SOP (Standard Operating Procedure) For penalties under Faceless Penalty Scheme-2021

SOP (Standard Operating Procedure) For penalties under Faceless Penalty Scheme-2021

Scheme of Faceless assessment was launched in August 2020 as the part of the tax reform called as faceless tax assessment scheme. The main objective is to make the tax assessment more transparent, efficient and accountable. 

Faceless penalty scheme, 2021 (“FPS”) was notified vide CBDT Notification No. 2/2021 (S.O. 117(E)) dated 12th January, 2021. The scheme was launched as a step ahead toward elimination of physical interaction between tax authority and taxpayer.

1. National/Regional Faceless Assessment Centers to act as Penalty Centres

  • For the purpose of faceless penalty proceedings and imposing penalties, the Faceless Penalty Scheme mandated appointment of National Faceless Penalty Centres (NFPC) and Regional Faceless Penalty Centres (RFPC).
  • As per Para 4(4) of Scheme read with Order dated 20.01.2021, National Faceless Assessment Centre (NaFAC)/Regional Faceless Assessment Centre (ReFAC) are to act as NFPC/RFPC respectively.
  • Further, Assessment units will act as Penalty Units and Faceless Assessment Officers (“FAO”) will act as Faceless Penalty Officers (“FPO”)

2. Progress so Far under FPS

  • Vide Notification No. 2/2021 (S.O. 117(E)) dated 12th January, 2021, directions were issued for giving effect to the Faceless Penalty Scheme. 
  • Further, As per Para 3 of Faceless Penalty Scheme, 2021, CBDT issued orders to define scope of Faceless Penalty Scheme.
  • As per orders, penalties leviable by officer above the rank of Additional Commissioner of Income Tax (“CIT”) or designated authorities are not covered within the scope of FPS.
  • Also, penalties related to following are outside the scope of FPS:
  • Now, CBDT has prescribed complete Standard Operating Procedures (“SOP”) for penalties under FPS, 2021 vide document issued on 9th August, 2021. In this article, we will discuss Standard Operating procedure in detail.

3. Standard Operating Procedure (SOP) of Penalties covered under Faceless Penalty Scheme (FPS) – 2021

3.1 Reference to NFPC (National Faceless Penalty Centre) – 

  • All penalties initiated by NaFAC shall be first captured through ITBA (Income Tax Business Application) for the purpose of reference to NFPC. For the purpose of reference to NFPC, NaFAC will upload the notice of penalty proceedings on ITBA.
  • The penalties for non compliance levied by Additional/ Joint commissioner of Income Tax shall be submitted by Range Head in prescribed form available on ITBA for reference to NFPC.
  • Upload of Penalty initiating notice on ITBA is also deemed as a reference to NFPC. However, penalties recommended by Income Tax authorities shall be captured in ITBA through available form. Recommended penalties updated on ITBA by Income Tax Authority shall be considered as referred to NFPC and shall be added to the worklist of pending penalties.
  • All actions relating to section 275(1A) which may result in impositions/enhancement/reduction of penalty shall be taken by JAO (Jurisdictional Assessing officer) of Income Tax. Facility for implementation of Section 275(1A) is already in place in ITBA.

3.2 Identification of Penalties coming under FPS Purview

  • Faceless Penalty Unit shall go through the allocated penalty work item to find out whether the allocated penalties referred are coming within the scope of FPS as per CBDTs orders. 
  • Penalty which is out of scope of FPS will be forwarded immediately to the NaFAC so that they can forward the case to relevant jurisdiction.
  • Identification of cases kept in abeyance
    • FPU shall first identify the penalty cases which are kept in abeyance. Following tools may be used to identify such cases:
      • Access related to cases pending with CIT (Appeals)
      • Cases pending before ITAT or High Court and kept in abeyance
      • verify the response of the assessee to SCN claiming pendency of appellate proceedings through Judicial Portals  
      • Requesting jurisdictional Assessing Officer to provide requisite information
      • Any other process suitable based on facts and circumstances
  • Details of cases kept in abeyance should be entered in ITBA. Information alongwith relevant document may be noted in relevant document history for future  reference.
  • Consider decision of Appellate Authority in Quantum Appeals
    • In cases of quantum appeal, FPU shall take into account decisions of appellate authority.
    • Decision of pending appeal may be informed by assessee himself or FPU may check decision as per available resources before finalising appeal.
  • Identify cases where limitation period has expired
    • FPU shall identify the cases which are not kept in abeyance but limitation for imposition of penalty has been expired. In such possibility is that penalties are either dropped off or levied off-line without updating status on ITBA.
    • In such case, following are the suggested course of actions:
      • FPU shall write to the Jurisdictional Assessing officer to check the penalty register and revert.
      • If reply is received or not received in reasonable time then corresponding remark may be updated in noting history with the approval of  Range Head leaving the work item pending. 
      • Whenever ITBA provides the functionality to close such proceedings then the same may be utilised. 
  • Penalty proceedings covered under Vivad Se Vishwas Scheme (VsVS)
    • FPU shall check the data of VsVS to check which penalty proceedings are required to be closed under VsVS declaration.
    • A suitable noting in case history may be made and requisite documents be attached. 
    • If ITBA provides the functionality to close the proceedings by marking the case as VsVS, the same may be utilised. 

3.3 Immunity and waiver of penalties for taxpayer 

  • Immunity from penalty 
    • Under section 270AA of Income Tax Act, the immunity is given to the assessee from levy of penalties if the assessee files an application in Form 68 within time and other prescribed conditions are fulfilled.
    • Such cases are outside the purview of FPS and also suitable functionality to handle such cases is already given in ITBA for Jurisdictional Assessing officer (JAO).
    • Once the immunity is granted then JAO may inform the FPU for handling the penalty work from the document uploaded in ITBA.
  • Waiver of Penalties 
    • waiver work is to be dealt by the Principal Commissioner of Income Tax (Pr. CIT) (Jurisdictional) and this is also out of scope of Faceless Penalty Scheme-2021.
    • Hence the action for waiver of penalty shall be taken after receipt of order of the Pr. CIT (Jurisdictional) and such documents shall be uploaded and communicated with FPU.

3.4 Penalties without base documents – 

  • FPU have access to all the relevant documents which may be uploaded by NaFAC or Income Tax Authorities if base orders are passed on ITBA. 
  • However, in case the base order passed by JAO are not available in ITBA then the FPU should immediately write to JAO for providing the base orders or any other relevant documents for penalty.
  • JAO shall provide the requisite information in response to the request of the FPO.

3.5 Show Cause Notice (SCN) 

  • Show cause notice is to be sent by FPU for giving the opportunity to the assessee that why applicable penalty should not be levied.
  • First SCN issued by FPU is automatic and format based. Reference is given in SCN of the penalty section and earlier issued notices.
  • The assessee needs to file a reply in writing within 5 or 7 days (flexible) from the date of issue of SCN. If required, personal hearing may also be done through video Conferencing.
  • Further the a new FPU shall issue a new show cause notice where the modifications suggested by Penalty review unit are prejudicial to the interest of assessee or any other person.
  • Communication with assessee or Third person: 
    • If there is need of any clarification/Information for the purpose of penalty proceedings then Faceless Penalty Unit (FPU) may issue a Notice u/s 133(6) or Summon u/s 131 to the assessee or third person. 
    • The letter is electronic in nature with a digital signature of NaFAC to maintain facelessness.

3.6 Referred to Verification Unit

  • Wherever necessary, FPU may refer to the Verification Unit. After all verifications, VU shall submit its report within 7 days of receipt of reference.
  • In non-responsive cases, allocation of such cases shall be made to Verification Units or Designated Verification Unit for service of notice. VU/DVU shall take the print out of notice and shall send the same through speed post.

3.7 Reference to Technical unit (TU)

  • This unit is for the assistance in technical works including any assistance or advice on legal, accounting, forensic, information technology, valuation, audit, transfer pricing, data analytics, management or any other technical matter. 
  • FPU refers to the technical unit when the assistance is needed in these terms in existing formats.
  • TU may ideally send its report within 5 working days of receipt to of the reference, unless the matter needs to be referred to agencies/authorities outside TU. 

3.8 Draft Penalty order

  • The Penalty order is such that it is well reasoned and speaking all the relevant aspects of the concerned matter. 
  • If FPU decides not to impose a penalty then penalty order should be reasoned and speaking so that if the same is selected for review by Review Unit (RU) then RU should understand the reason for non-imposition of penalty.

3.9 Review Unit (RU) 

  • RU works on the cases which are selected by the Risk Management Strategy (RMS) for review. 
  • The Review Unit reviews the matter in all aspects and submit its report within 5 working days of receipt of the case. 
  • RU may suggest corrections in the draft of FPU. RU may also suggest modification if  decision of FPU is not concurred with or any major issue in draft order is noticed.
  • In case modification is suggested by RU then the case will be sent for further processing to a new FPU.

3.10 Non-Responsive Cases

In the non-responsive cases the FPU may check whether it is ex-parte or not. 

  • Penalty order passed on Ex-parte basis– 
    • In case the base order is in the nature of ex-parte order then FPU may issue another show cause notice through “issue letter functionality”. 
    • FPU should check whether email has been delivered or not. A copy of letter should also be sent through speed post.
    • If speed post is delivered then FPU should wait for the reasonable time for reply of the assessee. If it is not delivered, FPU may pass an ex-parte order.
  • In case of Non Ex-parte – 
    • In non-responsive cases, where the base order is not ex-parte, then FPU shall use address of assessee and its authorised representatives to communicate and elicit response.
    • If the response from the assessee is still not received then SCN for ex-parte penalty will be sent through e-mail and speed post.
    • After waiting for a maximum of 5 working days from communication, the FPU may go ahead with passing of the order on the basis of material available on records.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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