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

Section 144B of the Income Tax Act governs the Faceless Assessment Scheme, where the assessee and the assessing officer communicate entirely through digital means, without knowing each other’s personal identity. The Central Government introduced this scheme to enhance transparency, efficiency, and accountability in income tax assessments. This article provides a detailed overview of its purpose, operational mechanism, assessment procedure, appeals process, exceptions, and requirements for maintaining information and records.

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What is the Faceless Assessment Scheme?

Previously, income tax assessments involved physical interactions, with both the assessee and the assessing officer aware of each other’s identities. This traditional approach sometimes led to opportunities for unethical practices or undue influence. To address this, the Faceless Assessment Scheme was launched.

Under this scheme, all communication between the assessee and the assessing officer is conducted virtually, eliminating the need for in-person interactions. The system is designed to ensure a fair and unbiased assessment process, better resource utilization, team-based determinations, and dynamic jurisdiction for evaluating arm’s length pricing.

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Key Objectives of the Faceless Assessment Scheme

The scheme introduces several important provisions under the Income Tax Act, 1961, including:

• Eliminating direct interaction between the assessing officer and the assessee to the extent technologically possible.
• Optimizing resources through economies of scale and functional specialization.
• Team-based assessments for arm’s length pricing, with dynamic jurisdiction to ensure efficiency.

Initially, the faceless assessment applied only to scrutiny assessments and best judgment assessments. However, following the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020, the scheme has been expanded to cover other provisions under the Income Tax Act, 1961.

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This framework is a significant step towards a transparent, technology-driven tax assessment system, reducing physical interface, curbing tax evasion, and streamlining the assessment process for taxpayers and authorities alike.

Assessments Under the Income Tax Act

Under the Income Tax Law, there are four main types of assessments as outlined below:

1. Section 143(1) – Summary assessment without requiring the presence of the assessee.
2. Section 143(2) – Scrutiny assessment.
3. Section 144 – Best judgment assessment.
4. Section 147 – Income escaping assessment.

With the introduction of the Faceless Assessment Scheme, all these assessments are now conducted virtually, reducing physical interaction to the minimum. The National Faceless Assessment Centre (NFAC) oversees the implementation and execution of assessments under this digital framework, governed by Section 144B of the Income Tax Act, 1961.

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Section 144B – Faceless Assessment Framework

Section 144B, introduced under the National e-Assessment Scheme, defines the structure and workflow of faceless assessments. It covers the assessment procedure, different functional units, approval mechanisms, and essential definitions related to the process.

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Structure of Faceless Assessment

The NFAC administers the entire faceless assessment process. The Central Board of Direct Taxes (CBDT) determines the scope of applicability, including territorial limits, categories of persons, nature of income, and classes of cases covered under this system. The structure is divided into the following units:

1. National Faceless Assessment Centre (NFAC)

This central body is responsible for assigning cases to various units through an automated allocation mechanism.

2. Regional Faceless Assessment Centres

These centers are established to decentralize the process and efficiently handle region-specific assessments and concerns.

3. Assessment Unit

Cases are first allocated by the NFAC to assessment units. These units examine income computations based on the data available. If further details are required, the NFAC issues notices to the assessee under Section 142(1) or 143(2), collects responses, and forwards them to the assessment unit.

4. Verification Unit

This unit carries out inquiries, verifications, cross-examinations, and detailed inspections of books of accounts or statements. Upon the assessment unit’s request, NFAC allocates verification tasks to this unit automatically.

5. Technical Unit

When specialized expertise is needed—for instance, in accounting, valuation, IT, audit, transfer pricing, or data analytics—the NFAC assigns the matter to a technical unit using its automatic allocation system.

6. Review Unit

Before the final order is issued, the draft assessment order undergoes review. If inconsistencies are detected, the review unit sends it back to the assessment unit for correction. The final order is then issued once all discrepancies are resolved.

All communication between the NFAC, Regional Centres, and functional units takes place electronically through the National e-Assessment Centre, ensuring a completely digital and transparent assessment process.

Procedure in Faceless Assessment

The process of conducting an e-assessment is outlined as follows:

1. Issuance of Notice to the Assessee

The National e-Assessment Centre (NeAC) issues a notice under Section 143(2) of the Income Tax Act, highlighting the reasons for selecting a particular taxpayer’s case for assessment.

The assessee is required to submit a response to the notice within 15 days of its receipt to the National e-Assessment Centre.

A taxpayer’s case is assessed under the faceless assessment system if the taxpayer:

• Files an income tax return voluntarily under Section 139.
• Submits a return in response to a notice under Section 142(1), 148(1), or 143(2).
• Fails to file a return in response to a notice issued under Section 142(1).
• Fails to furnish a return in response to a notice under Section 148(1).

The assessment process includes both Scrutiny Assessment (Section 143(3)) and Best Judgment Assessment (Section 144), which are conducted entirely through the faceless system.

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2. Allocation to Assessment Unit

Once a case is selected for e-assessment, the National e-Assessment Centre allocates it to a designated Assessment Unit within one of the Regional e-Assessment Centres. This allocation is made through an automated system, ensuring transparency and eliminating manual intervention.

3. Requests by Assessment Units

Once a case is allotted to an Assessment Unit, it may submit a request to the National e-Assessment Centre (NeAC) for the following purposes:

• To obtain additional information, documents, or evidence from the taxpayer or any other relevant person as required.
• To conduct specific inquiries or verifications through a Verification Unit.
• To seek technical assistance from a Technical Unit when specialized expertise is necessary.

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4. Issuance of Notice to the Assessee

When the Assessment Unit requests any additional information or evidence, the National e-Assessment Centre issues the relevant notice or requisition to the taxpayer or any other concerned person. This notice seeks the required information, documents, or proofs as specified by the Assessment Unit.
The assessee is expected to respond to this notice within the time frame mentioned in the communication.

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5. Verification and Technical Support

If the Assessment Unit requests an inquiry or verification, the NeAC assigns the task to a Verification Unit through an automated allocation system.
Similarly, when technical expertise is required, the NeAC forwards the request to a Technical Unit located in one of the Regional e-Assessment Centres, also through an automated system.

6. Forwarding of Verification and Technical Reports

The National e-Assessment Centre (NeAC) forwards the reports received from the Verification Unit or Technical Unit to the respective Assessment Unit for further action.

If the taxpayer fails to respond to the notice issued, the NeAC serves a notice under Section 144 for conducting a Best Judgment Assessment.
The assessee still has the opportunity to respond to this notice. However, if no response is submitted, the NeAC notifies the Assessment Unit, which then prepares a draft assessment order under Section 144 based on available information.

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7. Preparation and Examination of the Draft Assessment Order

After considering all the relevant materials and reports, the Assessment Unit prepares a draft assessment order. This order may either:

• Accept the income as reported by the taxpayer, or
• Modify the returned income, depending on the findings.

The draft order is then forwarded to the National e-Assessment Centre.
While drafting the order, the Assessment Unit must also include details of any penalty proceedings proposed to be initiated, if applicable.

8. Assignment of Draft Assessment Order to Review Unit

The National e-Assessment Centre (NeAC) assigns the draft assessment order to a Review Unit within one of the Regional e-Assessment Centres using an automated allocation system. The Review Unit is responsible for examining the draft order and may take one of the following actions:

• Agree with the draft order and communicate its concurrence to the NeAC, or
• Recommend modifications it considers necessary and send its suggestions back to the NeAC for further action.

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9. Reassignment or Finalisation of the Assessment Order

Once the Review Unit’s concurrence is received, the NeAC finalises the draft assessment order or, if modifications are proposed, provides the taxpayer an opportunity to respond before finalisation.

If the Review Unit suggests any changes or modifications, the NeAC reassigns the case to a different Assessment Unit (not the one that prepared the initial draft) through its automated system. After reviewing the suggested modifications, the new Assessment Unit prepares a final draft assessment order and forwards it to the NeAC.

Upon receiving this final draft, the NeAC may either:

• Finalise the order directly, or
• Offer the taxpayer a chance to submit their explanation if the modifications are not in their favor.

The taxpayer must provide their response to the NeAC within the time and date specified in the notice.

If no response is received, the NeAC proceeds to finalise the assessment as per the draft order. If a response is submitted, it is sent to the relevant Assessment Unit for review. The Assessment Unit, after considering the taxpayer’s reply, prepares a revised draft assessment order and returns it to the NeAC.

The NeAC then acts as follows:

• If the revised draft order does not include any changes adverse to the taxpayer, the order is finalised; or
• If it contains modifications unfavorable to the assessee, the taxpayer is again given an opportunity for a hearing and submission.

Once the taxpayer’s response is received, the NeAC processes it and finalises the assessment order accordingly.

In cases where the assessee files objections before the Dispute Resolution Panel (DRP), the National Faceless Assessment Centre forwards the DRP’s directions to the concerned Assessment Unit. The unit then prepares a draft assessment order in accordance with those directions and sends it to the NFAC.

Finally, the National Faceless Assessment Centre finalises the assessment order, serves a copy to the taxpayer, and issues a notice for penalty proceedings, if applicable. A demand notice is also issued, specifying the amount payable or any refund due to the assessee based on the final assessment.

10. Forwarding of Assessment Records to the Regional Assessing Officer

Once the assessment process is completed, the National e-Assessment Centre (NeAC) transfers all electronic records related to the case to the jurisdictional Assessing Officer for any further legal proceedings or actions required under the Income Tax Act.

At any stage during the assessment, if deemed necessary, the NeAC may also transfer the case to the jurisdictional Assessing Officer after obtaining prior approval from the Central Board of Direct Taxes (CBDT).

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Procedure for Imposition of Penalty

During the assessment proceedings, if any unit identifies instances of non-compliance by the taxpayer or any other person—such as failure to respond to notices, directions, or orders—it may recommend initiating penalty proceedings under the Income Tax Law. This recommendation is forwarded to the National e-Assessment Centre when considered necessary or appropriate.

Upon receiving such a recommendation, the NeAC issues a show-cause notice to the taxpayer or the concerned person, asking them to explain why a penalty should not be imposed.

The response submitted by the taxpayer (if any) is then forwarded by the NeAC to the unit that initially recommended the penalty.

After reviewing the response, the concerned unit will either:

• Prepare a draft penalty order and send it to the NeAC, or
• Drop the penalty proceedings, providing recorded reasons and notifying the NeAC accordingly.

Based on the draft order received, the NeAC will levy the penalty, serve a copy of the penalty order along with a demand notice to the taxpayer or concerned person, and subsequently transfer the penalty proceeding records to the jurisdictional Assessing Officer for any required follow-up actions.

Procedure for Appeal

An appeal against any assessment order or penalty order issued by the National e-Assessment Centre (NeAC) under this scheme can be filed before the Commissioner (Appeals).

Such appeals are handled under the Faceless Appeals Scheme, 2020, which ensures that every stage—from the filing of the appeal to the issuance of notices and the passing of the final appellate order—is conducted electronically through a centralised communication system.

The National Faceless Appeal Centre (NFAC) manages the process and assigns cases to specific Appeal Units (AUs) comprising Commissioners of Income Tax (Appeals) located in various Regional Faceless Appeal Centres (RFACs). The allocation is done using an automated allocation mechanism, ensuring transparency and impartiality.

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Communication and Electronic Record

All correspondence between the National e-Assessment Centre and the taxpayer or their authorised representative is carried out only through electronic mode. Similarly, all internal communications between the NeAC, Regional e-Assessment Centres, and various operational units are also conducted electronically.

However, electronic communication may not apply in situations where the Verification Unit approves a personal hearing.

All electronic records generated under this scheme must be authenticated as follows:

• By the National e-Assessment Centre, using a digital signature; or
• By the taxpayer or any other person, using either a digital signature or an Electronic Verification Code (EVC).

Each electronic notice, order, or communication issued under this system is delivered to the taxpayer through the following means:

1. By placing an authenticated copy in the taxpayer’s registered account;
2. By sending an authenticated copy to the registered email address of the taxpayer or their authorised representative; and
3. By uploading an authenticated copy on the taxpayer’s mobile application, followed by a real-time alert.

The taxpayer must submit their response to any notice, order, or communication through their registered account. Once the National e-Assessment Centre issues an acknowledgement containing a hash result confirming successful submission, the response will be treated as officially authenticated.

Appearance of the Taxpayer Before the Centre and Units

Under this scheme, the taxpayer is not required to appear in person or through an authorised representative before any income tax authority at the National e-Assessment Centre (NeAC), Regional e-Assessment Centres, or any other unit established under the faceless assessment framework.

If a modification is proposed in the draft assessment order, the taxpayer will be given an opportunity to submit their response or objections to the proposed changes.

The taxpayer or their authorised representative may also request a personal hearing or wish to make oral submissions before the concerned income tax authority under this scheme. Such hearings are conducted only through video conferencing or video telephony, following the procedure prescribed by the Central Board of Direct Taxes (CBDT).

The income tax authorities are also empowered to examine or record statements of the taxpayer under this scheme. This process, too, is carried out virtually via video conferencing or telephony.

To ensure smooth implementation, the CBDT has set up and continues to maintain video conferencing and telephony facilities at designated locations as required for conducting such virtual proceedings.

Power to Specify Process and Procedure

The Principal Chief Commissioner or the Principal Director General in charge of the National e-Assessment Centre (NeAC), with the approval of the Central Board of Direct Taxes (CBDT), is empowered to define the standards, systems, and procedures for the effective operation of the National e-Assessment Centre, Regional e-Assessment Centres, and other units established under this scheme.

All such systems are designed to function within an automated and technology-driven environment, covering aspects such as:

• Service and delivery of notices, orders, and other communications;
• Receipt of information or documents submitted by taxpayers in response to such communications;
• Issuance of acknowledgements for the responses received;
• Provision of an ‘e-proceeding’ facility, including login access, case tracking, display of assessment details, and download options;
• Verification, authentication, and access of information or responses, including documents provided during assessment proceedings;
• Centralised receipt, storage, and retrieval of all case-related records;
• Administration and management of grievance redressal mechanisms within the Centres and units; and
• Defining the circumstances under which personal hearings may be approved.

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Faceless Jurisdiction of Income Tax Authorities

Under Section 130 of the Income Tax Act, the Central Government holds the authority to introduce a scheme—by way of a notification in the Official Gazette—to facilitate:

1. The exercise of any or all powers and the performance of functions assigned to income tax authorities under Section 120;
2. The vesting of jurisdiction with an Assessing Officer, as stated in Section 124;
3. The transfer of cases under Section 127; and
4. The exercise of jurisdiction in cases involving a change of incumbency, as per Section 129.

Faceless Collection of Information

Under Section 135A, the Central Government has been empowered to frame a scheme for faceless collection and management of information. This provision enables the government to design a transparent, technology-driven mechanism for:

• Calling for information under Section 133;
• Collecting data or details under Section 133B;
• Requesting information by the prescribed income-tax authority under Section 133C;
• Inspecting company registers under Section 134; and
• Exercising the powers of the Assessing Officer under Section 135.

The objective of this section is to promote efficiency, reduce direct interaction between taxpayers and officers, and ensure seamless data collection through digital systems.

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Faceless Inquiry or Valuation

As per Section 142B, the Central Government has been authorized to implement a faceless inquiry and valuation scheme. This scheme covers:

• Issuance of notices under Section 142(1);
• Conducting inquiries prior to assessment under Section 142(2);
• Directing an assessee to get accounts audited under Section 142(2A); and
• Estimating the value of any asset, property, or investment through a Valuation Officer under Section 142A.

The faceless system aims to bring uniformity, transparency, and fairness to inquiries and valuation processes.

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Faceless Assessment of Income Escaping Assessment

Under Section 151A, the Central Government may notify a faceless scheme for the assessment, reassessment, or re-computation of income as per Section 147, and for:

• Issuance of notice under Section 148, and
• Obtaining sanction for issuing such notices under Section 151.

This digital approach helps streamline reassessment procedures, minimize discretion, and ensure consistency in handling income escaping assessments.

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Faceless Rectification, Amendments, and Issuance of Notice or Intimation

The introduction of Section 157A empowers the Central Government to establish a faceless system for rectification and related processes, including:

• Rectification of mistakes apparent from record under Section 154;
• Other amendments as per Section 155;
• Issuance of notice of demand under Section 156; and
• Intimation of loss under Section 157.

This framework aims to simplify post-assessment proceedings, ensuring faster resolution of issues with minimal human interface.

Faceless Collection and Recovery of Tax

Under Section 231, the Central Government is empowered to notify a scheme for faceless management of tax collection and recovery, covering the following areas:

• Issuing certificates for lower or no deduction of tax under Section 197;
• Declaring a person as an assessee in default under Section 201(1) or Section 206C(6A);
• Issuing certificates for lower tax collection under Section 206C(9);
• Passing or amending orders under Section 210(3) or (4);
• Reducing or waiving interest payable by taxpayers under Section 210(2A);
• Extending payment timelines or allowing payment by instalments under Section 210(3);
• Treating an assessee as not in default under Section 220(6) or (7);
• Levying penalties under Section 221;
• Issuing certificates by the Tax Recovery Officer under Section 222;
• Defining the jurisdiction of the Tax Recovery Officer under Section 223;
• Staying proceedings, amending, or cancelling certificates under Section 225;
• Recovery through other modes as per Section 226; and
• Issuing tax clearance certificates under Section 230.

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Faceless Revision and Effect of Orders

Under Section 264B, the Central Government may notify a scheme for:

• Giving effect to orders passed under Sections 250, 254, 260, 262, 263, or 264; and
• Facilitating revision of orders under the same sections.

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Faceless Approval or Registration

Section 293D empowers the Central Government to implement a scheme for granting approvals or registrations by income-tax authorities under any provision of the Act.

Additionally, the faceless assessment provisions extend to:

• Section 253 – Appeals to the Appellate Tribunal; and
• Section 279 – Prosecution at the instance of Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner, for sanction under subsection (1) or compounding under subsection (2).

The Central Government may also specify that any provision of the Act shall not apply, or apply with exceptions, modifications, or adaptations, as detailed in the notification issued in the Official Gazette.

No notifications under this provision will be issued after 31st March 2022, and all notifications must be laid before each House of Parliament.

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