Tax Alert | Delivering Clarity - 14 January 2021 - Deloitte
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Tax Alert | Delivering Clarity
14 January 2021
CBDT notifies Faceless Penalty Scheme, 2021
The Central Board of Direct Taxes has issued notifications dated 12 January 2021, to notify the
Faceless Penalty Scheme, 2021
Background:
• The Finance Act, 2020 (FA 2020) had introduced new provisions1 under the Income-tax Act, 1961
(ITA) to enable the government to frame a scheme for conducting faceless penalty proceedings, so
as to impart greater efficiency, transparency and accountability.
• The Central Board of Direct Taxes (CBDT) has now issued notifications2 introducing the Faceless
Penalty Scheme, 2021 (Scheme) and the directions for its applicability to eliminate personal
interaction between the taxpayer and the income-tax officers.
Key Highlights of the Scheme are as under:
Scope of the Scheme:
The CBDT will specify the territorial area or person or class of persons or income or class of incomes or
cases or class of cases or penalties or class of penalties in respect of which penalty under the Scheme
shall be imposed.
Setting up of centres and units to facilitate the conduct of e-appeal proceedings:
• The CBDT may set up the following centres and units and specify their respective jurisdiction:
─ National Faceless Penalty Centre (NFPC)
To facilitate the conduct of penalty proceedings in a centralised manner, which shall be vested
with the jurisdiction to impose penalty in accordance with the provisions of the Scheme.
─ Regional Faceless Penalty Centres (RFPC)
To facilitate the conduct of penalty proceedings, which shall be vested with the jurisdiction to
impose penalty in accordance with the provisions of the Scheme.
─ Penalty units (PU)
o To facilitate the conduct of faceless penalty proceedings;
o To perform the function of drafting penalty orders, which includes:
1 Section 274(2A) to (2C) of the ITA
2https://www.incometaxindia.gov.in/communications/notification/notification_no_2_2021.pdf
https://www.incometaxindia.gov.in/communications/notification/notification_no_3_2021.pdf
©2021 Deloitte Touche Tohmatsu India LLPi. Identification of points or issues for imposition of penalty under the ITA;
ii. Seeking information or clarification on points or issues so identified;
iii. Providing opportunity of being heard to the taxpayer, analysis of the material furnished
by the taxpayer or any other person; and
iv. Such other functions as may be required for the purposes of imposing penalty.
─ Penalty Review Unit (PRU)
o To facilitate the conduct of faceless penalty proceedings;
o To perform the functions of reviewing draft penalty orders, which includes
i. Checking whether the relevant material evidence has been brought on record;
ii. Whether the relevant points of fact and law have been duly incorporated in the draft
order;
iii. Whether the issues on which penalty is to be imposed has been discussed in the draft
order;
iv. Whether the applicable judicial decisions have been considered and dealt with in the
draft order;
v. Checking arithmetical correctness of computation of penalty, if any; and
vi. Such other functions as may be required for the purposes of review.
• The NFPC shall be the sole point of contact between the penalty unit and penalty review unit or the
taxpayer or any other person, or the income-tax authority (IT authority) or the National Faceless
Assessment Centre3 (NFAC) with respect to the information or documents or evidence or any other
details necessary for the purpose of imposing penalty under the Scheme.
• The PU and the PRU shall have the following authorities:
─ Additional Commissioner or Additional Director or Joint Commissioner or Joint Director as
the case may be;
─ Deputy Commissioner or Deputy Director or Assistant Commissioner or Assistant Director,
or Income tax officer as the case may be;
─ Such other income-tax authority, ministerial staff, executive or consultant as may be
considered by the Board.
• The Board for the purposes of the 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 (RFAC)4, Assessment unit (AU)5 and Review unit (RU)6 to also act as the National Faceless
3 A unit set-up to facilitate the conduct of e-assessment proceedings in a centralised manner
4 A unit sept up to facilitate the conduct of e-assessment proceedings in the jurisdiction of Principal Chief Commissioner
5 A unit set up to carry out functions required for making assessment.
6 A unit set up to perform review of draft assessment order
©2021 Deloitte Touche Tohmatsu India LLPPenalty Centre, Regional Faceless Penalty Centre, the penalty unit and the penalty review unit,
respectively.
Procedure in penalty:
The Scheme provides the detailed procedure to be followed as per Appendix 1 in a case where penalty
proceedings have been initiated (and show-cause notice has been issued) or initiation of penalty
proceedings have been recommended by any IT authority or the NFAC, as the case may be.
Rectification proceedings:
The NFPC may rectify any mistake apparent from the record in respect of any order passed by it and
amend it by passing an order in writing as per the procedure detailed in Appendix 2.
Appeal against the NFPC order:
An appeal against an order passed by the NFPC under the Scheme shall lie before the Commissioner
(Appeals) having jurisdiction over the jurisdictional IT authority or the NFAC, as the case may be.
Exchange of communication exclusively by electronic mode:
All communication between the NFPC and the taxpayer or any other person, as the case may be
(hereinafter referred to as Taxpayer) or his authorised representative; and all internal commutation
between the NFPC, the RFPC, the NFAC, the IT authority, the PU or the PRU shall be exchanged
exclusively by electronic mode.
Authentication of electronic record:
An electronic record shall be authenticated by:
• The NFPC – By affixing its digital signature
• The Taxpayer:
─ By affixing digital signature – If the Taxpayer is required to furnish income-tax return using a
digital signature;
─ In other cases – By affixing digital signature or under electronic verification code7.
Delivery of electronic record:
Every notice or order or any other electronic communication under the Scheme shall be delivered to the
addressee being the Taxpayer by way of:
• Placing an authenticated copy thereof in the Taxpayer’s registered account; or
• Sending an authenticated copy thereof to the registered e-mail address of the Taxpayer; or
• Uploading an authenticated copy on the Taxpayer’s mobile application;
7 Electronic verification code as per rule 12 of the Income-tax Rules, 1962 viz. a code generated for the purpose of electronic verification of
the person furnishing the return of income as per the data structure and standards specified by Principal Director General of Income-tax
(System) or Director General of Income-tax (Systems).
©2021 Deloitte Touche Tohmatsu India LLPfollowed by a real time alert8.
The Taxpayer shall file his response to any notice or order or any other electronic communication
under the Scheme through his registered account. Once an acknowledgement is sent by the NFPC
containing the hash result generated upon successful submission of response, the response shall be
deemed to be authenticated.
No personal appearance in the centres or units:
• A person is not required to appear either personally or through authorised representative in
connection with any proceedings under the Scheme, before the income-tax authority at the NFPC or
the RFPC or the PU or the PRU.
• However, the Taxpayer may request for personal hearing to make oral submissions or present his
case before the PU under the Scheme.
• The acceptance of Taxpayer’s request for personal hearing will be at the discretion of Chief
Commissioner or Director General in charge of RFPC. 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.
• The CBDT will establish suitable facilities for video conferencing or video telephony (including
telecommunication application software which supports video conferencing or video telephony) at
such locations as may be necessary, so as to ensure that the taxpayer or his authorised
representatives or any other person is not denied the benefit of the Scheme.
Power to specify format, mode, procedure and processes:
The Principal Chief Commissioner or the Principal Director General, in charge of the NFPC with the prior
approval of CBDT shall lay down the standards, procedures and processes for effective functioning of the
NFPC, RFPC, PU and the PRU set up under the Scheme, in an automated and mechanised environment.
Comments:
This is a welcome move and will give greater efficiency and transparency, by eliminating the interface
between the AO and the taxpayer.
8 Real time alert has been defined under the Scheme to mean any communication sent to the taxpayer , by way of short messaging service
(SMS) on his registered mobile number, or by way of update on his mobile application, or by way of an e-mail at his registered email
address, so as to alert him regarding delivery of an electronic communication.
©2021 Deloitte Touche Tohmatsu India LLPAppendix 1
Procedure in Penalty
The penalty under the Faceless Penalty Scheme, 2021 (Scheme) shall be levied as per the procedure
mentioned below:
1. Where any income-tax authority (IT authority) or National Faceless Assessment Centre (NFAC) has in
a case where penalty proceedings have been initiated (and show-cause notice has been issued) or
initiation of penalty proceedings have been recommended; it shall refer such case to the National
Faceless Penalty Centre (NFPC).
2. The NFPC shall assign the case to a specific penalty unit (PU), in any one of the Regional Faceless
Penalty Centre (RFPC) through an automated allocation system9.
3. The PU after being assigned the initiation of penalty proceeding as per the recommendations
received from the IT authority or the NFAC after examination of material available on record, may
decide to:
a. Agree with the recommendation and prepare a draft notice calling upon the taxpayer or any other
person, as the case may be (Taxpayer), to show cause as to why penalty should not be levied
under the relevant provisions of the ITA; or
b. Disagree with the recommendation, for reasons to be recorded in writing.
The PU shall send such draft notice or the reasons, as the case may be, to the NFPC
4. The NFPC upon receipt of the draft notice or reasons from the PU shall:
a. Serve the show-cause notice (SCN), as per the draft notice [referred to in 3(a) above] upon the
Taxpayer, specifying the date and time for filing a response; or
b. Not initiate penalty in cases of referred to in 3(b) above.
5. In cases were penalty proceedings have already been initiated, the PU shall prepare a draft notice
calling upon the Taxpayer, to show cause as to why penalty should not be levied under the relevant
provisions of the Income-tax Act, 1961 (ITA) and send such notice to the NFPC.
6. The NFPC shall serve the SCN as per the draft upon the Taxpayer, specifying the date and time for
filing a response.
7. The Taxpayer shall file a response to SCN specified in 4(a) or 5 within the date and time specified
therein, or such extended date and time as may be allowed on the basis of an application made in
this behalf, with the NFPC.
8. The NFPC shall send the response filed by the Taxpayer to the PU or inform the PU in case no
response is filed.
9 Automated allocation system means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial
intelligence and machine learning, with a view to optimise the use of resources
©2021 Deloitte Touche Tohmatsu India LLP9. The PU may request the NFPC:
a. To obtain such information / evidence / document from the Taxpayer.
b. To obtain further information/evidence/documents from IT authority or the NFAC.
c. To seek technical assistance or conduct verification.
10. The NFPC [on receipt of request as per point 9(a) or (b) above] shall send notice to the Taxpayer or
request the IT authority / the NFAC to submit information, documents or evidence, as may be
specified by the PU, specifying the date and time for furnishing a response.
a. The Taxpayer or the IT authority / NFAC shall file a response within the specified or extended (as
allowed based on an application made to the NFPC) date and time.
b. The NFPC shall send the response to the PU.
c. Where no response is received, then the NFPC shall inform the PU about it.
11. In case of a request to conduct enquiry or verification from the PU, the NFPC shall send such
request to the IT authority or the NFAC to conduct enquiry, seek technical assistance or verify
information and specify the date and time for submitting the report.
a. The NFAC shall submit a report within the specified date and time. The NFPC shall send the
report to the PU.
b. Where no report is received, then the NFPC shall inform the PU about it.
12. The PU, after taking into account all the relevant material available on the record, including the
response filed (if any) by the Taxpayer, or report furnished by the NFAC / AO propose for:
a. imposition of the penalty and prepare a draft order for such imposition of penalty or;
b. non-imposition of the penalty;
for reasons to be recorded in writing and send the proposal along with such draft order or reasons,
as the case may be, to the NFPC.
13. Upon receipt of the proposal along with the draft order, the NFAC shall examine the proposal in
point 12 and may decide:
a. In a case where imposition of penalty has been proposed, pass the penalty order as per draft
order and serve a copy thereof upon the Taxpayer; or
b. In a case where non-imposition of penalty has been proposed, not to impose penalty under
intimation to the Taxpayer; or
c. Assign the case to a penalty review unit (PRU) in any one of the RFPC through an automated
allocation system, for conducting review of such proposal.
14. The PRU shall review the proposal of PU order and may either concur with or suggest modification
to such proposal in writing and intimate to the NFPC.
15. In case the PRU concurs with the proposal of the PU, then the NFPC shall follow the procedure laid
down in point 13(a) or 13(b).
©2021 Deloitte Touche Tohmatsu India LLP16. In case the PRU suggests modification to the PU’s proposal, then the NFPC shall assign the case to
an PU (other than the PU which prepared draft order), in any one RFPC through an automated
allocation system.
17. In case of assignment of case to a PU (as per point 16 above), the PU after considering the material
on record (including suggestions for modification and reasons recorded by the PRU):
a. In a case where the modifications suggested by the PRU unit are prejudicial to the interest of
Taxpayer, as compared to the proposal of the PU above in point 12, shall follow the procedure
from points 5 to 12 and prepare a revised draft order for imposition of penalty.
b. In a case where the modifications are not prejudicial to the interest of Taxpayer, 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 NFPC.
18. Upon receipt of revised draft order from the PU referred to in point 17 above, the NFPC shall pass
the penalty order as per such draft and serve a copy thereof upon the Taxpayer or not impose
penalty under intimation to the Taxpayer.
19. The NFPC shall send a copy of order or reasons for not initiating or imposing a penalty to the IT
authority or the NFAC, as the case may be, for such action as may be required under the ITA.
20. The Principal Chief Commissioner or the Principal Director General, in charge of the NFPC, may at
any stage of the penalty proceedings, if considered necessary, transfer such proceedings to the
income-tax authority or the NFAC having jurisdiction over the Taxpayer, in whose case the penalty
proceedings are initiated, with the prior approval of the CBDT.
©2021 Deloitte Touche Tohmatsu India LLPAppendix 2
Rectification of mistake apparent from the record
The National Faceless Penalty Centre (NFPC) may by an order to be passed in writing, amend any order
passed by it under the Faceless Penalty Scheme, 2021 (Scheme), with a view to rectifying any mistake
apparent from the record.
1. An application for rectification can be filed with the NFPC, by:
a. The taxpayer or any other person, as the case may be (Taxpayer); or
b. The Penalty unit (PU) / Penalty Review unit (PRU) which prepared or reviewed the order,
respectively; or
c. The Income-tax authority (IT authority) or the National Faceless Assessment Centre (NFAC), as
the case may be.
2. On receipt of a rectification application, the NFPC shall assign it to a specific PU, in any one of the
RFPC, through an automated allocation system.
3. The PU on examination of the application shall prepare a notice for granting an opportunity:
a. To the Taxpayer – where the rectification application has been filed by any of the authority
referred to in points 1(b) or (c); or
b. To the authority referred to in points 1(b) or (c) – where the rectification application has been
filed by the Taxpayer; and
The PU shall send the notice to the NFPC.
4. The NFPC shall serve the notice (as per draft referred to in point 3 above) on the Taxpayer or the
authorities referred to in points 1(b) or (c) [i.e. relevant person], to show cause as to why
rectification of mistake should not be carried out and specify the date and time for filing a response.
5. The relevant person shall file a response to the notice within the specified or extended (allowed
based on an application made to the NFPC) date and time.
6. The NFPC shall send the response received from the relevant person to the PU. In case response is
not received, then the NFPC shall inform about the same to the PU.
7. The PU shall, after taking into consideration the response (if any), prepare a draft order:
a. For rectification of mistake; or
b. For rejection of application for rectification, citing reasons thereof.
The PU shall send the order to the NFPC.
8. The NFPC shall on receipt of the draft order referred to in point 7, pass an order as per the draft
order received from the PU, and communicate it to:
a. The Taxpayer; and
b. The IT authority or the NFAC, for such action as may be required under the ITA.
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