The Central Board for Direct Taxes (CBDT) vide Notification No. 3 of 2021 dated January 12, 2021, has notified the “Faceless Penalty Scheme” for conducting penalty proceedings under the Income-tax Act, 1961 (Act) in a faceless manner.
The said scheme is aligned with the Faceless Assessment Scheme and the Faceless Appeal Scheme. It lays down the procedure for virtually conducting penalty proceedings without any physical interaction between the taxpayer and the Income-tax Department.
The said Scheme leverages technology developments and aims to live up to the Honourable Prime Minister’s vision of improving transparency, efficiency, and accountability in tax administration.
Section 274 of the Income Tax Act provides for the procedure, for imposing a penalty (for underreporting or misreporting of income u/s 270A) under Chapter XXI of the Act.
In response to a showcase notice issued by the Assessing Officer (AO), the assessee or his authorised representative was still required to visit the office of the Assessing Officer.
With the advent of the Faceless Assessment Scheme, 2019, to ensure that the reforms initiated by the Department to eliminate human interface from the system reached the next level, it was imperative to launch a Faceless Penalty Scheme on the lines of Faceless Assessment Scheme, 2019.
Therefore, the Finance Act 2020 has inserted an enabling provision in the form of a new sub-section (2A) in section 274 of the Act to provide that the Central Government may notify an e-scheme for imposing a penalty to impart greater efficiency, transparency and accountability.
The new faceless penalty proceedings to be conducted under the Faceless Penalty Scheme, 2021:
| Sr No. | Particulars | Faceless Penalty Proceedings under Faceless Penalty Scheme, 2021 |
| 1. | Applicability | All pending and new Penalty Proceedings w.e.f. 12.1.2021. |
| 2. | Penalty Adjudicating Authority | Dynamic Jurisdiction comprised in any Penalty Unit in Regional Faceless Penalty Centre (RFPC) under the overall monitoring and supervision of National Faceless Penalty Centre (NFPC). |
| 3. | Penalty Notice Issuing Authority | National Faceless Penalty Centre (NFPC) |
| 4. | Assignment of Penalty Proceedings | The NFPC assigns the Penalty Proceedings to any Penalty Unit located in any one Regional Faceless Penalty Centre through an automated random allocation system. |
| 5. | Inquiries/Adjudication during the course of penalty proceedings | The NFPC may issue appropriate notice or requisition u/s 274 read with 270A, to the assessee or NFAC/AO, for obtaining any further information, documents or evidence, as required by the Penalty Unit in the Regional Faceless Penalty Centre, to which the penalty proceedings have been assigned by the NFPC. |
| 6. | Provision of Draft Penalty Order | Draft Penalty Order is to be passed by the Penalty unit in the Regional Faceless Penalty Centre, to which the penalty proceedings have been assigned by NFPC. This Draft Penalty Order shall be examined by NFPC based on Risk Management Parameters and this draft Penalty Order may be sent by NFPC for Review to a Penalty Review Unit. |
| 7. | Action on Draft Penalty Order | The penalty review unit shall review the proposal of penalty unit, whereupon it may concur with, or suggest a modification to, such proposal, for reasons to be recorded in writing, and intimate the National Faceless Penalty Centre. Where the penalty review unit concurs with the proposal of the penalty unit, the National Faceless Penalty Centre shall pass the Final Penalty Order. Where the penalty review unit suggests a modification, the National Faceless Penalty Centre shall assign the case to a specific penalty unit, other than the original penalty unit in any one of the Regional Faceless Penalty Centres through an automated allocation system. |
| 8. | Final Penalty Order | Where the case is assigned by NFPC to a new penalty unit, such penalty unit, after considering the material on record including suggestions for modification and reasons recorded by the penalty review unit, (a) in a case where the modifications suggested by the penalty review unit are prejudicial to the interest of assessee, as compared to the draft penalty order of the original penalty, shall follow the same procedure as laid down in point no.7 above and prepare a revised draft order for imposition of penalty; or(b) in a case where the modification is not prejudicial to the interest of assessee, shall prepare a revised draft order for imposition of penalty; or(c) may propose non-imposition of penalty, for reasons to be recorded in writing, and send such order or reasons to the National Faceless Penalty Centre; Upon receipt of revised draft order from the penalty unit, the National Faceless Penalty Centre shall pass the penalty order as per such draft and serve a copy thereof upon the assessee or not impose penalty under intimation to the assessee. Where in a case, as referred to in sub-clause (a) or (b) of clause (i), the National Faceless Penalty Centre has passed a penalty order, or not initiated or imposed penalty, as the case may be, it shall send a copy of such order or reasons for not initiating or imposing a penalty to the jurisdictional AO or the National Faceless Assessment Centre, as the case may be, for such action as may be required under the Act. |
| 9. | Mode of Interface between the Assessee and the Penalty Adjudicating Authority | All the communication between the assessee and the NFPC is to be done exclusively through Electronic Mode via the ‘proceedings functionality in the ITBA Module. As the case may be, the assessee or his authorised representative may request for a personal hearing 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 appeal 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 as may be notified by CBDT. Where the request for personal hearing has been approved by the Chief Commissioner or the Director-General, in charge of the Regional Faceless Penalty Centre, such 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. |
Related article: CBDT extends various compliance dates due to Covid-19 Second Wave
Steps taken by CBDT to implement Faceless Penalty Scheme:
National Faceless Penalty Centre
These centres are made to facilitate the conduct of faceless penalty proceedings in a centralised manner and vest it with the jurisdiction to impose penalties in accordance with the provisions of this Scheme
Regional Faceless Penalty Centres
As it may deem necessary, 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
As it may deem necessary, to facilitate the conduct of faceless penalty proceedings, to perform the function of drafting penalty orders, which includes
- Identification of points or issues for the imposition of penalty under the Act
- Seeking information or clarification on points or issues so identified
- Providing the opportunity of being heard to the assessee or any other person
- Analysis of the material furnished by the assessee or any other person
- Such other functions as may be required for imposing a penalty
Penalty Review Units
As it may deem necessary, 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 in the draft order
- Whether the applicable judicial decisions have been considered & dealt with in the draft order
- Checking arithmetical correctness of computation of penalty if any
- Such other functions as may be required for review
The board may specify their respective jurisdiction.
The Notification can be accessed at:https://www.incometaxindia.gov.in/communications/notification/notification_no_3_2021.pdf
Will the National Faceless Penalty Scheme help to boost transparency? Will objectivity in the penalty proceedings may smoothen the experience of taxpayers? Will it help in achieving better compliance in the long term?
Well only time, taxpayers and government authority will decide that!
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