Faceless Assessment Scheme Under Section 144B of the Income Tax Act

The Central Government launched the Faceless Assessment Scheme to enhance transparency, streamline processes, and ensure greater accountability in income tax assessments.

The key objectives of the provisions introduced under the Faceless Assessment Scheme, as per the Income Tax Act, 1961, are:

• To eliminate direct interaction between the taxpayer and the Assessing Officer during proceedings, as far as technology allows

• To maximize resource efficiency through scale-based operations and specialized functions

• To implement a team-based approach for determining the arm’s length price with a dynamic jurisdiction model

Understanding the Faceless Assessment Scheme
The Finance Minister, in the Union Budget 2019, announced a faceless e-assessment scheme aimed at removing the physical interface between taxpayers and the income tax department. This scheme sets out a framework for conducting assessments electronically. From 13 August 2020, the earlier e-assessment scheme of 2019 was revised and renamed as the Faceless Assessment Scheme.

Initially, this scheme covered only scrutiny and best judgment assessments. However, with the introduction of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020, several additional provisions under the Income Tax Act, 1961 have been brought within the scope of Faceless Assessment.

Types of Assessments Under the Income Tax Act (Section 144b of the income tax act)
The Income Tax Act outlines four primary types of assessments:

• Section 143(1) – Summary assessment without requiring the presence of the assessee

• Section 143(3) – Scrutiny assessment

• Section 144 – Best judgment assessment

• Section 147 – Assessment for income that has escaped assessment

Assessment Under Section 143(1)
Section 143(1) assessment functions as an initial verification of the income tax return. At this point, no in-depth examination of the return is conducted. Instead, the total income or loss is calculated after applying specific adjustments, such as correcting arithmetic errors or disallowing incorrect claims.

Time Limit
The assessment under Section 143(1) must be completed within nine months from the end of the financial year in which the return is filed.

Assessment Under Section 143(3)
This type of assessment involves a thorough review and is commonly known as a scrutiny assessment. It includes a comprehensive examination of the income tax return to verify the accuracy and authenticity of claims, deductions, and other information provided by the taxpayer.

Faceless Assessment [Section 144]
This assessment is based on the Assessing Officer’s best judgment using all the relevant information available. It is conducted when the taxpayer does not comply with the requirements outlined in Section 144, such as failure to file a return or respond to notices.

Assessment Under Section 147
When the Assessing Officer discovers that any part of the taxpayer’s income was not assessed in a previous year, they may reassess such income under Section 147. This is subject to the updated provisions of Sections 148 to 153 and may also include additional income uncovered during the reassessment process.

Section 144B of the Income Tax Act
Section 144B was introduced as part of the National e-Assessment Scheme under the Income Tax Act, 1961. Launched in August 2020, this reform aimed to transform the tax assessment process by reducing taxpayer burden, minimizing corruption, and discouraging tax evasion.

This initiative is part of the “Transparent Taxation – Honouring the Honest” platform. It introduces a “faceless” framework, a digital system designed to eliminate personal interactions between taxpayers and income tax officials. The objective is to ensure fairness and transparency while enabling taxpayers to submit audit reports, documents, and responses electronically—saving time, reducing costs, and enhancing ease of compliance. We provide the best income tax filing services!

Structure of Faceless Assessment

Faceless assessments are conducted in line with the Income Tax Act and Income Tax Rules. The Central Board of Direct Taxes (CBDT) defines the scope of this mechanism, including applicable regions, categories of taxpayers, types of income, and relevant cases. To implement this system, the CBDT has established various ‘centres’ and ‘units’ with distinct responsibilities:

• National e-Assessment Centre (NeAC): Acts as the central hub for managing and overseeing the faceless assessment process.

• Regional e-Assessment Centres: Operate under regional Principal Chief Commissioners to carry out the assessments.

• Assessment Units: Focus on identifying key issues, gathering materials to determine tax liabilities or refunds, analyzing data, and related tasks.

• Verification Units: Conduct inquiries, cross-check records, review books of accounts, examine witnesses, and record statements.

• Technical Units: Provide expert opinions or support on matters such as law, accounting, IT, forensics, valuation, auditing, transfer pricing, and data analysis.

• Review Units: Examine draft assessment orders to ensure all facts, evidence, legal provisions, and relevant judgments are properly considered.

All interactions among these entities are routed exclusively through the National e-Assessment Centre.

Procedure for Faceless Assessment

1. Initiation:
   The NeAC issues a notice under Section 143(2), highlighting the issues for which the taxpayer’s return has been selected for assessment. The taxpayer is required to respond within 15 days.

2. Cases Eligible for Faceless Assessment:

   • Return filed under Section 139

   • Return filed in response to notices under Section 142(1), 148(1), or 143(2)

   • Failure to file a return as required under Section 142(1) or 148(1)

3. Assessments conducted under Sections 143(3) (scrutiny) and 144 (best judgment) fall under the faceless system.

4. Allocation of Case:
   The NeAC assigns the case to an assessment unit in a Regional e-Assessment Centre via an automated system.

5. Requests by Assessment Unit:

   • For additional information from the taxpayer or other individuals

   • For specific inquiries or verifications to be carried out by a verification unit

   • For expert advice from a technical unit

6. Information Gathering:
   Upon request, the NeAC issues notices to gather documents or conduct verifications, which are handled by the designated verification or technical units. The reports are sent back to the NeAC and forwarded to the concerned assessment unit.

7. Non-Compliance:
   If the taxpayer fails to respond, the NeAC issues a notice under Section 144. The assessment unit then proceeds with a best judgment assessment, preparing a draft order accordingly.

8. Draft Assessment Order:
   Based on all collected information, the assessment unit prepares a draft order either confirming or modifying the taxpayer’s returned income. It also includes details of any proposed penalty proceedings.

9. Review and Finalization:
   The NeAC reviews the draft using risk-based strategies or automated tools. Based on this review, it may:

   • Finalize the order and issue a demand or refund notice

   • Offer the taxpayer a chance to respond if a modification is suggested

   • Send the draft to a review unit for further analysis

10. Role of Review Unit:
    The review unit may agree with the draft or suggest changes. The NeAC acts accordingly—either finalizing the order or reassigning the case to another assessment unit (not the one that created the original draft) for incorporating modifications.

11. Taxpayer Representation:
    If a show-cause notice is issued, the taxpayer may submit a response within the specified time. The NeAC evaluates this response and either finalizes the assessment or refers it back to the assessment unit for revision.

12. Revised Draft Assessment:
    The revised order is sent back to the NeAC, which then:

• Finalizes the assessment if it favors the taxpayer, or

• Provides another opportunity for response if the revision goes against the taxpayer

12. Hearing Opportunity:
    If the taxpayer’s response is received, it is considered in the finalization process. If the taxpayer does not respond, the assessment is finalized based on the draft.

13. In Case of Objections to Dispute Resolution Panel (DRP):
    If the taxpayer raises objections with the DRP, the directions received are forwarded to the assessment unit, which must then prepare an order in compliance with those directions. The NeAC finalizes and serves the assessment order and accompanying notices.

14. Transfer of Records:
    Once the assessment is complete, the NeAC transfers all electronic records to the jurisdictional Assessing Officer for further action as required.

15. Transfer of Case:
    At any point during the assessment, if necessary, the NeAC may transfer the case to the jurisdictional Assessing Officer with prior approval from the CBDT.

Procedure for Penalty

During assessment proceedings, if any unit observes non-compliance with a notice, direction, or order under this scheme by the taxpayer or any other individual, it may recommend initiating penalty proceedings under the Income Tax Law. This recommendation is sent to the National e-Assessment Centre (NeAC) if deemed necessary or appropriate.

Upon receiving such a recommendation, the NeAC will issue a notice to the taxpayer or concerned individual, asking them to explain why a penalty should not be imposed under the Income Tax provisions.

If a response is submitted, the NeAC forwards it to the unit that originally recommended the penalty. Based on the response received:

• The unit may prepare a draft penalty order and send it to the NeAC; or

• Decide to drop the penalty after documenting the reasons and inform the NeAC accordingly.

The NeAC will then:

• Impose the penalty as per the draft order,

• Serve the penalty order along with a demand notice to the taxpayer or concerned individual, and

• Transfer the records related to the penalty to the jurisdictional Assessing Officer for further necessary action.

Procedure for Appeal

If a taxpayer wishes to challenge an assessment or penalty order issued by the NeAC under this scheme, they may file an appeal before the Commissioner of Income Tax (Appeals). This process is governed by the Faceless Appeals Scheme, 2020.

Under this scheme, all appeal-related processes—from filing to the final appellate order—are handled digitally through a centralized communication system. The National Faceless Appeal Centre (NFAC) manages the appeals and allocates them to designated Appeal Units (AUs) comprising Commissioners (Appeals) located in various Regional Faceless Appeal Centres (RFACs) using an automated allocation system.

Communication and Electronic Record

All interactions between the National e-Assessment Centre (NeAC) and the taxpayer or their authorised representative are conducted exclusively through electronic means. Likewise, all internal correspondence among the NeAC, Regional e-Assessment Centres, and other units is carried out solely in digital format. However, if the verification unit permits a personal hearing, electronic communication rules do not apply in that specific context.

Every electronic record generated under this scheme must be authenticated—either by the NeAC through a digital signature or by the taxpayer or other party using a digital signature or Electronic Verification Code (EVC). Each notice, order, or other electronic communication under this scheme will be delivered to the taxpayer through the following methods:

• Posting an authenticated copy in the taxpayer’s registered account

• Sending the authenticated copy to the taxpayer’s or authorised representative’s registered email address

• Uploading the authenticated copy to the taxpayer’s Mobile App account, accompanied by a real-time alert

Responses to any notices, orders, or communications must be submitted by the taxpayer via their registered account. Once the NeAC sends an acknowledgement containing a hash result confirming successful submission, the response is considered duly authenticated.

Appearance of Taxpayer Before Centres and Units

Under this scheme, taxpayers are not required to appear in person or through an authorised representative before any income tax authority at the National e-Assessment Centre, Regional e-Assessment Centre, or any of the designated units.

If a modification is suggested in the draft assessment order, the taxpayer is provided an opportunity to submit their objections or explanations.

The taxpayer or their authorised representative may also request a personal hearing or opt to make oral submissions. Such hearings are conducted entirely via video conferencing or video telephony, in line with the procedures set by the CBDT.

Income tax authorities are also empowered to examine or record statements from taxpayers. This process is carried out using video conferencing or video telephony. To support this, the CBDT will ensure that appropriate infrastructure for virtual hearings is made available at necessary locations.

Power to Specify Process and Procedure

The Principal Chief Commissioner or Principal Director General heading the National e-Assessment Centre, with the approval of the Central Board of Direct Taxes (CBDT), is empowered to define the procedures, processes, and standards necessary for the efficient operation of the National e-Assessment Centre, Regional e-Assessment Centres, and associated units under this scheme. These systems are to function in a fully automated and system-driven environment, covering all aspects such as:

• Delivery of notices, orders, or any other official communications

• Receiving information or documents submitted in response to such communications

• Issuing acknowledgements for the responses received

• Providing an ‘e-proceeding’ platform, including login access, assessment status tracking, viewing relevant details, and downloading options

• Access, verification, and authentication of submitted data and documents during assessment

• Centralised storage, access, and retrieval of information or documentation

• Managing administrative tasks and grievance resolution within all Centres and units

• Defining conditions under which personal hearings may be allowed

Faceless Jurisdiction of Income Tax Authorities

Under Section 130 of the Income Tax Act, the Central Government has the authority to create a scheme, notified via the Official Gazette, for:

• Carrying out any or all duties and exercising powers of income-tax authorities as outlined in Section 120

• Assigning jurisdiction to Assessing Officers as specified in Section 124

• Transferring cases using the powers granted under Section 127

• Managing jurisdiction during changes in officer incumbency under Section 129

Faceless Collection of Information

Section 135A grants the Central Government the power to establish a scheme related to the collection of information, including:

• Requesting information under Section 133

• Gathering data through surveys under Section 133B

• Calling for information by designated income-tax authorities under Section 133C

• Inspecting company registers under Section 134

• Enforcing the powers of Assessing Officers under Section 135

Faceless Inquiry or Valuation
Section 142B empowers the Central Government to establish a scheme for conducting faceless procedures related to notices issued under Section 142(1), inquiries conducted before assessment under Section 142(2), directing the assessee to have their accounts audited under Section 142(2A), or estimating the value of assets, properties, or investments through a Valuation Officer under Section 142A.

Faceless Assessment of Income Escaping Assessment
Section 151A authorizes the Central Government to develop a faceless scheme for carrying out assessment, reassessment, or re-computation under Section 147. It also covers issuing notices under Section 148 and granting approval for such notices under Section 151.

Faceless Rectification, Amendments, and Issuance of Notice or Intimation
Section 157A provides the Central Government with the authority to implement a scheme for rectifying errors apparent from the record under Section 154, making other amendments under Section 155, issuing demand notices under Section 156, and intimating losses under Section 157—all through a faceless mechanism.

Faceless Collection and Recovery of Tax
Section 231 allows the Central Government to design a faceless system for handling processes related to:

• Issuance of certificates for lower or nil deduction of tax under Section 197

• Deeming a person an assessee in default under Section 201(1) or Section 206C(6A)

• Issuing certificates for reduced tax collection under Section 206C(9)

• Passing or amending orders under Section 210(3) or (4)

• Reducing or waiving interest under Section 220(2A)

• Extending time or permitting instalment payments under Section 220(3)

• Declaring that the assessee is not in default under Section 220(6) or (7)

• Imposing penalties under Section 221

• Drawing recovery certificates under Section 222

• Managing Tax Recovery Officer’s jurisdiction under Section 223

• Staying proceedings or modifying/cancelling certificates under Section 225

• Enforcing alternative recovery modes under Section 226

• Issuing tax clearance certificates under Section 230

Faceless Revision of Orders
Section 264B grants the Central Government authority to frame a faceless system for implementing orders issued under Sections 250, 254, 260, 262, 263, or 264.

Faceless Effect of Orders
This section also provides for the faceless execution of decisions or directions under Sections 250, 254, 260, 262, 263, or 264, ensuring consistency in how such orders are given effect.

Faceless Approval or Registration
Section 293D enables the Central Government to introduce a faceless scheme for granting approvals or registrations under various provisions of the Income Tax Act by income-tax authorities.

Furthermore, the faceless provisions are extended to include:

• Section 253 – Appeals to the Appellate Tribunal

• Section 279 – Sanction for prosecution or compounding of offences, to be granted by senior tax authorities

The Central Government also holds the power to declare that any provision of the Income Tax Act shall either not apply, or apply with certain exceptions, modifications, or adjustments, as specified in a notification published in the Official Gazette. However, no such direction can be made after March 31, 2022. Any notification issued in this regard must be presented before both Houses of Parliament.