Synopsis–In order to make the faceless penalty scheme be effective, it is, therefore, important that the allocation of cases is proper. FPS envisages penalty proceedings being conducted by an RPC different from an RAC. The two may be in different parts of the country, with different teams of different cultural backgrounds looking at the same case through different lenses.
The Central Board of Direct Taxes (CBDT) has, on January 12, notified the ‘Faceless Penalty Scheme’ (FPS).
This notification has been issued in the wake of the Faceless Assessment Scheme notified on August 13, 2020, and the Faceless Appeal Scheme notified on September 25, 2020. FPS provides that the penalty shall be levied by a regional penalty centre (RPS) that will be different from the regional e-assessment centre (RAC), which will assess a taxpayer’s income. As per the scheme, a case will be allocated to an RPC on the basis of an automatic allocation system. The procedure to be followed will, largely, be the same as followed in faceless assessments.
An opportunity for a personal hearing is provided for in the scheme. But the circumstances in which a personal hearing will be granted are not yet notified.
It is common that any addition to the income of a taxpayer normally results in the issue of a show-cause notice, asking the taxpayer to submit why a penalty ought not to be levied. It is also quite common that once the penalty above a particular threshold is levied, prosecution is invariably launched.
In order to make the faceless penalty scheme be effective, it is, therefore, important that the allocation of cases is proper. FPS envisages penalty proceedings being conducted by an RPC different from an RAC. The two may be in different parts of the country, with different teams of different cultural backgrounds looking at the same case through different lenses. The allocation of a case to an RPC is to be done by using an ‘automated allocation system’ — defined in the scheme as ‘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’.
If one looks at this definition, the criteria for allocation of cases is completely automated. And though it does promise use of artificial intelligence (AI) and machine learning (ML), the chances of allocation of a case of a big metropolitan city to a unit based in a smaller town, with limited experience, cannot be ruled out.
The circumstances in which a personal hearing is to be given to the taxpayers are yet to be notified. The Supreme Court, in Hindustan Steel v. State of Orissa (1972), a case decided almost half-a-century ago, held that an order imposing a penalty for the failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and the penalty will not ordinarily be imposed unless the party obliged — either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation.
It further held that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
So, if, indeed, a determination of the conduct of a taxpayer is to be made in penalty proceedings, natural justice would be served when a taxpayer can present his case in person, particularly when business and transactions are becoming more complex by the day. The circumstances under which a personal hearing is to be granted to a taxpayer should, therefore, be notified expeditiously. If the taxpayer does ask for a personal hearing, the notification should provide for a liberal grant.
A possible way a personal hearing can be granted can be where the hearing can happen over a video conference with faces of the parties blanked out. A proceeding may, therefore, be ‘faceless’, but may not be ‘voiceless’.
The writer is president, Chamber of Tax Consultants
aniltikotekar4sme.com 