All About Assessment Unit (AU) under the Faceless Assessment Scheme

Under the faceless assessment scheme, there is a

1. Assessment Unit (AU)

2. Verification unit  (VU)

3. Review unit (RU)

4. Technical Unit (TU)

Each units is connected through the centralized National Faceless center. Let us know how the Assessment Unit  performs, its duties and mode of working  under the National Faceless center as contained in Circular F. No. PR. CCIT/NeAC/SOP/2020-21, Dated 19-11-2020.

As the name suggests, the Assessment Unit performs the function of making the assessment. The Principal Chief Commissioner of Income Tax, NeAC has laid down the SOPs for the Assessment Unit. The SOPs emphasize the issue of a specific questionnaire for framing a quality assessment order and prohibit roving inquiry on points not directly connected with the issue in question.

The Principal Chief Commissioner of Income Tax, NeAC has laid down the following SOP for the Assessment Unit and it provides that a focused and issue-specific questionnaire is a necessary pre-requisite for framing a quality assessment order and it reduces the compliance burden on the Assessee.

It provides for the following:

(a) Issue of initial questionnaire under section 142(1);

(b) Passing of best judgment assessment in case of non-compliance of notice;

(c) Analysis of information submitted in response to questionnaire under section 142(1);

(d) Reference to Verification Unit for online enquiry/Verification;

(e) Sending reference to Technical Unit (TU);

(f) Handling Re-assessment under Section 148;

(g) Handling approval for withholding of refunds under section 241A;

(h) Handling of revised return cases;

(i) Handling of reference for attachment under Section 281B;

(j) Preparation of assessment order;

(k) Handling of cases received by new AU after suggestion of modification by RU;

(l) Other Matters.

The National e-Centre (NeAC) has also laid down the Standard Operating Procedures (SOPs) for other Units constituted for the faceless assessments.

The following procedure to be adopted by AU to issue an initial questionnaire under Section 142(1):

(a) AU shall issue the initial questionnaire underSection 142(1) within 30 days of allocation of case in case of limited scrutiny and 45 days in case of complete scrutiny.

(b) AU shall examine all the internal database of the Dept., Insight, and E-filing AO Portal before issuing the initial questionnaire.

(c) The questionnaire shall seek specific and focused information and evidence on the points of enquiry as provided in the issue in respect of which the case has been selected for limited scrutiny or the specific ground that led to reopening of the assessment under Section 148. Roving enquiry on points not directly connected with the issue in question ought to be avoided.

(d) The initial notice is to be drafted with due diligence so that all the information is asked from the assessee in the first notice itself. The information available on record in the databases of the department should not ideally be called from the assessee.

(e) PAN/TAN, correspondence address, e-mail and mobile number of the parties with whom transactions have been done to be asked only when such details are required for the purpose of verification and enquiry.

(f) A structured question on whether the assessee continues to exist in the same form and identity at the time of receipt of notice as during filing of return ought to be asked in appropriate cases. The question should seek information as to any Merger, Demerger or Amalgamation that may have taken place or the entity/person is no longer in existence due to cessation, death or dissolution etc. Evidence of intimation of such an event to the department may also be sought in cases of occurrence of such events.

(g) AU may feel that a certain query/question needs to be added to the structured question bank proposed in INSIGHT on a certain issue as it is relevant in a number of cases, it may be updated through the designated feedback form in INSIGHT. The Structured Question Bank shall be updated every quarter through an approval process.

(h) The Notice is to be sent, through the NeAC, with the approval of the Unit Head of the AU. A response time of 15 days may be given to the assessee for compliance with the notice under Section 142(1) from the date of issue of the notice.

(i) The time may be reduced to 7 days for subsequent notices. However, these time guidelines must keep in view the limitation date for completing the Assessment.

(j) Assessee can seek adjournment during pendency of notice under section 142(1). Adjournment may be granted for a period of 7 days or more. However, AO may also grant suo-moto adjournment if he sought any additional information before the filing of initial reply by assessee.

In case of non-compliance of any notice under section 142(1), the cases that do not require any verification and where returned income can be accepted on the basis of information available in internal data bases of the department on record, the returned income may be accepted under Section 144 without any initiation of penalty for non-compliance.

In other cases, the following procedure is to be followed.

 (a) A centralised reminder to be issued to assessee from NeAC. If assessee failed to respond to such reminder then a show cause notice for levy of penalty for non-compliance can be issued.

(b) AU may make a request to the designated VU for physical verification in the following circumstances:

• It is of high-risk potential case;

• Impugned PAN is potential fraud PAN;

• AU suspects a large tax evasion in the case.

(c) Physical verification request shall be made in the prescribed format, after recoding reason in writing, and obtaining prior approval of Pr. CIT in the above-mentioned circumstances. In any other circumstances, the approval of CCIT (ReAC) shall be obtained. Orders in such cases are to be passed only after receipt of the report from designated VU.

3.2. Receipt of report from designated VU

 

On receipt of the report from the verification unit, the following procedure need to be adopted:

(a) Where no modification is proposed to the returned Income or to tax payable; and where returned income can be accepted on the basis of information available in internal databases of the department or on record, the returned income may be accepted under section 144 with no initiation of penalty for non-compliance.

(b) where tax payable and/or where modification to returned income is proposed then:

• Show cause notice to be issued as to why assessment should not be framed ex-parte under section 144 mentioning the points of proposed additions;

• If no reply received then drafted assessment order is to be framed with modified income and notices for penalty for non-compliance and/or any other penalty warranted by the facts of the case are to be issued.

 

The SOP provides for different situation as far as the response form the assessee is concerned, as under:

 (a) In case the assessee stops responding after submitting only part reply or after seeking adjournment, the AU should proceed with making ex-parte assessment under section 144 in accordance with the process and procedure described above.

(b) Order under section 144 to be passed by AU should be based on material available on record and estimation of income in accordance with law. High pitched assessments that are not supported by any evidence/document should be avoided.

(c) Assessment procedure as laid down in other sections of the SOP for framing regular assessment under Section 143(3) is to be followed if reply of the Assessee is received at any stage.

As far as the penalty proceeding is concerned, it provides as under:

 (a) The cases would be treated as non-compliance by assessee for the purpose of levy of penalty where:

• No response has been received from the assessee on or before the date mentioned in the notice.

• Immediately thereafter a reminder to all known email IDs of the assessee that gives another 15 days to respond is to be issued by the AU.

• An anonymized physical notice has been issued to the assessee through the INSIGHT on reference from NeAC, if no response is forthcoming even after electronic reminders.

• SMS reminders have been issued first within 7 days of the issue of the notice; Secondly, on the day before the date of compliance of notice and thirdly on the date of compliance mentioned in the notice.

(b) Where the assessee does not respond after physical notice and/or physical verification and modification is proposed in income, then:

• The notice shall be deemed to have been duly delivered in accordance with provisions relating to delivery of electronic records^[2] .

• Show cause notice for levy of penalty for non-compliance under Section 272A(1) along with the Show Cause Notice for passing order under section 144 with modified income shall be issued to the assessee.

• Such notice ideally would give a time of 15 days for response.

The following procedure to be adopted by AU in case the taxpayer has submitted response to the questionnaire issued to him:

(a) The AU is to examine the reply of the taxpayer with reference to the issue involved in the case and cross-verify it with the information available on its record.

(b) The AU shall decide whether reference to VU and/or TU is required and/or additional questionnaire under section 142(1) is to be issued. This action should ideally be done within 15 days of receipt of the reply of the Assessee.

(c) The AU shall issue additional questionnaire if the information/reply received from the Assessee differs or contradicts the information available on record and further clarification is required.

(d) An opportunity is to be given to the assessee before finalization of the assessment through an SCN if the assessee’s reply conflicts with information on record of the AU, or the VU or the TU has given an adverse report against the assessee.

(e) If the assessee contests the information available with the Department and the version of the assessee is different, then such information or data ought to be re-verified from the Reporting Agency (RA) by the AU.

(f) The AU shall issue additional questionnaire, if the information/reply received from the Assessee differs from the information or the record of the assessee with AU or where any further information or clarification is required and such clarification/further information is not available on record or in department’s databases or through the Reporting Agency.

(g) The AU shall issue an additional questionnaire in case a new point requiring examination arises from the reply filed by the Assessee in complete scrutiny cases.

(h) In limited scrutiny cases, the AU shall issue additional questionnaire, only after the PCIT(AU)’s approval, if a new point of dispute arises that is inextricably linked with the issue involved in the limited scrutiny.

(i) The AU is to ensure that principles of natural justice are met and the assessee gets an opportunity to rebut any adverse finding against him before the AU finalizes the assessment.

AU is backed by the Verification unit. The following procedure to be adopted by AU to refer to the VU:

(a) Before referring, the AU has to analyze all the materials available on record that includes all replies as well as any other material available on INSIGHT or in public domain such as, MCA and/or any other regulatory or research entities.

(b) After examining the case records, the AU may decide to get specific enquiry/verification conducted from a VU. The reference should not be made for collection of information like bank statements or ROC data etc., but an enquiry or investigation of any issue in dispute.

(c) The AU should endeavour to include all the requirements of further enquiry in the first reference itself. Any reference to VU, after two references has been made in an assessment cycle of the case is to be referred after prior approval from PCIT AU.

(d) Every reference shall be through a checklist, which has been made available on ITBA.

(e) Every reference is to be uniquely identified so that follow up requests will be sent to the same VU by the system algorithm to maintain consistency and continuity in verification.

(f) Physical verification can be conducted in select cases through the designated VU, where the assessee is non-compliant or where the third party from whom information/document/evidence is to be collected doesnot have a digital footprint.

(g) Designated VU means the Verification Unit physically located nearest to the location where physical verification is required. In the event of there being more than one VU nearest, the allocation shall be done by the Automatic Allocation Tool (AAT).

AU is further backed by Technical Unit. The following procedure to be adopted by AU to refer to the TU:

(a) All matters relating to advice of designated TU shall be sent to such TU in a standardized format containing facts of the case, section involved and the issue in dispute.

(b) The AU shall send a reference to the designated TU only in select cases, after obtaining permission from the PCIT (AU) or where specifically indicated in the SOP or wherever there is requirement in law for obtaining the approval of the CIT/PCIT.

(c) Reference to TU on issues other than those on legal issues, Transfer Pricing (TP) reference and the Foreign Tax and Tax Research (FT&TR) shall be in exceptional circumstances requiring technical or forensic advice.

(d) Reference for advice of TU should ideally be made within 15 days of receipt of requisite information from the assessee and it is advisable that references within 60 days of the date of limitation of passing of the order are done in truly exceptional and rare circumstances.

Technical assistance may be called for in the following circumstances:

(a) Interpretation of law/legal issues;

(b) Analysis of Books of Accounts;

(c) Forensic Analysis of documents, data, device etc.;

(d) Special Audit/Forensic Audit;

(e) Assistance for finding passwords and deciphering digital files, applications etc.;

(f) Valuation of tangible or intangible assets;

(g) Determination of Armed Length Price and Fair Market Value;

(h) Translation, transcription etc.;

(i) Assistance on trade-related practices, technical or Management Issues; and

(j) Other technical matters.

Each of the above-listed circumstances is discussed in detail in subsequent paragraphs:

As far as possible, legal interpretation and application/distinction of case laws in settled and non-settled issued should be common within the NeAC-ReAC Eco-system and a common view on the legal issue may be evolved.

Only in instances where there are adverse views of the jurisdictional high court to the view of the NEAC; the AU may have to take the jurisdictional high court’s view while also mentioning the departmental view/TUs view clearly in the Assessment Order. The following SOPs are prescribed for interpretation of legal issues:

(a) The AUs may seek the advice of the designated TU on any legal issue before them in respect of the pending assessment.

(b) The reference to TU shall be in a template that includes facts of the case and the point of dispute on which opinion is sought.

(c) The subject on which assistance is sought should be clearly specified.

(d) The name of the jurisdictional High Court must be communicated. The jurisdictional High Court will be determined from the location of the assessee.

(e) Any High Court decision (especially jurisdictional) on the subject needs to be mentioned giving a standard citation.

(f) The assistance should be sought by the AU only after the approval of the unit head.

The AU may seek assistance from the TU for the analysis of the books of account requisitioned in a machine-readable format. The following format, mode, process and procedure are prescribed in cases of complete scrutiny:

(a) Only the books of account or structured seeking of accounting data called for in a predetermined XML/JSON format by the AU may be referred to the designated TU through NeAC.

(b) The accounts on which assistance is sought should be clearly specified by the AU while referring the analysis to the TU through NeAC.

(c) The reference for analytics on books shall be made after prior approval of the PCIT in circumstances of a large transaction, complexity of books or identified mismatch.

The AU may seek the assistance of the TU for the forensic analysis of documents, data, device etc. or Forensic Audit. The following format, mode, process and procedure are specified for forensic analysis:

(a) The relevant documents, data, device etc. should be forwarded by the AU to the designated TU through NeAC.

(b) The assistance should be sought by the AU only after the approval of the PCIT (AU).

The AU or VU may seek the assistance of the Designated TU for the Special Audit. The following format, mode, process and procedure are specified for special audit:

(a) The details of the case whose books of accounts are to be subjected to Special Audit should be specified by the AU for the TU through NeAC in a prescribed format.

(b) Designated TUs to have a database of approved Auditors for Special Audit.

(c) The assistance should be sought by the AU only after the approval of the PCITT of AU or VU.

The relevant digital data files, messages, applications etc. should be forwarded by the AU to the TU through NeAC.

The AU or VU may seek assistance of the Designated TU for the Valuation of tangible or intangible assets. The following are the specified format, mode, process and procedure in this regard:

(a) The details of the tangible or intangible asset to be valued should be specified by the AU for the TU through NeAC in a prescribed format.

(b) The format of making references for the valuation of different assets from the TU under different sections of the Act are separately prescribed for:

• valuation of immovable property under Section 50C;

• valuation of shares, Jewellery, artwork etc. under Section 56;

• valuation of tangible or intangible asset under Section 43(1);

• valuation of any asset, property or investment under Section 142A;

• valuation of the net assets under Section 115TD and similar requirement in other sections of the Act.

(c) Designated TU shall obtain valuation reports from departmental valuers, empaneled valuation experts, and designated experts etc. to evaluate the tangible or intangible assets as per law.

(d) The assistance should be sought by the AU only after the approval of the PCIT

The AU may seek the assistance of the Designated TU for the Determination of Arm’s Length Price and Fair Market Value. The following format, mode, process and procedure are specified in this regard:

(a) The details of international transaction or domestic transaction between two or more associated enterprises may be specified by the AU for the TU through NeAC in a prescribed format.

(b) The TU to ask the Transfer Pricing Officer to determine the arm’s length price in case of international transaction as per section 92B or specified domestic transactions as per section 92BA between two or more associated enterprises and as per the extant instructions issued in this regard.

(c) The TU may empanel valuation experts to determine the Fair Market Value of various goods, services or assets which are required under various sections, i.e., Sections 9, 17, 28(via), 40A(2), 45, 49, 50CA etc.

The AU or VU may seek the assistance of the Designated TU for the Valuation of tangible or intangible assets. The following are the specified format, mode, process and procedure in this regard:

(a) The document which is required to be translated or the recording which is required to be transcript should be uploaded by the AU for the designated TU through NeAC.

(b) The language of the document or the language of the recording should be clearly communicated to the TU. The language to be translated into should also be specified.

(c) The TU may have empaneled manpower/agency to translate the documents or to make transcripts in translation.

(d) The assistance should be sought by the AU only after the approval of the unit head.

(e) Submissions and documents received in AU/VU in vernacular language are to be ideally forwarded to the designated TU through NeAC for translation within 5 days of receipt.

The AU or VU may seek the assistance of the designated TU for issues beyond those mentioned above. The reference under this clause shall be made after approval of the PCIT, AU or VU. The following format, mode, process and procedure are specified for making reference:

(a) The AU should clearly specify the technical matter other than those listed above, on which it requires the assistance of the TU through the NeAC.

(b) The purpose of seeking this advice and its reference to the assessment of income is to be made a part of the reference. The assistance should be sought by the AU only after the approval of the PCIT (AU).

The following procedure to be adopted by AU to handle the re-assessment:

(a) The cases for reassessment shall be assigned to respective AUs and notice issued under Section 148 along with reasons/supporting documents shall be made available on the ITBA. Ideally, the sharing of notices/reasons/supplementary documents and evidence with NeAC would take place within 30 days of the issue of notice.

(b) Where in the assigned cases to the AU, the return of income has not been filed in response to reassessment notice and notice under section 142(1) has been issued to assessee, the AU shall proceed in the case for assessment as per SOP for non-compliance of notice under section 142(1) cases given above.

(c) During the course of proceedings, if the assessee files objections to the notice issued under Section 148, the AU would dispose of the objections by passing and communicating a speaking order as per law.

(d) The response of the AU to the objections shall be shared with assessee through NeAC. Thereafter, the AU would proceed to complete the assessment in accordance with the law and as per the applicable SOPs.

The following procedure to be adopted by AU to handle the request for withholding of refunds:

(a) The power to withhold refund till the date of assessment vests with the Jurisdictional Assessing Officer and it is to be exercised with the approval of CIT/PCIT.

(b) The data relating to cases, where refunds become due to the assessee during the pendency of the faceless assessment shall be made available by the ITBA to the NeAC, which would send it to the Assessment Units where such cases are assigned.

(c) The AU shall record the reasons in writing along with specific recommendation for withholding of refund or otherwise as per provisions of Section 241A for approval of PCIT(AU).

(d) The PCIT (AU) shall consider the proposal and give his approval or otherwise ideally within 15 days of receipt of proposal.

(e) The decision of PCIT(AU) along with the proposal shall be shared with jurisdictional Assessing Officer through ITBA, who shall take necessary action to withhold the refund under section 241A and intimate the assessee.

The following procedure to be adopted by AU to handle the request for handling revised returns:

(a) A return of Income may be revised by the taxpayer either prior to the case being assigned for faceless assessment or during the pendency of the faceless assessment.

(b) In all such cases, the revised return shall be made available to the Assessment Unit on ITBA and E-Filing AO Portal for consideration during Assessment proceedings. Ideally, the sharing with AU may take place within 7 days of the revision of the return.

The following procedure to be adopted by AU to handle the request for attachment under Section 281B:

(a) Where during the course of pendency of assessment proceedings, AU is of the opinion that for the purpose of protecting interest of the revenue, it is necessary to do so, it would submit a proposal for provisional attachment under Section 281B to PCIT(AU) through the workflow on Systems.

(b) The PCIT(AU) would recommend or reject the proposal on the workflow in Systems and if recommended for attachment, the recommendations along with the proposal shall be sent to the jurisdictional Assessing Officer (JAO) through NeAC.

(c) The JAO may pass an order for provisional attachment under section 281B after approval from jurisdictional PCIT.

The following procedure to be adopted by AU to pass the assessment order:

Service of the Draft assessment order

(a) The AU ought to ensure that the reasons on which the case is selected for scrutiny are duly examined and that all the information available on system pertaining to the issue is examined and utilized for the purpose of preparation of draft order. All notices issued to the assessee and the information sought on points in dispute ought to be mentioned in the DAO.

(b) The AU shall diligently and timely identify appropriate cases where enquiry or verification is required from VU and technical assistance is required from TU and refer the cases to VU or TU at the earliest. Ideally, reference may be made 90 days prior to the limitation period, except when RU recommends further enquiry or verification.

(c) The draft assessment order ideally should be submitted for RMS within a reasonable time and not later than 15 days of receipt of complete and final information required for submission of the draft order. It is advisable that all references to RMS are made 45 days prior to the date of limitation of the passing of order.

(d) The AU shall ensure that the draft assessment order is speaking, reasoned and judicious and all issues have been duly dealt with.

Show Cause Notice

(a) The AU has to issue show cause notice wherever modification is proposed in return income or sum payable. The show-cause notice, except in the case of an order under Section 144, shall accompany draft assessment order. As a corollary, the draft assessment order is required to be speaking, fair and judicious.

(b) The AU is advised to issue show cause notice along with a draft order as soon as the SCN flag is raised in RMS and generally not be later than 5 days.

(c) The AU should ensure that reasonable time is given in the show-cause notice to the assessee to comply with the principle of natural justice.

Final Assessment Order

(a) The AU is to invariably preview the assessment order to be issued to ensure that the assessment order has properly framed the issue in dispute and incorporated all facts relevant to the issue.

(b) The AU while finalizing the assessment order is to ensure that penalty proceedings, if any required to be initiated for imposition by Jurisdictional Assessing Officer, are discussed in the body of order as well as initiated in the system through a specific format.

(c) Draft assessment order is to be monitored to ensure that assessment order is passed well in time and without any delay. Any unwarranted delay shall be brought to the notice of the PCIT (AU).

(d) Before passing the Assessment Order, the AU is to ensure that the feedback is filled for each item where feedback is sought.

(e) A feedback form to be filled by the assessee accompanying the assessment order to elicit the experience of the assessee on the faceless scheme.

The following procedure to be adopted by AU to handle the cases received after suggestion of modification by RU:

(a) The scope of assessment of the cases received by the new AU is to be restricted to consideration of the review report and its ramifications on the assessment order.

(b) If during the process of finalisation of draft order that takes into account the report of the RU, the new AU finds an additional fact or a point that arises from such examination and which is not mentioned in the Report of RU then the additional fact or point can be raised in the assessment proceedings. This action shall be initiated only after obtaining approval of the Pr.CIT (AU).

(c) The factum of disagreement among various units on any issue should not be made part of the assessment order. The new AU would thoroughly discuss all the issues in the assessment and pass a speaking order as per the law and the facts before the new AU.