Faceless Appeal Scheme, 2020 - A step in right direction

For some time now, the Indian Government has been implementing various measures to
ensure that taxpayer's experience in dealing with tax and appellate authorities are
seamless, painless and transparent. In this direction, it has undertaken numerous steps
like making e-filing of tax return mandatory, e-filing assessment proceedings, e-filing of
appeals before Commissioner of Income-tax (Appeals) ('CIT(A)'). In furtherance of its
objective of minimum government maximum governance, few days before India's 74th
Independence Day, Hon'ble Prime Minister of India, Shri Narendra Modi, announced
structural reforms in Income-tax by unveiling a platform for Transparent Taxation –
Honouring the Honest. The three main pillars of this platform are: faceless assessment,
faceless appeal and taxpayer's charter. With this, it formally introduced faceless
assessment and faceless appeal wherein the assessment and appeal proceedings shall be
undertaken without the need for taxpayer to personally visit tax or appellate authorities.
Pursuant to this announcement, on 25 September 2020, the Central Board of Direct
Taxes ('CBDT') rolled out Faceless Appeal Scheme, 2020 ('Scheme') laying down the
procedure and various other facets of the faceless appeal. In this article, the authors have
summarised the Scheme and attempted bringing out few potential challenges that may
be faced by the taxpayers.

Appeals brought within the ambit of Faceless Appeal Scheme

The Faceless Appeal Scheme shall be applicable to the appeal filed against order passed
under section 246A and section 248 of the Income-tax Act, 1961 ('IT Act').

Functions of different Units in Faceless Appeal Scheme

1.   National Faceless Appeal Centres (NAC)

  Facilitate the conduct of e-appeal proceedings in a centralised manner, which
shall be vested with the jurisdiction to dispose appeal in accordance with the
provisions of this Scheme.
2.   Regional Appeal Centres (RAC)
  Facilitate the conduct of e-appeal proceedings, which shall be vested with the
jurisdiction to dispose appeal in accordance with the provisions of this Scheme.
3.   Appeal Units (AU)
♦   Facilitate the conduct of e-appeal proceedings;
♦   Perform the function of disposing appeal which includes admitting
additional grounds of appeal, making such further enquiry as it thinks
fit;
♦   Directing the National e-Assessment Centre (NeAC) / Tax Officer, 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 taxpayer, analysis of materials furnished by the
taxpayer, review of draft order;
♦   Such other functions as may be required under this Scheme

Process flow under the faceless regime

Below flowchart exhibits the process flow of faceless appeal:

1.   As per section 249(4)(b) of the IT Act where no return has been filed by the
taxpayer, the taxpayer is required to pay an amount equal to the amount of
advance tax which was payable by him.
2.   NAC to intimate the Taxpayer about admission / rejection of appeal. If the
appeal is admitted, the above mentioned process flow will be followed.
3.   Pr. CCIT or Principal Director General in charge of NAC shall, with prior
approval of Board, to specify the threshold for referring to 2nd AU (i.e. AU other
than the AU who have passed the draft order) for conducting the review of such
order
4.   Where suggestion is intended to enhance an assessment or a penalty or reduce
the amount of refund, please refer process flow for enhancement of assessment
or penalty or reduce the amount of refund
 5.   Refer Process Flow for Penalty proceedings

Process for filing additional grounds of appeal

Process for filing additional evidence

Procedure for enhancement of assessment or penalty or reduce the refund
amount
Procedure to Penalty proceedings

Procedure to Rectification proceedings

With a view to rectifying any mistake apparent from the record the NAC may amend any
order passed by it, by an order to be passed in writing. The process flow for rectification
proceedings is briefly explained hereunder:

1.   Appeal unit preparing or reviewing or revising the draft order

2.   Rectification application to be assigned to specific appeal unit in any one
Regional Faceless Appeal Centre through an automated allocation system

Provision to transfer the appeal to CIT(A)

The Principal Chief Commissioner or the Principal Director General, in charge of NAC,
may at any stage of the appellate proceedings, if considered necessary, transfer, by an
order, the appeal with the prior approval of the Board to such Commissioner (Appeals)
as may be specified in the order.
Appellate Proceedings

♦   An appeal against the order passed by NAC shall lie before the Tax Tribunal
having jurisdiction over Tax Officer.
♦   Where any order passed by the NAC or Commissioner (Appeals) is set-aside and
remanded back to the NAC or Commissioner (Appeals) by the Tax Tribunal or
High Court or Supreme Court, the NAC shall pass the order in accordance with
the provisions of this Scheme.
Exchange of Communication

All communication between the NAC and the taxpayer shall be exclusively exchanged by
electronic mode. Even the internal communication between NAC, RAC, NeAC, AU and
Tax officer shall be exclusively exchanged by electronic mode.

Personal appearance in Centres or Units:

While the taxpayer or his authorised representative is not required to be personally

present in connection with any proceedings under this Scheme, they may request for
personal hearing (under specified circumstances) so as to make his oral submissions or
present his case before the AU under this Scheme. The Chief Commissioner or the
Director General, in charge of the RAC, under which the concerned unit is set up, may
approve the request for personal hearing if he is of the opinion that the request is
covered by the specified circumstances. It is pertinent to note that such personal hearing
will 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 CBDT.

Best practices under the Faceless Appeal Scheme

With the advent of faceless regime, it is imperative that the taxpayer adopts best
practices for seamless transition and embracing the change. Some of these best practices
that one should follow are as under:

1.   With the communications being made on the registered email address and
registered mobile number, any change in the email address and mobile number
needs to be communicated to the tax / appellate authorities as early as possible.
It is imperative to note that in many cases, the change in email id / mobile
number is not made on the designated income-tax portal. Thus, in such
situations there is all likelihood of missing the communication from tax /
appellate authorities. In order to overcome this challenge, the taxpayer
(especially corporate taxpayers) may consider creating a separate email account
(say designated email account for income-tax communications) which can be
accessed by the identified persons only.
2.   There is a likelihood that the notice is updated on the web portal but due to
technical glitch or otherwise, the taxpayer does not receive any intimation.
Hence, it is advisable that the taxpayer should need to check the designated web-
portal on a regular basis so that they do not miss any important communication.
3.   With no additional opportunity granted for rejection of additional ground and /
or additional evidences, the taxpayer needs to meticulously cover all the factual
and legal aspect and should be part of the initial submission itself.
 4.   While there is no time-limit prescribed to file the additional grounds and / or
additional evidence, it is pertinent to take cognizance of the fact that post initial
submission / response, the taxpayer may not be given an additional opportunity
to make further submission. In light of this, if the additional ground and / or
additional evidence is not filed in a timely manner, there could be a possibility
that appeal unit will pass the draft order before filing such additional ground /
additional evidence.
Some Challenges under the Faceless Appeal Scheme

With introduction of any new process, there is bound to have transitional challenges
which need to be address timely and appropriately. Faceless Appeal Scheme is no
exception to it. While the intention of the Indian Government is noble, the Scheme has
thrown many challenges for the taxpayer as well as the tax authorities. It would be highly
appreciated if these challenges are addressed to iron out the uncertainty and thereby
avoiding undue hardship to the taxpayer and tax authorities. Some of these potential
challenges are:

1.   Where an appeal has been fully heard by the jurisdictional CIT(A) however, the
order is awaited from such CIT(A), whether such appeal will be transferred to /
assigned to AU? Alternatively, whether the jurisdictional CIT(A) would be
required to pass the necessary order within the prescribed timeframe?
2.   In case of specified circumstance, if taxpayer wishes to request for an out-of-turn
hearing or expedite the appellate proceedings, whether the taxpayer will be
allowed to do so, in absence of any guidelines prescribed in the Scheme?
3.   What will be the timeline for an appeal to be heard and disposed? The extant
provisions do not lay down and specific timeframe. Currently, based on
experience, on an average, a taxpayer needs to wait anywhere between 1-2 years
for their appeal to come up for hearing.
4.   What will be the recourse to the taxpayer where he misses the first notice issued
by NAC? Will NAC issue another notice to the taxpayer or the Appeal Unit will
pass the order based on the information available on records?
5.   If the taxpayer has common legacy issues in its appeals for consecutive years,
whether all such consecutive appeals shall be assigned to same Appeal Unit?
6.   In case there are conflicting non-jurisdictional high court rulings and there is no
high court ruling of the jurisdictional high court, whether the Appeal Unit will be
bound to follow the decision of non-jurisdictional high court which is not in
favour of tax authorities?
7.   If an Appeal Unit request for additional inquiry to the jurisdictional tax
authority on a particular ground of an appeal, whether the taxpayer would be
required to represent its case before such jurisdictional tax authority in person
or such proceedings shall be covered in faceless assessment scheme.
8.   Whether not granting an opportunity of being heard immediately before
rejecting additional grounds or evidences tantamount of lack of sufficient
opportunity of being heard which is against the principle of natural justice?
9.   For waiver of delay in filing appeal, can taxpayer make a request for personal
hearing?
Concluding Remarks

Introduction of Faceless Appeal Scheme, 2020 is a step in right direction. If

implemented properly, this could be game changer as it could actually reduce the time
gap, as about 88 percent of the pending appeals is expected to be taken up in faceless
manner. This will be the booster in reducing the overall timeframe for litigation. Further,
by providing for review of draft order (based on the pre-set criteria) the quality of orders
should improve. Thus, there will be lesser matters where the Revenue Authorities would
be filing appeal before higher authorities.