Dr. K. Shivaram, Senior Advocate, and Mr. Shashi Bekal, Advocate, have explained in meticulous detail the entire law and practice relating to the newly introduced scheme of ‘Faceless Appeals’. The learned authors have also offered valuable suggestions on how the scheme can be improved. They have also prepared a check-list which will enable taxpayers and professionals to derive maximum advantage from the scheme
The Hon’ble Prime Minister on August 13, 2020 launched the platform for Honouring the Honest which included a Scheme for Faceless Appeals inter alia which has been notified by the Central Board for Direct taxes (CBDT) vide Notifications dated September 25, 2020 bearing No. 76 of 2020and No. 77 of 2020. The Finance Act, 2020 (2020) 428 ITR 1 (St)vide amendment in section 250(6C) of the Income-tax Act, 1961 (Act) expanded the scope of e-assessment to include e-appeals. This Article aims at explaining the provisions relating to the Scheme of Faceless Appeals and addressing certain issues arising out of the Scheme.
This Article is relevant to every Lawyer, Charter Accountant, tax practitioner and taxpayer. The Article provides an understanding of the future of tax litigation before the first appellate authority under the Scheme of Income- tax Act. As stated by the Hon’ble Prime Minister these reforms will curb corruption and ensure a free, fair, and transparent tax environment.
India is among the first few countries to adopt a system of dynamic jurisdiction. The Scheme is of Faceless Appeals new and is undergoing pilot proceedings. Minor lacuna exists in the scheme, few technical glitches and procedural issues will be faced in the months ahead. However, these issues will be clarified and rectified by the administration in due course. The Scheme of Faceless Appeals is a game changer. It will definitely live up to the Honourable Prime Minister’s vision of improving transparency, efficiency, and accountability. Moreover, only meritorious submissions will be upheld under this Scheme; that itself plays a huge role in reducing tax terrorism and honouring the honest taxpayer.
Table of contents
Part I – Introduction
Part II – Faceless Appeal Scheme
1. Scope of the Scheme
2. Faceless Appeal Centres
4. Penalty Proceedings
5. Rectification Proceedings
6. Personal Hearing
7. Miscellaneous Provisions
Part III – Challenges
1. Constitutional Validity
2. Natural Justice – Right to inspect records
3. Natural Justice – Speaking Order
4. Applicability of Jurisdictional Precedents
5. Compromising the independence and judicial autonomy
6. Clarification on Ex-parte Orders
7. Fragmentation of Quasi-Judicial Powers
8. No provision for Early hearing
9. Clarification on signing authority
10. Clarification on sanction for initiation of prosecution
11. Lack of Opportunity for representation
Part IV – Check List
1. Existence of a Draft Order
2. Response to Penalty Notice
3. Drafting Statement of Facts
4. Drafting Grounds of Appeal
5. Submissions before the NFAC
6. Seeking adjournments
Part V – Dénouement
Part I – Introduction
The Finance Bill, 2020(2020) 420 ITR 145/ 221 (St) vide proposed amendments under section 274 and 250 of the Act sought to expand the scope of e-assessment by introducing provisions pertaining to e-penalty and e-appeals, respectively.
According to the Memorandum to the Finance Bill, 2020,(2020) 420 ITR 249 (St) The filing of appeals before Commissioner (Appeals) has already been enabled in an electronic mode. However, the first appeal process under the Commissioner (Appeals), which is one of the major functions/ processes that is not yet in full electronic mode. A taxpayer can file appeal through his registered account on the e-filing portal. However, the process that follows filing of appeal is neither electronic nor faceless. In order to ensure that the reforms initiated by the Department to eliminate human interface from the system reach the next level, it is imperative that an e-appeal scheme be launched on the lines of e-assessment scheme.
Accordingly, it was proposed to insert sub-section (6A) in section 250 of the Act to provide for the following:
- Empowering Central Government to notify an e-appeal scheme for disposal of appeal so as to impart greater efficiency, transparency and accountability.
- Eliminating the interface between the Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent technologically feasible.
- Optimizing utilization of the resources through economies of scale and functional specialisation.
- Introducing an appellate system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner (Appeals).
Further, it was also proposed to empower the Central Government, for the purpose of giving effect to the scheme made under the proposed sub-section, by notification in the Official Gazette, to direct that any of the provisions of this Act relating to jurisdiction and procedure of disposal of appeal shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification
In lieu of the above, The Hon’ble Prime Minister launched a platform for honouring the honest taxpayers on August 13, 2020 wherein he launched three initiatives viz. i. Faceless Assessment, ii. Faceless Appeals, and iii. Taxpayer’s Charter. The Faceless Appeal Scheme was made effective from September 25, 2020.
Part II – Faceless Appeal Scheme
On September 25, 2020, The CBDT vide Notification bearing No. 76 & 77 of 2020, launched the scheme of faceless appeals (2020) 428 ITR 1 (St). In this article wehave made an attempt to explain the provisions of the said Scheme.
1. Scope of the Scheme [Para 3 of the Scheme]
The appeal under this Scheme shall be disposed of in respect of such territorial area or persons or class of persons or incomes or class of incomes or cases or class of cases, as may be specified by the Board.
The Finance Ministry vide Press release dated September 25, 2020 had stated that under Faceless Appeals, all Income Tax appeals will be finalised in a faceless manner under the faceless ecosystem with the exception of appeals relating to serious frauds, major tax evasion, sensitive & search matters, International tax and Black Money Act.
As per data with CBDT, as on date there is a pendency of almost 4.6 lakh appeals at the level of the Commissioner (Appeals) in the Department. Out of this, about 4.05 lakh appeals, i.e., about 88 per cent of the total appeals will be handled under the Faceless Appeal mechanism and almost 85 per cent of the present strength of Commissioners (Appeals) shall be utilised for disposing off the cases under the Faceless Appeal mechanism.
2. Faceless Appeal Centres [Para 4 of the Scheme]
For this Scheme, the Board has set up:
- A National Faceless Appeal Centre (NFAC) to facilitate the conduct of e-appeal proceedings in a centralised manner. The NFAC will be vested with the jurisdiction to dispose appeal in accordance with the provisions of this Scheme.
The CBDT vide Notification dated September 25, 2020 bearing Notification No. 80 of 2020has notified income-tax authorities to facilitate conduct of Faceless Appeals under NFAC.
- Regional Faceless Appeal Centres (RFAC) to facilitate the conduct of e-appeal proceedings. The RFAC shall be vested with the jurisdiction to dispose appeal in accordance with the provisions of this Scheme.
The CBDT vide Notification dated September 25, 2020 bearing Notification No. 81 of 2020 has notified income-tax authorities to facilitate conduct of Faceless Appeals under RFAC.
- Appeal units (AU), as it may deem necessary to facilitate the conduct of e-appeal proceedings, to perform the function of disposing appeal, which includes admitting additional grounds of appeal, making such further inquiry as thinks fit, directing the NeAC or AO, as the case may be, for making further inquiry, seeking information or clarification on admitted grounds of appeal, providing opportunity of being heard to the appellant, analysis of the material furnished by the appellant, review of draft order, and such other functions as may be required for the purposes of this Scheme.
An AU may contain one or more Commissioner (Appeals), and such other income-tax authority, ministerial staff, executive or consultant to assist the Commissioner (Appeals) as considered necessary by the Board.
All communication between the appeal unit and the appellant or any other person or the National e-Assessment Centre (NeAC) or the Assessing Officer with respect to the information or documents or evidence or any other details, as may be necessary under this Scheme shall be through the NFAC.
3. Procedure [Para 5 of the Scheme]
The NFAC assigns the appeal to any specific AU in any one RFAC through an automated allocation system. The Automated allocation is randomised by using technological tools, artificial intelligence and machine learning for optimal usage of resources.
Condonation of delay: Where a taxpayer has filed an appeal after the expiration of time specified in section 249(2) of the Act, the AU may admit such appeal if it is satisfied that the appellant had sufficient cause for not filing the appeal within the said time. In any other case, it may reject the appeal. The AU is required to intimate about such acceptance or rejection to the NFAC.
Exemption under section 249(4) of the Act: Under the Act, where a taxpayer has not filed the return of income, the Commissioner (Appeals) shall not admit appeal unless the prescribed of tax has been paid. However, the Commissioner (Appeals) is empowered to exempt the tax payer on account of good and sufficient reasons which have to be recorded in writing. Where the taxpayer has applied for such an exemption under section 249(4) of the Act, the AU is empowered with the power to exempt. The AU shall intimate about the acceptance and rejection of the appeal to the NFAC.
Pursuant thereto, the NFAC shall intimate the admission or rejection of appeal by the Appeal Unit, as the case may be, to the appellant.
3.3. Request for Details
Once an appeal is admitted by the AU, it may request the NFAC to gather such further information, document or evidence from the taxpayer/ appellant or any other 3rd person, as it may specify.
Remand report: The AU can also request to NFAC to obtain a report of the NeAC or the AO on grounds of appeal or information, document or evidence filed by the appellant.
Further, AU may request NFAC to direct the NeAC or the AO for making further inquiry under Section 250(4) of the Act and submit a report thereof.
3.4. Issuance of Notice
the NFAC shall serve a notice upon the appellant or any other person, or the NeAC or the Assessing Officer, as the case may be, to submit such information, document or evidence or report, as the case may be, as may be specified by the AU to the appellate proceedings, on a specified date and time.
3.5. Response to Notice
The appellant or any other person, NeAC or the AO, shall furnish a response/ report in response to the notice, as the case may be, 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 NFAC.
Where response is to be filed by the appellant or any other person, as the case may be, or a report is furnished by the NeAC or the Assessing Officer, the NFAC shall send such response or report to the AU, and where no such response or report is filed, inform the AU
3.6. Filing of Additional Ground
The appellant may file additional ground of appeal in such form, as may be specified by the NFAC, specifying therein the reason for omission of such ground in the appeal filed by him;
Where the additional ground of appeal is filed-
- The NFAC shall send the additional ground of appeal to the NeAC or the AO, as the case may be, for providing comments, if any, and to the AU;
- The NeAC or the AO, as the case may, shall furnish their comments, within the date and time specified or such extended date and time as may be allowed on the basis of an application made in this behalf, to the NFAC;
- Where comments are filed by the NeAC or the AO, as the case may be, the NFAC shall send such comments to the AU, and where no such comments are filed, inform the AU;
- The AU shall, after taking into consideration the comments, if any, received from the NeAC or the AO, as the case may be—
(A) if it is satisfied that the omission of additional ground from the form of appeal was not wilful or unreasonable, admit such ground; or
(B) in any other case, not admit the additional ground, for reasons to be recorded in writing and intimate the NFAC;
The NFAC shall intimate the admission or rejection of the additional ground, as the case may be, to the appellant.
3.7. Filing of Additional Evidence
The appellant may file additional evidence, other than the evidence produced by him during the course of proceedings before the NeAC or the AO, as the case may be, in such form, as may be specified by the NFAC, specifying therein as to how his case is covered by the exceptional circumstances specified in Rule 46A of the Income tax Rules, 1962 (Rules).
Where the additional evidence is filed:
- The NFAC shall send the additional evidence to the NeAC or AO, as the case may be, for furnishing a report within the specified date and time on the admissibility of additional evidence under rule 46A of the Rules;
- The NeAC or AO, as the case may be, shall furnish the report to the NFAC within the date and time specified, or such extended date and time as may be allowed on the basis of an application made in this behalf, by the NFAC.
- Where the report is furnished by the NeAC or AO, as the case may be, the NFAC shall send such report to the AU, and where no such report is furnished, inform the AU;
- The appeal unit may, after considering the additional evidence and the report, if any, furnished by the NeAC or AO, as the case may be, admit or reject the additional evidence, for reasons to be recorded in writing, and intimate the NFAC;
- The NFAC shall intimate the admission or rejection of additional evidence, as the case may be, to the appellant and the NeAC or AO, as the case may be;
3.8. Admission of Additional Evidence
If the additional evidence filed by the appellant is admitted by the AU, the following procedure shall be followed:
- The AU shall, before taking such evidence into account in the appellate proceedings, prepare a notice to provide an opportunity to the NeAC or AO, as the case may be, within the date and time specified there into examine such evidence or to cross-examine such witness, as may be produced by the appellant, or to produce any evidence or document, or any witness in rebuttal of the evidence or witness produced by the appellant, and furnish a report thereof, and send such notice to the NFAC;
- The NFAC shall serve the notice upon the NeAC or AO, as the case may be;
- The NeAC or AO, as the case may be, shall furnish the report, to the NFAC, within the date and time specified, or such extended date and time as may be allowed on the basis of an application made in this behalf, by the NFAC;
- The NFAC shall send the report furnished by the NeAC or AO, as the case may be, to the AU or where no such report is furnished, inform the appeal unit;
The NeAC or AO may request the NFAC to direct the production of any document or evidence by the appellant, or the examination of any witness, as may be relevant to the appellate proceedings.
The Hon’ble Bombay High Court in the case of CIT v. Prabhu Steel Industries Ltd 265 CTR 581 (Bom.)(HC) held that where the valuation report is involved the CIT (A) and Tribunal is bound to give notice to valuation officer.
Even as per the faceless appeal scheme, it may be mandatory to the AU to issue notice of hearing via the NFAC to the Valuation Officer where the issue is decided by the Assessing Officer on the basis of report of the valuation officer.
3.9. Production of Evidences
NeAC or AO may request the NFAC to direct the appellant to produce any document or evidence or to examine any witness relevant to the appellate proceedings. If such request is received form the appellant, NFAC shall send such request to the AU.
The AU, after considering such request, may prepare a notice directing the appellant to produce such document or evidence or for examination of any other person being a witness. Such notice shall be sent to the NFAC.
NFAC shall serve the notice received from AU to appellant or any other person being a witness. Person to whom such notice is served shall file his response within the date and time specified in the notice or such extended date and time as may be allowed based on application made in this behalf.
Response received from person shall be sent to AU. In case no response is received, NFAC shall inform the appeal unit.
3.10. Enhancement or reduction
If the AU intends to enhance an assessment or a penalty or reduce the amount of refund available to appellant, it shall prepare a show-cause notice containing the reasons for such enhancement or reduction and forward such notice to the NFAC.
NFAC shall issue such a notice to appellant. The appellant shall file his response within the date and time specified in the notice or such extended date and time as may be allowed based on application made in this behalf.
NFAC shall send the response received from appellant to Appeal Unit. In case no response is received, NFAC shall inform the AU.
3.11. Draft Order
The Appeal Unit shall prepare draft order in accordance with the provisions of section 251 of the Act after considering all the relevant material available on the record,response filed by the appellant or any other person,report furnished by the NeAC or AO; andany matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised in the appeal.
The draft order prepared by the Appeal Unit shall be sent to NFAC along with details of the penalty proceedings, if any, to be initiated therein.
3.12. Review of Draft Order
Under the Scheme the draft order from AU, shall be sent to another AU for review in case where the aggregate amount of tax, penalty, interest or fee, including surcharge and cess, payable in respect of disputed issues, exceed specified amount.
In any other case, the NFAC may:
(a) Finalise the order after examining it in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool; or
(b) Send the draft order for conducting review to an appeal unit, other than the unit which prepared it, through an automated allocation system.
The AU which received the draft order shall review it and may decide to:
(a) Concur with the draft order and intimate the NFAC about such concurrence; or
(b) Suggest such variation, as it may deem fit, to the draft order and send its suggestions to the NFAC.
3.13. Assignment of appeal to another AU
NFAC shall finalise the appeal as per the draft order if it has received concurrence of the Appeal Unit. However, if it has received any suggestion for variation then it shall again assign the appeal to another Appeal Unit in any one RFAC through an automated allocation system. This Appeal Unit shall be the unit other than the unit which has prepared or reviewed the draft order.
In case where the suggestion for variation intend to enhance an assessment or a penalty or reduce the amount of refund, the Appeal Unit to whom the appeal is assigned shall prepare a revised draft order as per the procedure laid down. The AU shall also be required to follow the same laid down procedure.In any other case, the AU shall prepare a revised draft order.
The Appeal Unit shall send its order to NFAC along with details of the penalty proceedings, if any, to be initiated therein.
It is pertinent to understand that the review of the draft order and its assignment to another AU, is with a view to impart greater efficiency and quality of Order. The draft Order of the first AU is not undermined or revised by a superior authority; it is merely reviewed by another AU to ensure robustness. The independence of the quasi-judicial authority is not interfered with, as the final order is issued by the NFAC.
3.14. Final Order
The NFAC shall finalise the appeal, pass the appeal order and communicate such order to: the Appellant, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as per section 250(7) of the Act; and NeAC or AO for such action as may be required under the Act.
In case where initiation of penalty has been recommended in the order, NFAC shall serve a notice on the appellant calling upon him to show cause as to why penalty should not be imposed upon him under the relevant provisions of the Act.
3.15. Transfer of Appeal
If it is considered necessary, the Principal Chief Commissioner or the Principal Director General, in charge of NFAC, may transfer the appeal with the prior approval of the Board to such Commissioner (Appeals) as may be specified in its order. The appeal can be transferred at any stage of the appellate proceedings.
4. Penalty Proceedings [Para 6of the Scheme]
Appeal unit may, in the course of appeal proceedings, for non-compliance of any notice, direction or order issued under this Scheme on the part of the appellant or any other person, as the case may be, send recommendation for initiation of any penalty proceedings to the NFAC.
The NFAC shall, upon receipt of recommendation, serve a notice on the appellant or any other person, as the case may be, calling upon him to show cause as to why penalty should not be imposed upon him under the relevant provisions of the Act.
The appellant or any other person, as the case may be, shall file a response to the show-cause notice within the date and time specified in such notice, or such extended date and time as may be allowed on the basis of an application made in this behalf, to the NFAC.
The NFAC shall assign the recommendation for initiation of penalty proceedings, along with the response filed, if any, by the appellant or any other person, as the case may be, to a specific appeal unit in any one Regional Faceless Appeal Centre through an automated allocation system.
The appeal unit shall, after taking into account all the relevant material available on the record, including the response filed, if any, by the appellant or any other person, as the case may be, prepare a draft order and send a copy of such order to the NFAC; or drop the penalty after recording reasons, under intimation to the NFAC.
Where the appeal unit has dropped the penalty, the NFAC shall send an intimation thereof, or where the appeal unit sends a draft order, the NFAC shall pass the order for imposition of penalty as per such draft, and communicate such order, to the appellant or any other person, as the case may be; and the NeAC or AO for such action as may be required under the Act.
5. Rectification Proceedings [Para 7of the Scheme]
With a view to rectifying any mistake apparent from the record the NFAC may amend any order passed by it, by an order to be passed in writing.
An application for rectification of mistake may be filed with the NFAC by the,
(a) appellant or any other person, or
(b) appeal unit preparing or reviewing or revising the draft order; or
(c) the National e-Assessment Centre or the Assessing Officer, as the case may be.
Where any application is received by the NFAC, it shall assign such application to a specific AU in any one RFAC through an automated allocation system. The AU shall examine the application and prepare a notice for granting an opportunity:
(a) To the appellant or any other person where the application has been filed by the NeAC or AO; or
(b) To the NeAC or AO where the application has been filed by the appellant or any other person; or
(c) To the appellant or any other person and the NeAC or AO where the application has been filed by an AU.
and send the notice to the NFAC.
The NFAC shall serve the notice upon the appellant or any other person, as the case may be, or the NeAC or the AO, as the case may be, calling upon him to show cause as to why rectification of mistake should not be carried out under the relevant provisions of the Act.
The appellant or any other person, as the case may be, or the NeAC or the AO, as the case may be, shall file a response to the 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, to the NFAC.
Where a response, is filed by the appellant or any other person, as the case may be, or the NeAC or the AO, as the case may be, the NFAC shall send such response to the appeal unit, or where no such response is filed, inform the appeal unit.
The appeal unit shall, after taking into consideration the application and response, if any, filed by the appellant or any other person, as the case may be, or the NeAC or the AO, as the case may be, prepare a draft order, for rectification of mistake; or for rejection of application for rectification, citing reasons thereof; and send the order to the NFAC.
The NFAC shall upon receipt of draft order, pass an order as per such draft and communicate such order to the appellant or any other person, as the case may be; and to the NeAC or the AO, as the case may be, for such action as may be required under the Act.
6. Personal Hearing [Para 12of the Scheme]
An appellant or his authorized representative is not required to appear before the income-tax authority at the NFAC or RFAC or AU set up under this Scheme in connection with any proceedings. However, the appellant or his authorized representative may request for personal hearing so as to make his oral submissions or present his case before the AU.
The Chief Commissioner or the Director General, in charge of the RFAC under which the concerned appeal unit is set up, may approve the request for personal hearing if he is of the opinion that the request is covered under specified circumstances.
Where the request is approved, personal hearing shall be conducted exclusively through video conferencing or video telephony, including use of any telecommunication application software which supports video conferencing or video telephony, in accordance with the procedure laid down by the Board.
Further, any examination or recording of the statement of the appellant or any other person shall be conducted by CIT(Appeals) in any appeal unit, exclusively through video conferencing or video telephony, including use of any telecommunication application software which supports video conferencing or video telephony in accordance with the procedure laid down by the Board.
The Board shall establish suitable facilities for video conferencing or video telephony including telecommunication application software which supports video conferencing or video telephony at such locations as may be necessary, so as to ensure that a person is not denied the benefit of this Scheme merely on the ground that such person does not have access to video conferencing or video telephony at his end.
It is pertinent to note that Section 250 of the Act i.e. Procedure in appeal refers to a “hearing”. It appears that the Scheme has not provided for a hearing as a matter of right rather as a matter of discretion. On this point the scheme appears to not be in consonance with the provisions of the Act. It is desired that the before passing the final order the NFAC may give an opportunity of virtual hearing to the appellant or its representativesor the Assessing Officer. The methodology adopted by the Appellate Tribunal may be adopted. This will enhance transparency in the proceedings.
7. Miscellaneous Provisions
7.1. Appellate Proceedings[Para 8 of the Scheme]
An appeal against an order passed by the NFAC under this Scheme shall lie before the Income Tax Appellate Tribunal (ITAT) having jurisdiction over the jurisdictional Assessing Officer. Subject to the provisions of the scheme, where any order passed by the NFAC or Commissioner (Appeals) is set-aside and remanded back to the NFAC or Commissioner (Appeals) by the ITAT or High Court or Supreme Court, the NFAC shall pass the order in accordance with the provisions of this Scheme.
7.2. Exchange of communication exclusively by electronic mode [Para 9 of the Scheme]
For the purposes of this Scheme, all communications between the NFAC and the appellant, or his authorised representative, shall be exchanged exclusively by electronic mode; and all internal communications between the NFAC, the RFAC, the NeAC, the AO and the AU shall be exchanged exclusively by electronic mode.
As per section 282 of the Act, dealing with service of notice generally, the Explanation – For the purposes of this section , the expressions “Electronic mail” and “Electronic mail message” shall have the meanings as assigned to them in Explanation to section 66A of the Information Technology Act,2000 (21 of 2000).Explanation to 66A reads as under “ Explanation – For the purpose of this section , terms “ electronic mail” and “ Electronic message” means a message or information created or transmitted or received on a computer, computer system, computer resource or communication device including attachments in text, image, audio, video and any other electronic record which may be transmitted with the message”
It is pertinent to mention that the Finance Act, 2016 introduced clause (23C) to section 2 of the Act to define "hearing" and the same includes communication of data and documents through electronic mode.
Reference is drawn to the decision of the Hon’ble Supreme Court in the case of Suo Moto WP No. 3 of 2020 July 10, 2020 (SC) wherein it was held that two blue ticks on a legal notice or summon sent via WhatsApp would legally demonstrate under the Indian Evidence Act that the intended recipient has seen the document.
The Hon’ble High Court of Bombay in the case of Kross Television India Pvt Ltd vs. Vikhyat Chitra Production dated March 23, 2017 Suit (L) No. 162 of 2017 (Bom) (HC)held that the purpose of service is put the other party to notice and to give him a copy of the papers. The mode is irrelevant. The rules and procedure are not so ancient or rigid that only antiquated methods of service through a bailiff or by beat of drum is acceptable. E-Mail & Whatsapp are not formally approved but if service is shown to be effected and is acknowledged it cannot be said that the Defendants had ‘no notice’. Defendants who avoid and evade service by regular modes cannot be permitted to take advantage of that evasion.
7.3. Authentication of electronic record [Para 10 of the Scheme]
An electronic record shall be authenticated by the NFAC by affixing its digital signature. The appellant or any other person, by affixing his digital signature if he is required under the Rules to furnish his return of income under digital signature, and in any other case by affixing his digital signature or under electronic verification code. “Electronic verification code” shall have the same meaning as referred to in rule 12 of the Rules.
Part III – Challenges
1. Constitutional Validity – Natural Justice
The Hon’ble Delhi High Court in the case of Lakshya Budhiraja v. UOI & Anr. W.P.(C) 8044 of 2020 (Del) (HC) has issued notice on October 16, 2020, on the grounds of the Petitioner that the mechanism where the approval of the Chief Commissioner or the Director General of Income-tax is required for video conference facility is discriminatory in nature and is against the settled principles of law and in violation of the Article 14 of the Constitution of India, as it gives them the discretion to deny the same and that no person should be judged without a fair hearing in which each party is given an opportunity to respond to the evidence against them.
Similarly, the Hon’ble Orrisa High Court in the case of Cuttack Tax Bar Association v. UOI W.P.(C) No. 33457 of 2020 dated March 09, 2021has challenged the Central Government Notification for Faceless Appeal on various grounds. The matter is admitted.
2. Natural Justice – Right to inspect records
In the case of Suraj Mall Mohta and Co. v. A. V. Viswanatha Sastry (1954) 26 ITR 1 (SC), the Hon’ble Supreme Court has ruled that assessment proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income-tax Act. The Supreme Court in the case Suresh Chandra Nanhorya v. Rajendra Rajak & Ors. (2006) 7 SCC 800 (SC) held that Natural justice is an inseparable ingredient of fairness and reasonableness. It is even said that the principles of natural justice must be read into unoccupied interstices of the statute unless there is a clear mandate to the contrary.
Accordingly, the Authorities are bound to follow the principle of natural justice while deciding the appeal though under the faceless scheme.
3. Natural Justice – Speaking order
As per section 250(6) of the Act it is the duty of the Commissioner (Appeals) to state point in dispute, record the reasons and pass a speaking order.
The Hon’ble Supreme Court inthe case ofKranti Associates Pvt. Ltd. v. Masood Ahmed Khan (2010) 9 SCC 496 and Canara Bank v. V. K. Awasthy (2005) SC 2090 has held that non speaking orders by Tribunal as well as Commissioner (Appeals) is violate the principle of natural justice and liable to be set aside.
Accordingly, under the faceless appeal scheme the Authorities are bound to pass the speaking order.
4. Applicability of Jurisdictional Precedents
As per the Article 227 of the Constitution of India, every High Court shall have
superintendence over all courts and Tribunals throughout the territories in relation towhich it exercises jurisdiction. The Hon’ble Supreme Court in the case of East India Commercial Co Ltd v. Collector of Customs, AIR 1962 SC 1893held that the law declared by the highest court in the State is binding onauthorities or Tribunals under its superintendence and they cannot ignore it either ininitiating a proceeding or deciding on the rights involved in such a proceeding. Therefore, where the action of the authority is contrary to the law laid down by the High Court would be invalidand the proceedings themselves would be without jurisdiction.
Similarly, the AU is bound by the decision of the Tribunal which has jurisdiction over the appellant.
Therefore, irrespective of dynamic jurisdiction, the judicial precedents applicable to the appellant should be applied by the AU on an appellant to appellant basis.
5. Compromising the independence and judicial autonomy – Review of Draft Order
The Hon’ble Bombay High Court had quashed this offending part of the central action plan in order to preserve the independence of the Commissioner of Income Tax (appeals) in the case of Chamber of Tax Consultants v. CBDT  416 ITR 21 (Bom)(HC)
The review of draft order by another AU is compromising of the quasi juridical functions of the Commissioner (Appeals)
6. Clarification on Ex-parte Orders – To be passed on merit
The scheme does not envisage an incidence of ex-parte hearing. The Hon’ble High Court of Bombay in the case of CIT v. Premkumar Arjundas Luthra (HUF)  297 CTR 614 (Bom) (HC) held that Commissioner (Appeals) is required to apply his mind to all issues which arise from impugned order before him whether or not same had been raised by appellant before him. The law does not empower Commissioner (Appeals) to dismiss appeal for non-prosecution.
7. Fragmentation of Quasi-Judicial Powers – Power to Stay Demand
The decision of the Hon’ble Bombay High Court in case of UTI Mutual Fund v. Income-tax Officer  345 ITR 71 (Bom)(HC) , KEC International Ltd. v. B.R. Balakrishnan and others 251 ITR 158 (Bom) (HC), and Coca Cola India P. Ltd. vs. ACIT (2006) 285 ITR 419 (Bom) (HC) have held that that there is no memorandum or legislative sanction mandating a pre deposit of 20 percent of the demand for a stay on demand and directed the Department to follow the guidelines prescribed in these decisions viz. Merit of the case, financial position of the appellant, high pitch assessment etc.
Evaluation of these parameters were the function of the Commissioner (Appeals) before whom the appeal is pending. Now, the Scheme has not envisaged the provisions pertaining to a stay of demand. This creates a fragmentation of functions and also does not uphold the spirit of faceless appeals.
8. No specific provision for Early hearing
The Scheme has not laid down any procedure for an appellant to apply for an early hearing. However, the Commissioner (Appeals) has the inherent power to give an early hearing due to urgency of the matter. In an appropriate case the appellant can make an application for an early hearing of the appeal. In case the application is rejected or not responded the appellant can approach the High Court by filing Writ Petition. It is desired that the CBDT throws some clarification with respect to an application for early hearing vis-à-vis the Scheme.
9. Clarification on signing authority
The Scheme states that NFAC will pass the final appeal order and communicate such order to: the Appellant, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as per section 250(7) of the Act; and NeAC or AO for such action as may be required under the Act.
The Scheme is silent about the signing authority of the Order. Ideally, the same should be done by the Commissioner having jurisdiction over the appellant.
10. Clarification on sanction for initiation of Prosecution
Section 279 of the Act deals with power to sanction the prosecution. Section 279(1) of the Act also refers to the Commissioner (Appeals) as a sanctioning authority.The Income-tax department’s manual deals with various guidelines to be followed before launching prosecution proceedings. According to the same, The Assessing Officer based on the records of the assessee sends the proposal to the respective Commissioner.The Commissioner issues the show cause notice to the assessees.If Commissioner is satisfied with the reply of the assessee he may not grant sanction to the Assessing Officer to file complaint before the Court, and vice versa.
There is no clarity with respect to the powers of the AU or NFAC to issue a Notice to the assessee on the basis of reasons recorded by the assessment unit or NeAC.
Further, when a matter is contested before the Magistrate Court the accused may request for summoning of witness i.e. who has launched the prosecution. Under thefaceless assessment/appeals scheme, it is still unclear how the provisions of Code of Criminal Procedure,1973, will be complied with. The Board needs to provide some clarity on this subject as the traditional hierarchy is no longer in place.
11. Lack of opportunity for representation – Additional ground & Additional evidence
The report of NeAC or AO on the admissibility or rejection of additional ground/evidence is to be shared with NFAC and with appeal Unit. Only after receipt of such report, appeal unit may admit or reject the additional evidence/ additional grounds furnished/filed before it.
There is no provision for the Appellant or its representative to rebut the adverse report if any made by the NeAC or AO. This is a violation of principles of Natural justice, Audi Alteram Partem i.e. no person should be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against them.
While drafting the grounds of appeal and statement of facts, the appellant may have to take an extra precaution. When an appeal is before the Appellate Tribunal or the High Court, it is the grounds of appeal and statement facts which are considered as primary records.
Further, when a matter is taken in appeal the appellant cannot produce any new evidence without making an application for admission of additional evidence. Therefore, it is important that a proper paper book is filled with detailed submission,this will help the appellant for better representation before the Higher authorities. Drafting skill is very important for effective submissions before the Commissioner (Appeals)/ AU.
Part IV – Check List
The following is a brief checklist on how to approach the CIT(A)/ NFAC
1. Existence of a Draft Order
At the first instance it needs to be checked whether the NeAC/Ld. AO has issued a draft Assessment Order or not. In the event there is no draft assessment order the same is in violation of the procedure laid downas per section 143(3A) of the Act read with clause 5 ofCBDT Notification No. 60 of 2020 dated August 13, 2020 (2020) 426 ITR 18 (St).
A specific ground needs to be raised where there is a violation of due process of law.
2. Response to Penalty Notice
A penalty proceeding would have been initiated in the Order passed by the Ld. AO/NeAC. It is important that the Notice is responded on merits and without prejudice to the merits it must be prayed to keep the penalty in abeyance till the disposal of the appeal before the Ld. CIT(A)/ NFAC.
3. Statement of Facts
The following points must be kept in mind while drafting the Statement of Facts:
(i) The same should be comprehensive and complete;
(ii) Statement of Facts must be used as an opportunity to bring additional facts on record if the same could not be brought before the Assessing Officer;
(iii) All factual mistakes/ errors/ incorrect observations of Assessing Officer must be specifically mentioned, challenged and rebutted. This would include instances where the Assessing Officer has wrongly stated in the assessment order that certain details were called for and not submitted. Wherever possible, the correct position should be expressly mentioned;
(iv) Issues such as lack of proper opportunity of being heard or violation of any other principle of natural justice (such as denial of opportunity of cross examination, relying on material behind assessee’s back etc.) must be specifically brought out. This will also help the assessee’s case for admission of additional evidence under Rule 46A.
(v) In case, the Ld. AO/NeAC has not taken in to consideration the case laws cited by the assessee the same may be stated in the statement of facts.
4. Grounds of Appeal
The following points must be kept in mind while drafting the Grounds of Appeal:
(i) Separate ground for each addition/ issue must be taken;
(ii) The grounds should highlight all controversies involved in the appeal;
(iii) They should not be vague or general in nature;
(iv) Issues such as lack of proper opportunity of being heard or violation of any other principle of natural justice must be specifically taken in the Grounds of Appeal;
(v) Statement of facts should not be mixed with Grounds of Appeal;
(vi) Alternative plea/ without prejudice grounds must be taken, where the circumstances so require;
(vii) Errors, if any, in computation of tax and interest in the Tax Computation Form of AO must be specifically taken in the grounds;
(viii) A prayer to add, amend, alter or withdraw any ground must be made in the end.
5. Submissions before the NFAC
Firstly, it is important that all submissions via the portal to be ideally made as partial submission so that if the taxpayer wishes to make any additional submission on account of any subsequent change in the law in light of judicial pronouncements or otherwise.
Unlike the hearing before the Appellate Tribunal which takes place in an open Court room open for the general public, hearing of appeals before the Commissioner (Appeals) is not open to the general public. Though the Assessing Officers have a right to be heard, they seldom enter appearance. In the Appellate Tribunal, due to the nature of proceedings, submissions made across the bar are given more importance than any written submissions/ note, it is the opposite before the Commissioner (Appeals).
The following points must be kept in mind while drafting the written submissions:
(i) Written submissions must be made in respect of each ground of appeal. Two or more grounds of appeal may be clubbed if the circumstances so require.
(ii) All critical facts stated in the Statement of Facts must find reference in the written submissions, at the cost of repetition.
(iii) The Commissioner (Appeals) is essentially a fact-finding authority. Therefore, the written submissions must make exhaustive reference to the facts of the case.
(iv) While referring to the paper books, page number of the paper book must be referred mentioned, for ease.
(v) The judicial precedents that the assessee relies on must be referred in the written submissions along with a brief summary of the ratio of the case, the relevant para in the said judgements must be referred and said judgements must be filed in the paper book.
(vi) It may be desirable to refer Judgement of Supreme Court or Jurisdictional High Court or Jurisdictional Tribunal.
(vii) All factual errors committed by the Assessing Officer must be specifically set out in the written submissions along with the correct position.
(viii) Any errors committed by the Assessing Officer in drawing legal conclusions must be specifically mentioned along with the grounds for the error.
(ix) Admissions, if any, by the Assessing Officer favourable to the case of the assessee must be specifically brought out.
(x) A paragraph wise submission in respect of the assessment order or at least the critical portions thereof must be made.
(xi) If the Assessing Officer has relied on judicial precedents that are not applicable to the facts of the case, the same must be mentioned and distinguished.
(xii) The importance of use of clear, precise and simple language cannot be stressed enough.
Preparing a paper book – The following points must be kept in mind while preparing a paper book to be filed before the Commissioner (Appeals):
(i) All documents/ material that the assessee seeks to rely upon should be filed in the paper book.
(ii) Any additional evidence that the assessee seeks to file should be filed in a separate paper book.
(iii) The paper books (including paper book of additional evidence) should be paginated and numbered consecutively. Running page numbers should be given in all paper books for ease.
(iv) It is a good practice to file a separate paper book for judgements/ legal material that the assessee relies on.
(v) Each paper book must contain an index for ease with page numbering.
(vi) The paper book containing documents which were filed before the Assessing Officer should contain a statement from the assessee or someone authorised by the assessee in this behalf that all the documents in that paper book are on record before the Assessing Officer.
6. Seeking adjournments
Whenever an assessee or its Authorised Representative seek an adjournment on a scheduled date of hearing, attempt must be made to communicate the same by filing an adjournment application in writing. This will reduce the chances of the Commissioner (Appeals) proceeding ex-parte in disposing of the appeal. The filing of a formal adjournment application will also come to an assessee’s aid should the Commissioner (Appeals) decide to proceed ex-parte. The adjournment application should be short, precise and prepared in simple language stating clearly the ground on which the adjournment is sought.
Part V – Dénouement
The Scheme is at its initial stage, in the months ahead lot more problems and issues will unearth. We appreciate the efforts of the Department in attending various webinars and explaining the Scheme to the stakeholders. We are sanguine that this approach of the department will help the scheme prevail through the challenges that will be posed before it in the times to come.
Reiterating, as mentioned earlier, the Scheme is a game changer and has challenged the status quo of the proceedings before the First Appellate Authority for good. These changes will benefit taxpayers and stakeholders greatly in the times to come.
Reproduced with permission from the 23rdNational Convention (Souvenir) of AIFTP held on 5th and 6th December, 2020, page No 77.
|Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org|