Explanation of “Hearing” Under Section 2(23C) of the Income Tax Act

The Finance Act, 2016, marked a significant landmark in modernizing India’s tax administration system by introducing the Explanation of “hearing” under Section 2(23C) of the Income Tax Act. Effective from June 1, 2016, this definition not only clarified the scope of hearings but also integrated digital processes into various provisions of the Act, paving the way for a more efficient and transparent tax compliance structure.

In this blog, we will delve into the meaning of “hearing,” its relevance, and how it is applied across multiple provisions of the Income Tax Act.

Introduction of section 2(23c) income tax act 

This broad definition underscores the government’s push towards digitization, enabling taxpayers and authorities to exchange information flawless through electronic platforms. It eliminates uncalled-for physical interactions, thus ensuring transparency, reducing delays, and promoting a faceless tax administration process.

Main Features of the Definition

1. Digital Integration: The inclusion of electronic communication ensures hearings are not limited to physical meetings or oral arguments but encompass all forms of data exchange through digital platforms.
2. Faceless Assessment: This definition has become the cornerstone of faceless assessments, a key initiative aimed at reducing subjectivity and ensuring unbiased proceedings.
3. Contingent Flexibility: The phrase “unless the context otherwise requires” allows the definition to adapt to specific cases or provisions.

Provisions Related to “Hearing” in the Income Tax Act

The definition of “hearing” is applied across various provisions, improve their scope and smooth-running processes. Below is an overview of sections and rules where “hearing” plays a pivotal role:

1. Section 92CA(3): Reference to Transfer Pricing Officer (TPO)

This section deals with decide arm’s length pricing in international transactions. The introduction of electronic hearings ensures a faster and more efficient process.

2. Section 143(3): Regular Assessment

Hearing under this section involves examining evidence and records, now streamlined through digital communication tools as part of the faceless assessment mechanism.

3. Section 144B: Faceless Assessment

• 144B(6)(vii): Facilitates communication between assessment units and taxpayers.
• 144B(6)(viii): Governs the exchange of draft orders and objections in a digital format.

4. Section 144BA(4): Reference to GAAR

Involves hearings before the Principal Commissioner or Commissioner in cases invoking General Anti-Avoidance Rules (GAAR), allowing electronic submissions.

5. Section 245BA(5) and Section 245D: Settlement of Cases

Covers the procedure for the settlement of cases by the Interim Board, including electronic communication of data and documents.

6. Section 250: Appeals Before Commissioner (Appeals)

This section outlines the procedure for appeals, where electronic hearings facilitate a more convenient exchange of data.

7. Section 255(4): Procedure Before ITAT

Hearing processes at the Income Tax Appellate Tribunal (ITAT) now leverage electronic communication for efficiency.

8. Sections 260, 260A(4), and 262

These sections govern hearings before the High Court and Supreme Court in tax cases, where digital tools expedite the process.

9. Section 268A(4): Appeals by Tax Authorities

Enables tax authorities to file appeals or applications through electronic modes, ensuring faster dispute resolution.

10. Rules 74 and 75 of the Second Schedule

These rules relate to the recovery of taxes and prescribe procedures for hearings that can now be conducted electronically.

Benefits of Digitized Catching

1. Transparency: Reduced physical interaction eliminates opportunities for malpractices.
2. Time-Saving: Digital processes reduce the time taken for hearings and communication.
3. Convenience: Both taxpayers and authorities can participate in proceedings from anywhere.
4. Efficiency: Faceless assessments streamline decision-making by reducing procedural bottlenecks.

FAQs

1. What does “hearing” mean under Section 2(23C) of the Income Tax Act?

“Hearing” includes the communication of data and documents through electronic means, ensuring seamless and transparent proceedings.

2. How does electronic hearing benefit taxpayers?

Electronic hearings reduce physical interactions, save time, and provide convenience by allowing taxpayers to participate in proceedings remotely.

3. Which sections of the Income Tax Act involve hearings?

Several sections, including 92CA(3), 143(3), 144B, 245D, and 250, among others, involve hearings where electronic communication is applicable.

4. How does faceless assessment relate to the definition of “hearing”?

Faceless assessments rely on the electronic exchange of data and documents, as outlined in the definition of “hearing” under Section 2(23C).

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Conclusion

The introduction of “hearing” under Section 2(23C) has been a game-changer in India’s tax landscape. By enabling electronic communication, it aligns with the government’s vision of a faceless, paperless, and transparent tax regime. This move not only simplifies tax proceedings but also ensures greater accountability and faster resolutions.

Taxpayers and professionals must familiarize themselves with the provisions related to hearings to leverage the benefits of the digitized tax ecosystem. Understanding how these provisions interact can help taxpayers navigate assessments and appeals efficiently.