Section 144B of the Income Tax Act: Faceless Assessment

Section 144B of the Income Tax Act represents a significant shift in how income tax assessments are conducted, placing a strong emphasis on fairness, efficiency, and transparency. It introduces the Faceless Assessment Scheme initiated by the Central Government, aiming to remove direct interactions between the taxpayer and the Assessing Officer. By adopting advanced digital systems, this section helps optimise resources, promote functional expertise, and implement a collaborative, jurisdiction-neutral approach in determining arm’s length pricing. This marks a major step toward modernising the income tax framework in India.

What is Section 144B of the Income Tax Act?

Section 144B establishes the procedure for carrying out income tax assessments in a faceless, electronic format. As part of a broader reform effort to improve governance and streamline tax processes, this section mandates that all interactions between taxpayers and the income tax department be routed through the National Faceless Assessment Centre (NFAC). Communication—whether it be issuance of notices, submission of responses, or conduct of hearings—is done entirely through digital channels. The goal is to eliminate subjectivity, curb potential misconduct, and simplify the assessment process for greater ease of compliance. We provide the best income tax filing services!

Significance of Section 144B of the Income Tax Act

Section 144B plays a pivotal role in reshaping the traditional tax assessment landscape. Here’s why it holds substantial importance:

• Transparency and Impartiality:
  By removing face-to-face contact, the section ensures that assessments are handled without bias or influence, promoting integrity in the process.

   

• Faster and More Efficient Processing:
  With automation and online systems in place, assessments are completed more swiftly, easing the backlog and accelerating case resolution.

   

• Greater Convenience for Taxpayers:
  Individuals and businesses can respond to notices and track their cases online, eliminating the need to visit tax offices, which is especially helpful for those in remote areas.

   

• Nationwide Uniformity:
  Section 144B establishes a uniform procedure for assessments across all regions, ensuring consistent treatment of taxpayers throughout the country.

   

• Reduction in Disputes:
  A well-defined, standard process helps reduce disagreements, making taxpayers more likely to accept outcomes and thereby lowering the volume of litigation.

   

• Improved Accountability:
  The faceless system records every action digitally, making it easier to monitor and audit the conduct of tax officials and ensuring responsibility at every stage.

   

Provisions of Section 144B of the Income Tax Act

Section 144B lays down the framework for conducting faceless assessments, marking a major shift in how income tax proceedings are carried out in India. Below are the main features outlined under this section:

• Faceless Assessment:
  This section introduces a digital assessment system that eliminates the need for in-person meetings between taxpayers and tax authorities.

   

• National e-Assessment Centre (NeAC):
  A central body known as the NeAC oversees and coordinates the faceless assessment process across the country.

   

• Assessment Units:
  These units are tasked with reviewing evidence, conducting assessments, and preparing draft orders without any personal interaction with the assessee.

   

• Review Units:
  Separate from the assessment units, these teams evaluate the draft orders to ensure correctness and impartiality before they are finalised.

   

• Automated Case Allocation:
  The assignment of cases to various units is managed through a system-generated process to maintain neutrality and avoid bias.

   

• Digital Communication:
  All correspondence—including notices, responses, and orders—is carried out entirely through electronic means.

   

• Right to Virtual Hearing:
  If a taxpayer makes a request, they are entitled to a hearing via video conferencing to present their side.

   

• Error Correction Facility:
  The scheme includes provisions for correcting mistakes in the assessment order, ensuring a just and fair outcome.

   

Faceless Assessment as per Section 144B

The faceless assessment process under Section 144B operates without any face-to-face contact between the assessee and the Assessing Officer. Every stage—from scrutiny to issuance of the final order—is handled by designated units located in different regions. This structure is designed to enhance transparency, reduce the possibility of malpractice, and ensure fair treatment for all taxpayers. The initiative also aims to simplify the overall tax process, lessen taxpayer grievances, and improve voluntary compliance.

Main Highlights of the Faceless Assessment System

The faceless assessment mechanism under the Income Tax Act brings a host of innovative features:

• Elimination of Personal Interaction:
  The entire assessment process takes place digitally, ensuring no direct contact between the taxpayer and the tax officer.

   

• Collaborative Team-Based Approach:
  A specialised team of tax professionals carries out the assessment, ensuring thorough and expert handling of each case.

   

• Flexible Jurisdiction Model:
  Cases are assigned not by geographical location but based on availability and expertise, allowing for better resource allocation.

   

• Technology-Driven Assessment:
  The system incorporates cutting-edge tools like artificial intelligence and data analytics to review and process tax filings efficiently.

   

• Built-In Transparency and Oversight:
  With clear digital records and traceable actions, the system reduces discretionary powers and enhances accountability.

   

• Convenience for Taxpayers:
  All interactions take place online, removing the need for physical visits and making compliance more user-friendly.

   

• Faster Case Resolution:
  The digitised and structured workflow helps ensure assessments are completed more quickly.

   

Step-by-Step Faceless Assessment Process via NFAC

The faceless assessment procedure, managed by the National Faceless Assessment Centre (NFAC), consists of several clearly defined phases:

1. Case Identification and Notice Issuance

• Selection of Cases:
  The NFAC selects returns for assessment using predetermined parameters.

   

• Notice Under Section 143(2):
  A formal notification is sent to the taxpayer indicating that their case has been chosen for faceless assessment.

   

2. Assignment and Information Gathering

• Automated Allocation:
  Cases are distributed to appropriate assessment units within Regional Faceless Assessment Centres (RFACs) using a digital system.

   

• Request for Information:
  The assigned unit may seek further documents or clarifications from the taxpayer or related parties.

   

• Technical Input (if required):
  In cases needing specific expertise, technical units may be consulted.

   

3. Draft Order Creation

• Preparation of Draft:
  The assessment unit drafts an initial assessment order, including any proposed penalties.

   

• Internal Review:
  The NFAC reviews this draft based on risk parameters and, if necessary, may forward it to a review unit for additional evaluation.

   

4. Show Cause Notice (If Applicable)

• Prejudicial Modifications:
  If the draft includes modifications that negatively affect the taxpayer, a show cause notice is issued.

   

• Opportunity to Respond:
  The taxpayer is allowed to present their reply to the notice before the final order is made.

   

5. Issuance of Final Order

• Order Finalisation:
  Based on all inputs—including the draft order, taxpayer’s reply, and review unit suggestions—the NFAC finalises the assessment.

   

• Notification to Taxpayer:
  The final order, along with any refund or demand notice, is communicated to the assessee electronically.

   

6. Dispute Resolution Panel (DRP) Involvement

• Filing Objections:
  In qualifying cases, the taxpayer may file objections with the DRP.

   

• Revised Draft:
  Based on the DRP’s directions, the assessment unit updates and resubmits the draft order.

   

7. Completion of Proceedings

• Closing the Case:
  Once the assessment is completed, all electronic case records are forwarded to the jurisdictional Assessing Officer for any future follow-up.

Centres and Units Involved in Faceless Assessment

The Faceless Assessment Scheme establishes a structured framework consisting of various dedicated centres and specialised units to ensure a smooth, unbiased, and transparent tax assessment process.

National Faceless Assessment Centre (NFAC)

The NFAC serves as the central coordinating authority for all faceless assessments across the country. It is responsible for initiating cases and ensuring uniform procedures are followed nationwide. The Centre plays a pivotal role in standardising the application of income tax laws and fostering consistency.

Regional Faceless Assessment Centres (RFACs)

Operating under the jurisdiction of Principal Chief Commissioners, the RFACs manage the assessment process within specific regions. These centres help decentralise administrative functions while maintaining operational efficiency across diverse geographical locations.

Assessment Units

Assessment units form the operational backbone of the faceless assessment mechanism. Their duties include analysing financial data, determining tax liabilities, collecting necessary documents, and drafting the initial assessment orders. To preserve impartiality, these units work independently of direct taxpayer interaction.

Verification Units

Tasked with conducting verifications and inquiries, these units help validate the information provided during assessment. They examine documents, conduct cross-checks, and may record statements, providing vital support to assessment units for evidence-based evaluations.

Technical Units

These units offer guidance on specialised subjects, ensuring that assessments are accurate and well-informed. They assist in complex areas such as law, accounting, forensic audits, valuation, IT, transfer pricing, and data analytics, contributing expert insight to the overall process.

Review Units

Review units are responsible for evaluating the draft assessment orders to ensure factual correctness, legal soundness, and computational accuracy. Their scrutiny helps uphold the integrity of the assessment and maintain high-quality standards.

Digital Communication and Workflow in Faceless Assessment

Section 144B of the Income Tax Act outlines that all procedures and interactions under the faceless assessment system must be carried out electronically. These measures are designed to improve the efficiency, transparency, and speed of assessments.

Authentication of Digital Records:
Every digital document—be it a notice, order, or taxpayer response—must be authenticated using a digital signature, either by the National Faceless Assessment Centre or the taxpayer. This ensures the integrity and validity of all records.

Mode of Communication:
All communications, including notices and orders, are sent electronically via the taxpayer’s registered portal account, official email, or mobile application, removing the necessity for physical correspondence.

Submission of Responses:
Taxpayers are required to file their replies through their designated online accounts. Once the National Faceless Assessment Centre acknowledges receipt, the response is considered officially submitted and authenticated.

Timing and Location of Communication:
The date and place related to electronic communication are governed as per the provisions of the Information Technology Act, 2000.

No Physical Appearance Required:
Personal attendance is not needed for any part of the faceless assessment process. All procedures are conducted online to maintain the system’s anonymity and convenience.

Virtual Hearings:
In specific cases where necessary, taxpayers may request a hearing. These are conducted exclusively through video conferencing rather than in person.

Video Conferencing Facilities:
To ensure equitable access, the income tax department must set up adequate infrastructure to support video conferencing, so that all taxpayers can participate effectively if needed.

Framework and Protocols:
It is the responsibility of tax authorities to define clear procedures, formats, and guidelines for smooth functioning of the faceless system. This includes electronic communication standards, document handling protocols, and a mechanism for grievance resolution.

CBDT Notification Regarding Section 144B of the Income Tax Act

On August 1, 2024, the Central Board of Direct Taxes (CBDT) released an official directive enhancing the powers of Income Tax Verification Units. This directive, issued under sub-section (5) of Section 144B of the Income Tax Act, 1961, specifies conditions under which physical verification may be conducted, even within the faceless assessment framework.

Earlier, the emphasis on digital assessments had largely restricted physical interactions. However, this notification acknowledges that in some instances, on-site verification is necessary for a comprehensive assessment.

Situations where physical verification is now permitted include:

• Lack of Digital Trail: When adequate digital data or online presence regarding the taxpayer or associated entities is unavailable.

   

• Failure to Comply with Notices: In events where the taxpayer does not respond to electronic communications or online requests for verification.

   

• Need for On-Site Examination: When physical inspection of properties, locations, or individuals is essential—irrespective of available electronic records.

   

This broadened scope of authority is intended to strengthen the department’s investigative capabilities and support more accurate and reliable tax assessments.

The official CBDT notification concerning these changes under Section 144B of the Income Tax Act is provided below.