Any additions in demand made by a tax officer under the faceless assessment process for over Rs 5 lakh of income will undergo a rigorous review process before a final demand order is passed.
Addressing fears that the faceless assessment process may lead to a rise in ad hoc additions in demand by tax officers due to a gap in understanding or inadequate submissions, the income tax department has put in place in-built safeguard mechanisms.
Any additions in demand made by a tax officer under the faceless assessment process for over Rs 5 lakh of income will undergo a rigorous review process before a final demand order is passed.
With the department expected to carry out close to 200,000 faceless assessments by March 31, 2021, the in-built check is aimed at ensuring that no one-sided or ex-parte assessment goes unchecked.
“Adequate safeguards for high-pitched assessments have been taken.
"We have kept Rs 5 lakh income as the limit for additions.
"If there is an addition over Rs 5 lakh, it will automatically go to the risk management system, which will be sent to the review unit in a different city,” said a senior Central Board of Direct Taxes (CBDT) official.
The review unit will see if the addition being made or tax being levied is genuine or not.
“In the review unit, both an officer and his boss will see if the suggestion is right or not.
"In case of no modification, the order will go to the national e-assessment centre for passing the final order.
"For further addition or deletion, the case will automatically be sent to a faceless asssement unit in a third city,” the official said.
He added that the department has made enough safeguards to prevent ex-parte assessments.
Under Section 144 of the Income Tax Act, the assessing officer can carry out ex-parte or one-sided assessment after serving a notice on the non-filer to the best of his judgement.
For instance, if a person, who bought a property worth Rs 50 lakh, does not file a return and neither gives a satisfactory explanation, an assessing officer can assume that the entire Rs 50 lakh was his taxable income and proceed to issue a demand notice.
The review threshold of Rs 5 lakh may be reviewed by the department over time, based on feedback.
The faceless assessment mechanism was launched a month ago.
“We will take a call after feedback. However, Rs 5 lakh is a pretty low income threshold as it means tax of just about Rs 1-1.5 lakh.
"This is an initial limit we set as we don’t have any experience in this,” the official added.
In 2018, the CBDT had issued a stern directive to tax offices in the country, asking them to curb “high-pitched” assessment against taxpayers and ensure that assessing officers who issue such irrational orders are transferred and face disciplinary action.
A high-pitched scrutiny assessment case is one where it is found that the addition of income was made on frivolous grounds.
With assessments pertaining to 2018-19 and 2019-20 getting time barred on March 31, there are fears that the department may carry out high-pitched assessments, due to lack of time.
Shailesh Kumar, partner, Nangia and Co LLP, said the conditions prescribed by the income tax department for referring the assessment to a review unit, if additions are beyond a monetary limit, is a welcome move.
“It will act as a self-disciplinary check for the tax authorities before making any high-pitched assessment in the final assessment order.
"The review process will also ensure that any apparent mistake on the assessment order passed by the first unit is cured before issuance of the assessment order,” he said.
However, Amit Maheshwari, partner, AKM Global, was of view that it may not help.
“Even if the department has put in this threshold, ultimately it’s reviewed by a team of the tax department itself.
"Considering past experience, it’s difficult to expect too much relief when this goes for review.”
