CBDT vide Notification No. 2/2021 dated 12.01.2021 has notified the Faceless Penalty Scheme, 2021 under the Income Tax Act, 1961 (“Act”) to provide for the online imposition of e-penalty or faceless penalty by the income-tax authorities. This scheme shall become effective from 13.01.2021.
Earlier, on 13.08.2020, CBDT notified the Faceless Assessment Scheme, 2020 vide Notification No. 60/2020 and on 25.09.2020, the Faceless Appeal Scheme, 2020 was notified vide Notification No. 76/2020 dated 25.09.2020. In line with the Faceless Assessment Scheme, 2020 and Faceless Appeal Scheme, 2020, the penalty proceedings shall be decided by a team of income-tax authority with dynamic jurisdiction. The assessee won’t know the details of the income-tax authority and has to furnish their submissions online in their e-filing portal.
The announcement of faceless penalty was made by the Finance Minister Nirmala Sitaraman while presenting the Union Budget 2020 on February 1, 2020. Finance Bill, 2020 proposed to enable the Central Government to notify the scheme for levying penalty in a faceless manner.
The objective of introducing faceless penalty is to eliminate the physical interface between the taxpayers and the income tax authorities. This will help in curbing corruption and the arms twisting tactics by the department.
The rules and procedures laid down in the Faceless Penalty Scheme, 2021 are on similar lines with the Faceless Assessment Scheme, 2020 and Faceless Appeal Scheme, 2020.
Appropriate amendments have been carried out in the Income Tax Act, 1961. An amendment is proposed in section 274 to insert a new sub-section (2A) to provide for the e-penalty scheme to be notified by the Central Government.
Following amendments have been made by the Finance Act, 2020 in section 274 of the Income Tax Act, 1961 which deals with the procedure for imposing penalty by income-tax authorities to provide for the legal basis to the Faceless Penalty Scheme.
(2A) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of imposing penalty under this Chapter so as to impart greater efficiency, transparency and accountability by—
(a) eliminating the interface between the 27a[income-tax authority and the assessee or any other person] to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
(c) introducing a mechanism for imposing of penalty with dynamic jurisdiction in which penalty shall be imposed by one or more income-tax authorities.
(2B) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (2A), by notification in the Official Gazette, direct that any of the provisions of this Act relating to jurisdiction and procedure for imposing penalty shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, 2022.
(2C) Every notification issued under sub-section (2A) and sub-section (2B) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
Effective Date of Faceless Penalty Scheme, 2021
Provision for e-penalty or Faceless Penalty Scheme
In order to impart greater efficiency, transparency and accountability to the assessment process under the Act a new e-assessment scheme has already been introduced. With the advent of the e-assessment scheme, most of the functions/ processes under the Act, including of filing of return, processing of returns, issuance of refunds or demand notices and assessment, which used to require person-to-person contact between the taxpayer and the Income-tax Department, are now in the electronic mode. This is a result of efforts by the Department to harness the power of technology in reforming the system. All these processes are now not only faceless but also very taxpayer-friendly. Now a taxpayer can manage to comply with most of his obligations under the Act without any requirement for physical attendance in the offices of the Department.
Section 274 of the Act provides for the procedure for imposing penalty under Chapter XXI of the Act. In response to a show cause notice issued by the Assessing Officer (AO), assessee or his authorised representative is still required to visit the office of the Assessing Officer. With the advent of the E-Assessment Scheme-2019 and in order to ensure that the reforms initiated by the Department to eliminate human interface from the system reaches the next level, it is imperative that an e-penalty scheme be launched on the lines of E-assessment Scheme-2019.
Therefore, it was proposed to insert a new sub-section (2A) in the said section so as to provide that the Central Government may notify an e-scheme for the purposes of imposing penalty so as to impart greater efficiency, transparency and accountability by,—
(a) eliminating the interface between the Assessing Officer and the assessee in the course of proceedings to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
(c) introducing a mechanism for imposing of penalty with dynamic jurisdiction in which penalty shall be imposed by one or more income-tax authorities.
It also empowers the Central Government, for the purpose of giving effect to the scheme made under the proposed sub-section, for issuing notification in the Official Gazette, to direct that any of the provisions of this Act relating to jurisdiction and procedure of imposing penalty shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. Such directions are to be issued on or before 31st March, 2022. It is proposed that every notification issued shall be required to be laid before each House of Parliament.
On 13.08.2020, while launching the platform for “Transparent Taxation - Honouring the Honest” by the Prime Minister Narendra Modi, he elaborated that this platform has major reforms like Faceless Assessment, Faceless Appeal and Taxpayers Charter.
In line with the above amendments and the announcements, finally, CBDT has notified the Faceless Penalty Scheme, 2021 to be effective from 12th January 2021 to all the penalty proceedings.
Salient features and Highlights of the Faceless Penalty Scheme 2021
The salient features and highlights of the Faceless Penalty Scheme, 2021 are outlined below-
1. The Notification No. 2/2021 dated 12.01.2021 is issued under section 274(2A) of the Act.
2. For e-penalty, in line of e-assessment centres, Faceless Penalty Centres - National Faceless Penalty Centre and Regional Faceless Penalty Centres will be created. Under each Regional Faceless Penalty Centres, ‘Penalty Units’ and ‘Penalty Review Units’ will be created to conduct the penalty proceedings.
3. All the communication between the penalty units and penalty review units and the assessee or any income tax authority or any other person shall be through the National Faceless Assessment Centre only and in electronic mode only.
4. 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.
5. National Faceless Appeal Centre shall have the power to initiate penalty proceedings and issue a show-cause notice for imposition of penalty or recommended initiation of penalty proceedings.
6. National Faceless Appeal Centre is empowered to pass the appeal order.
More detailed articles on Faceless Penalty Scheme, 2021 will be published shortly.
Update:
CBDT amends Faceless Penalty Scheme, 2021
Update:
Read the full text of amended Faceless Penalty Scheme, 2021 (As amended by Faceless Penalty (Amendment) Scheme, 2022) here
Read the full text of the Notification No. 2/2021 dated 12.01.2021 on Faceless Penalty Scheme, 2021 here.
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