said amendment is beneficial in nature and therefore, should apply retrospectively if any adjustment of the said nature is made for the AY 2017-18.

Thus, it can be seen from above that positive amendments are proposed in respect of assessments under the income tax law.