FACELESS PENALTY SCHEME, 2021

[Mr. M. GOVINDARAJAN]

Imposing penalties

Section 274 of  Income Tax Act, 1961 (‘Act’ for short) provides the procedure for imposing penalty on the assessees. Section 274(1) of the Act provides that no order imposing a penalty shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

Scheme

Section 274(2A) of the Act (inserted vide Finance Act, 2020, with effect from 01.04.2020) provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of imposing penalty so as to impart greater efficiency, transparency and accountability by-

• eliminating the interface between the income-tax authority and the assessee or any other person  to the extent technologically feasible;
• optimizing utilization of the resources through economies of scale and functional specialization;
• introducing a mechanism for imposing of penalty with dynamic jurisdiction in which penalty shall be imposed by one or more income-tax authorities.

Faceless penalty

The expression ‘faceless penalty’ is defined as the penalty proceedings conducted electronically in 'e-proceeding' facility through assessee’s registered account in designated portal.

Faceless penalty scheme

By virtue of Section 274(2A), the Central Government made a scheme called as ‘Faceless Penalty Scheme, 2021’ vide Notification No. 02/2021, dated 12.01.2021, which came into effect from 12.01.2021.

Scope

The penalty under this Scheme shall be imposed in respect of such territorial area, or persons or class of persons, or income or class of income or cases or class of cases, or penalties or class of penalties as may be specified by the Board.

Faceless penalty centres

For the purposes of this scheme the Board may set up the following-

• National Faceless Penalty Centre;
• Regional Faceless Penalty Centres,
• :Penalty Units;
• Penalty review units.

National Faceless Penalty Centre

A National Faceless Penalty Centre will be set up by the Board to facilitate the conduct of faceless penalty proceedings in a centralized manner and vest it with the jurisdiction to impose penalty in accordance with the provisions of this Scheme.

Regional Faceless penalty centres

Regional Faceless Penalty Centres, as it may deem necessary, are to facilitate the conduct of faceless penalty proceedings, which shall be vested with the jurisdiction to impose penalty in accordance with the provisions of this Scheme.

Penalty Units

Penalty units will be set up to facilitate the conduct of faceless penalty proceedings, to perform the function of drafting penalty orders, which includes-

• identification of points or issues for imposition of penalty under the Act;
•  seeking information or clarification on points or issues so identified, providing opportunity of being heard to the assessee or any other person;
• analysis of the material furnished by the assessee or any other person; and
•  such other functions as may be required for the purposes of imposing penalty.

The Board may specify their respective jurisdiction.

Penalty Review Units

Penalty review units will be set up  to facilitate the conduct of faceless penalty proceedings, to perform the functions of review of draft penalty order, which includes-

• checking whether the relevant material evidence has been brought on record,
•  whether the relevant points of fact and law have been duly incorporated in the draft order,
• whether the issues on which penalty is to be imposed have been discussed in the draft order,
• whether the applicable judicial decisions have been considered and dealt with in the draft order,
• checking arithmetical correctness of computation of penalty, if any, and such other functions as may be required for the purposes of review.

The Board may specify their respective jurisdiction.

Authorities

The penalty unit and the penalty review unit shall have the following authorities-

• Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, as the case may be;
• Deputy Commissioner or Deputy Director or Assistant Commissioner or Assistant Director, or Income-tax Officer, as the case may be;
• such other income-tax authority, ministerial staff, executive or consultant, as may be considered necessary by the Board.

Transition period

The Board for the purposes of this Scheme shall, until the date on which the National Faceless Penalty Centre or the Regional Faceless Penalty Centres, the penalty units or the penalty review units are set up, direct the National Faceless Assessment Centre, Regional Faceless Assessment Centre, assessment unit and review unit to also act as the National Faceless Penalty Centre, Regional Faceless Penalty Centre, the penalty unit and the penalty review unit, respectively.

Procedure

The procedure of imposing penalty under this scheme is as below-

• Any income-tax authority or the National Faceless Assessment Centre may initiate penalty proceedings.
• The said authority shall issue a show cause notice for imposition of penalty.
• The National Faceless Penalty Centre shall in a case, where reference has been received assign such case to a specific penalty unit in any one of the Regional Faceless Penalty Centres through an automated allocation system.
• The penalty unit after examination of the material available on record, may decide to-

• agree with the recommendation and prepare a draft notice calling upon the assessee or any other person, as the case may be, to show cause as to why penalty should not be levied under the relevant provisions of the Act; or
• disagree with the recommendation, for reasons to be recorded in writing,

and send such draft notice or the reasons, to the National Faceless Penalty Centre.

•  The National Faceless Penalty Centre shall upon receipt of the draft notice or reasons from the penalty unit serve the show-cause notice, as per the draft, upon the assessee or any other person, specifying the date and time for filing a response or not initiate penalty.
• Where in the case assigned to a penalty unit, penalty proceedings are already initiated, such unit shall prepare a draft notice calling upon the assessee or any other person to show cause as to why penalty should not be levied under the relevant provisions of the Act and send such notice to the National Faceless Penalty Centre.
• The National Faceless Penalty Centre shall serve the show-cause notice, as per draft, upon the assessee or any other person, specifying the date and time for filing a response.
• The assessee or any other person shall file a response to the show-cause notice, within the date and time specified therein, or such extended date and time as may be allowed on the basis of an application made in this behalf, with the National Faceless Penalty Centre.
• The National Faceless Penalty Centre shall send such response to the penalty unit, and where no such response is filed, inform the penalty unit.
• The penalty unit may make a request to the National Faceless Penalty Centre for-

• obtaining further information, documents or evidence from any income-tax authority or the National Faceless Assessment Centre; or
• obtaining further information, documents or evidence from the assessee or any other person; or
•  seeking technical assistance or conducting verification;

• The National Faceless Penalty Centre shall, upon receipt of request, issue appropriate notice or requisition to-

• the income-tax authority; or
•  the National Faceless Assessment Centre; or
•  the assessee or any other person

to submit such information, documents or evidence, as may be specified by the penalty unit, specifying the date and time for furnishing a response.

•  The income-tax authority or the National Faceless Assessment Centre or the assessee or any other person shall furnish a response to the notice or requisition, within the date and time specified therein, or such extended date and time as may be allowed on the basis of an application made in this behalf, to the National Faceless Penalty Centre.
• If a request for conducting of certain enquiry or verification or seeking technical assistance has been made by the penalty unit, the National Faceless Penalty Unit shall send such request to the National Faceless Assessment Centre specifying a date and time for submitting a report.
•  Where response to notice is filed by the income-tax authority or the National Faceless Assessment Centre or the assessee or any other person the National Faceless Penalty Centre shall send such response to the penalty unit, and where no such response is filed, inform the penalty unit.
• The penalty unit shall, after considering the material on record including response furnished, if any, or report, if any, as referred to in clause (xiv), propose for,––

• imposition of the penalty and prepare a draft order for such imposition of penalty; or
• non-imposition of the penalty,

for reasons to be recorded in writing and send the proposal along with such draft order or reasons, as the case may be, to the National Faceless Penalty Centre.

• The National Faceless Penalty Centre shall examine the proposal in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide, -

• in a case where imposition of penalty has been proposed, to pass the penalty order as per draft order and serve a copy thereof upon the assessee or any other person, as the case may be; or
•  in a case where non-imposition of penalty has been proposed, not to impose penalty under intimation to the assessee or any other person, as the case may be; or
• assign the case to a penalty review unit in any one of the Regional Faceless Penalty Centres through an automated allocation system, for conducting review of such proposal.

• The penalty review unit shall review the proposal of penalty unit.
• The penalty review unit may concur with, or suggest modification to, such proposal, for reasons to be recorded in writing, and intimate the National Faceless Penalty Centre.
•  If the penalty review unit suggests modification to the proposal the National Faceless Penalty Centre shall assign the case to a specific penalty unit, in any one of the Regional Faceless Penalty Centres through an automated allocation system.
• such penalty unit, after considering the material on record including suggestions for modification and reasons recorded by the penalty review unit.

The Principal Chief Commissioner or the Principal Director General, in charge of the National Faceless Penalty Centre, may at any stage of the penalty proceedings, if considered necessary, transfer such proceedings to the income-tax authority or the National Faceless Assessment Centre having jurisdiction over the assessee or any other person, in whose case the penalty proceedings are initiated, with the prior approval of the Board.

Rectification

With a view to rectifying any mistake apparent from the record the National Faceless Penalty Centre may, by an order to be passed in writing, amend any order passed by it under this Scheme.  An application for rectification of mistake may be filed with the National Faceless Penalty Centre by the, -

• assessee or any other person; or
• penalty unit, which prepared the order; or
• penalty review unit, which reviewed the order; or
• income-tax authority; or
• National Faceless Assessment Centre.

If the said  application is received by the National Faceless Penalty Centre, it shall assign such application to a specific penalty unit in any one of the Regional Faceless Penalty Centres through an automated allocation system.

The penalty unit shall examine the application and prepare a notice for granting an opportunity,-

• to the assessee or any other person where the application has been filed by the authorities;
• to the authorities where the application has been filed by the assessee or any other person

send the notice to the National Faceless Penalty Centre.

The National Faceless Penalty Centre shall serve the notice, as per draft upon the assessee or any other person or authorities to show cause as to why rectification of mistake should not be carried out under the relevant provisions of the Act, specifying the date and time for filing a response.  The response to the show-cause notice shall be furnished within the specified date and time or such extended time as may be allowed on the basis of application made in this behalf, to the National Faceless Penalty Centre.   Where a responseis filed, the National Faceless Penalty Centre shall send such response to the penalty unit, or where no such response is filed, inform the penalty unit.

The penalty unit shall, after taking into consideration the response, if any, prepare a draft order-

• for rectification of the mistake; or
• for rejection of application for rectification, citing reasons thereof

and send the order to the National Faceless Penalty Centre.

The National Faceless Penalty Centre shall upon receipt of draft order, pass an order as per such draft and communicate such order to, –

• the assessee or any other person, as the case may be; and
• the National Faceless Assessment Centre or the income-tax authority having jurisdiction over the case, for such action as may be required under the Act.

Appeal

An appeal against a penalty order made by the National Faceless Penalty Centre under this Scheme shall lie before the Commissioner (Appeals) having jurisdiction over the jurisdictional income-tax authority or before the National Faceless Appeal Centre.

No personal appearance

A person shall not be required to appear either personally or through authorised representative in connection with any proceedings under this Scheme before the income-tax authority at the National Faceless Penalty Centre or Regional Faceless Penalty Centre or penalty unit or penalty review unit set up under this Scheme.   The assessee or any other person or his authorized representative, may request for personal hearing so as to make his oral submissions or present his case before the penalty unit under this Scheme.

The Chief Commissioner or the Director General, in charge of the Regional Faceless Penalty Centre, under which the concerned penalty unit is set up, may approve the request for personal hearing, if he is of the opinion that the request is covered by the circumstances laid down.  Such hearing shall be conducted exclusively through video conferencing, including use of any telecommunication application software which supports video telephony, in accordance with the procedure laid down by the Board.

Communication

All communication among the penalty unit and penalty review unit or with the assessee or any other person, as the case may be, or any income-tax authority or the National Faceless Assessment Centre, with respect to the information or documents or evidence or any other details as may be necessary for the purposes of imposing penalty under this Scheme, shall be through the National Faceless Penalty Centre.