Direct Tax Alert - CBDT amends Faceless Penalty Scheme

The Central Board of Direct Taxes (CBDT) had notified Faceless Penalty Scheme, 2021 (Scheme)¹ to provide modalities for undertaking penalty proceedings in a faceless manner. Recently, the CBDT has amended this Scheme by notifying² Faceless Penalty (Amendment) Scheme, 2022.

We, at BDO in India, have analyzed and summarized the amendments hereunder

1. Regional Faceless Penalty Centers (RFPC)

As per the Scheme, RFPC was to be constituted to facilitate the conduct of faceless penalty proceedings, which is now done away with as per the proposed amendments.

2. Penalty Units (PU) and Penalty Review Units (PRU)

PU and PRU wherever referred to in the Scheme will now be referred to as Tax Officer. The Tax Officer will have the powers as assigned by the CBDT.

3. ​Penalty Imposition Proposal

The PU will prepare a penalty imposition proposal to levy a penalty instead of draft order. Further, where the PRU provides input on the penalty proposal, the National Faceless Penalty Centre (NFPC) shall send such inputs (review report) to the same PU. Further, PU has been granted the power to either accept or reject the review report. Where the review report is rejected, PU shall provide reasons for such rejection.

4. Rectification Proceedings

As per the Scheme, NFPC was authorized to rectify any mistake apparent from the record by passing an order in writing. The proposed amendments have taken away this power. Thus, there is no provision for rectifying the penalty order.

5. Authentication of electronic record

Earlier, an electronic record shall be authenticated by:

• the NFPC – by affixing its digital signature
• the taxpayer or any other person – either by affixing a digital signature or through an electronic verification code

Now, the electronic record shall be authenticated by:

• the NFPC – by way of an electronic communication
• PU or PRU or Technical Unit or Verification Unit - by affixing a digital signature​
• Taxpayer or any other person - by affixing his digital signature or under electronic verification code, or by logging into his registered account in the designated portal

6. Personal Hearing

Earlier, for a personal hearing, the taxpayer or any other person was required to obtain approval from the Chief Commissioner of Income-tax or Director General of Income-tax who is in charge of RFPC. This requirement has been done away this. Thus, the concerned PU shall allow personal hearing through the NFPC.

BDO Comments

The amendments are in line with amended Section 144B of the Income-tax Act, 1961 and further the Government’s objective of achieving higher transparency. By doing away with provisions relating to the rectification of the penalty order, the taxpayer may be required to approach his tax officer to get the mistake rectified in the penalty order.

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