Aug 2215 min read

What is Faceless Assessment Scheme: Understanding Section 144B of the Income Tax Act

Updated: Aug 28

India's Faceless Assessment Scheme streamlines income tax filing by doing away with in-person encounters with tax officials. The scheme operates under section 144B and aims to improve the process using technology by doing away with the Assessing Officer and assessee's direct interaction. This online solution ensures speed and minimises prejudice by assigning your return to a group of specialists for evaluation. All correspondence is conducted electronically via a single platform where you may provide papers, reply to questions, and even ask for a private hearing. With the use of this program, tax assessments in India should become more equitable, open, and practical. The faceless assessment program under Section 144B of the Income Tax is explained in detail in this article.

What is the Faceless Assessment Scheme?

A program for faceless e-assessment was proposed by the Finance Minister in the Union Budget 2019. The plan aims to do away with the taxpayer's human connection to the income tax division. The plan outlines the process for conducting an electronic faceless evaluation. The 2019 e-assessment system has been modified as of August 13, 2020, and is now referred to as the Faceless Assessment scheme. Only the best judgement and scrutiny assessments were subject to the faceless assessment process. However, Faceless Assessment will now include other articles of the Income Tax Act, 1961 under its jurisdiction, under the Taxation and Other Laws (Relaxation and Amendment of certain articles) Bill, 2020.

Faceless Assessment in Income Tax

The following list includes the four main assessments made under the Income-tax Law:

Summary assessment without having the assessee appear in person- Section 143(1)
Scrutiny assessment- Section 143(3)
Best judgment assessment- Section 144
Income escaping assessment- Section 147

In the context of faceless assessment, we will discuss Section 144B in detail. The term "faceless assessment" refers to the process of evaluating taxpayers without their physical presence at the Income Tax Department or direct interaction with any Income Tax authorities.

What is Section 144B of the Income Tax Act?

The process for performing faceless assessments is outlined in Section 144B of the Income Tax Act. This project is part of the government's larger effort to improve efficiency and openness in tax administration. The procedure for electronic assessments that don't involve direct communication between the tax authorities and the taxpayer is outlined in this section. It requires that the National Faceless Assessment Centre (NFAC) be used for all correspondence between the taxpayer and the income tax agency. This section contains rules for using digital devices to send notices, receive responses, and hold hearings when necessary. Reducing personal biases, stopping corruption, and streamlining the evaluation procedure to make it more taxpayer-friendly are the objectives.

Provisions of Section 144B of the Income Tax Act

The following are the provisions of Section 144B of the Income Tax Act:

To eliminate face-to-face communication between tax authorities and taxpayers, Section 144B establishes a faceless assessment procedure.
The purpose of the National e-Assessment Centre (NeAC) is to act as the central authority and enable the faceless assessment procedure.
Assessment units work without direct contact with taxpayers; instead, they are in charge of carrying out the assessment, reviewing the evidence, and creating assessment orders.
Before finalising the assessment orders, distinct units check them for accuracy and justice.
An automated system is used to assign cases to assessment and review units, guaranteeing objectivity.
The taxpayer and the tax authorities communicate all notices, orders, and correspondence via electronic means.
Taxpayers are entitled to a virtual hearing upon request, which guarantees their representation.

Units and Centres for Faceless Assessment

To expedite the assessment process, the Faceless Assessment Scheme requires the creation of particular centres and units. These organisations are made to function independently, guaranteeing impartiality and openness.

National Faceless Assessment Centre: The entire faceless assessment procedure is managed by the National Faceless Assessment Centre (NFAC), which serves as a central hub. It has the power to start evaluations and organise operations in several areas. The Centre plays a critical role in ensuring uniformity and consistency in the application of tax regulations.
Regional Faceless Assessment Centres: To promote effective administration, Principal Chief Commissioners have established Regional Faceless Assessment Centres. By managing evaluations within their borders, these centres increase accessibility and lessen geographic limitations.
Assessment Units: The assessment procedure revolves around these units. They are in charge of determining the tax ramifications, compiling pertinent data, doing data analysis, and creating draft assessment orders. Independent operation of assessment units guarantees decision-making neutrality.
Verification Units: Verification units are sent out to investigate, review documents, and gather proof as needed. These units support assessment units in establishing a compelling case and verifying data.
Technical Units: To handle complicated technical problems, technical units are formed. They improve the precision and dependability of assessment judgements by offering professional guidance in the fields of law, accounting, forensics, IT, valuation, transfer pricing, and other specialised fields.
Review Units: Review units examine draft assessment orders in order to ensure that quality is maintained. They are essential in guaranteeing the impartiality and accuracy of evaluations because they confirm the veracity of factual conclusions, legal interpretations, and mathematical computations.

Faceless Assessment Process

Notice by NaFAC

In accordance with section 143(2) of the Act, the taxpayer will receive a show-cause notice from the NaFAC. Within fifteen days of getting the notice, the taxpayer is required to submit his response. NaFAC is to notify the taxpayer that, instead of the previous "physical hearing," the following evaluations under section 144B will be done anonymously:

If the taxpayer filed his return in accordance with Section 139, Section 142(1), Section 148, or as a response to a notification given under Section 148 and Section 143(2) (for assessment or re-assessment under Section 143(3)/147.
When a notice of show cause under section 144 (for a best judgement assessment under section 144) is issued and the taxpayer does not file a return in response to the notice under section 142(1).
If notice under section 148(1) has been issued and the taxpayer has not filed a return in response, notice under section 142(1) (for re-assessment or best judgement assessment under section 147 or 144) has been issued.

Case Assignment to the ReFAC

Using an automated allocation method, the NaFAC will designate the case chosen for e-assessment under this scheme to a particular assessment unit (AU) in any one of the ReFACs. It will ask NaFAC to seek any further data, records, or proof from the taxpayer or any other party. The taxpayer or other individual will receive a notification from NaFAC requiring them to submit information, documentation, evidence, and other data within the specified timeframes. The AU will get the information, records, or proof that NaFAC has obtained in this manner.

Action by Verification and Technical Units

AU may also ask the verification unit to carry out an investigation or ask the technical section for technical support. The NaFAC would then use an automatic allocation mechanism to assign such a request to the technical unit or verification, as needed, under any ReFAC. The NaFAC would then forward the report to the relevant assessment unit after receiving it from the verification or technical unit.

Taxpayer’s Non-Compliance with the Notice to Provide Details

If the taxpayer disregards the following:

The request for information, records, or proof; or
The notification given in accordance with Act section 142(1); or
The unique audit guidelines provided by section 142(2(A)

Under section 144, the taxpayer will get a show-cause notice from the NaFAC, giving them the chance to explain why a best judgement assessment should not be made. If the taxpayer responds to the NaFAC within the allotted time frame or an extension of that time, and if the response is adequate, then section 144 best judgement will not be used. Nevertheless, NaFAC will notify the AU to make the best judgement assessment if the response is not adequate.

Draft Assessment Order Approved by the Assessment Unit

As best as it could, the AU would issue a draft assessment order based on the pertinent information that was on file or a reference from the NaFAC. A decision of this kind will be made under Act sections 143(3), 144, and 147. A copy of such an order would be sent to the NaFAC by the assessment unit. In such a draft assessment order, the assessment unit would also specify the specifics of the penalty proceedings that would be started.

Draft Assessment Order Examined by NaFAC

Using an automated examination tool, the NaFAC will review the draft assessment order in compliance with the risk management approach that the CBDT has outlined. It may then decide to take one of the following actions:

Complete the assessment included in the draft assessment order, then send the taxpayer a copy of the completed order. Along with the demand notice or reimbursement, if applicable, it will also send out a notification to begin penalty proceedings, if any, or
Use an automated allocation system to designate the draft assessment order to a review unit under any ReFAC so that the draft order can be reviewed. In this situation, the review unit has two options: it can agree with the draft order or suggest any changes it thinks appropriate and notify the NaFAC of them. If no changes are recommended, see the previous point (i). If changes are suggested, the NaFAC will use an automated allocation system to allocate the case to an AU different from the one that prepared the draft assessment order. The final draft assessment order will be sent to NaFAC by the new AU after taking into account the RU's recommendations. Point (iii) will be taken into consideration if the suggested variation is detrimental to the taxpayer's interest (e.g., an increase in tax payable, a decrease in refund, the disallowance of expenditure, etc.) or
If a proposed change to the income would be detrimental to the taxpayer's interests, give them a chance to be heard. This opportunity will be granted by presenting him with a notice asking him to provide justification for why the suggested modification should not be made.

Dispute Resolution Panel and Final Assessment

In the previously mentioned instance, where NaFAC gave the taxpayer a chance to be heard:

Case A: The taxpayer responds to NaFAC by the deadline indicated or extended, if any:

NaFAC will forward the response to the AU.
AU will update the draft assessment order and submit it to NaFAC after taking the taxpayer's reaction into account.
If any of the following changes to the updated draft order are detrimental to the taxpayer's interests relative to the draft assessment order or draft final assessment order, NaFAC will once more provide the taxpayer a chance to be heard.
NaFAC will then send the revised draft assessment order to the taxpayer who is an "eligible taxpayer" under section 144C and a final assessment order to all other taxpayers along with a notice for initiating penalty proceedings, demand notice—which will specify the amount payable—or refund of any amount available to him based on such assessment, provided that they do not adversely affect the taxpayer's interest in comparison to the draft assessment order, draft final assessment order, or draft final assessment order.

Case B: The taxpayer fails to submit a response to NaFAC by the deadline or on the amended date:

Assume that the taxpayer qualifies for section 144C tax benefits. If so, the taxpayer will receive a draft assessment order or final draft assessment order from NaFAC. They may then object to these adjustments by submitting a request to the dispute resolution panel. "Eligible taxpayer" denotes ny individual whose situation the variation results from the Transfer Pricing Officer's ruling made according to section 92CA's subsection (3) and any overseas business.
Let's say that the taxpayer does not qualify as a taxpayer under section 144C. The taxpayer will then receive a copy of the order, a notice to begin penalty proceedings, a demand notice outlining the amount owed, or a refund of any money made available to him based on the assessment. In that scenario, NaFAC will complete the assessment based on the draft assessment order or final draft assessment order. The assessment would be finished as follows if the taxpayer files objections with the Dispute Resolution Panel:

Section 144C(5) of the Act requires the Dispute Resolution Panel to issue directions, which the NaFAC will then forward to the assessment unit.
The assessment unit will then prepare a draft assessment order under the Dispute Resolution Panel's directions and forward a copy of the order to the NaFAC.
Upon receiving the assessment unit's draft assessment order, the NaFAC will complete the assessment within the allotted time frame and serve the taxpayer with a copy of the order, a demand notice that details the amount owed or the refund of any funds that are available to him, and a notice of potential penalty proceedings.

Procedure for Penalty

If a unit finds it necessary or expedient to do so, it may, during the assessment process, recommend to the National e-Assessment Centre the initiation of any income tax law penalty proceedings against the taxpayer or any other person, as the case may be, for non-compliance with any notice, direction, or order issued under this scheme.
After receiving such a recommendation, the National e-Assessment Centre will notify the taxpayer or any other relevant party, as the case may be, and ask them to provide justification for why they shouldn't be penalised under income tax legislation.
The National e-Assessment Centre will forward the taxpayer's or any other person's response to the show-cause notice to the relevant unit that recommended the penalty.
Following a review of the taxpayer's or any other person's response, as applicable, the aforementioned unit will either: Create a draft order of penalty and forward a copy of it to the National e-Assessment Centre or remit the fine after documenting the cause and notifying the National e-Assessment Centre.
The said draft order of penalty will be imposed by the National e-Assessment Centre, which will also send the records of the penalty proceedings to the jurisdictional assessing officer for additional action. A copy of the draft order of penalty and a notice of demand will be served to the taxpayer and any other relevant parties.

Procedure for Appeal

The Commissioner (Appeals) may hear an appeal of a penalty order or assessment order issued by the National e-Assessment Centre under this program. The Faceless Appeals Scheme 2020 also governs appeals before the Commissioner (Appeals), with all appeal-related processes—from filing the appeal to issuing notices to passing the appellate order—being handled through a centralised communication hub. With the use of an automated allocation mechanism, the National Faceless Appeal Centre would be in charge of allocating appeals to certain Appeal Units ("AU") having CIT(A)s at Regional Faceless Appeal Centres ("RFAC").

Appearance before the Centre and Units

In connection with any actions under this program, an individual is not required to attend in person or through an authorised representative before the income tax authority at the National e-Assessment Centre, the Regional e-Assessment Centre, or any unit established under this plan. Should a modification be suggested in the draft assessment order, the taxpayer will have the chance to submit comments opposing such changes. Under this method, the taxpayer or his authorised agent may also request a personal hearing or present verbal arguments before the income tax authorities in any unit. According to the protocol established by the CBDT, this hearing could only be held via video conference, including video telephony.

Communication Between the Taxpayer and Authorities

All internal communications between the National e-Assessment Centre, Regional e-Assessment Centres, and various units must also be exchanged solely via electronic means. These communications must also be sent between the National e-Assessment Centre and the taxpayer, or his authorised representative. On the other hand, if the verification unit authorises a personal hearing, electronic communication is not relevant.

The National e-assessment Centre, the taxpayer, or any other person may authenticate any electronic records issued under the program by attaching a digital signature or by using an EVC. The taxpayer will receive all notices, orders, and other electronic communications under this program. An authenticated copy of the communication is uploaded to the assessee's mobile app, sent to the taxpayer's registered email address or that of his authorised representative, and placed in the taxpayer's registered account. A real-time alert is then sent to the taxpayer.

Faceless Jurisdiction of Tax Authorities

The Central Government may create a plan by notifying it in the Official Gazette, as permitted by Section 130, for the following purposes:

The use of all authority granted to the income-tax authorities under the Income Tax Act, as mentioned in section 120, and the fulfilment of all duties assigned to them; or
To grant the Assessing Officer, as mentioned in section 124, jurisdiction; or
To use the authority granted by section 127 for case transfers; or
To use the authority specified in section 129 in the event of a change in the incumbency

Faceless Information Collection

With the introduction of Section 135A, the Central Government is now empowered to create a plan to request information under Section 133, gathering information under Section 133B, requesting information from the prescribed income-tax authority under Section 133C, exercising the authority to inspect the company registered under Section 134, or exercising the Assessing Officer's authority under Section 135A.

Faceless Valuation or Inquiry

To give the Central Government the authority to direct the assessee to have his accounts audited under sub-section (2A) of section 142, to estimate the value of any asset, property, or investment by a Valuation Officer under section 142A, or to issue a notice under sub-section (1) or make an inquiry prior to an assessment under sub-section (2), Section 142B was introduced.

Faceless Amendments, Rectification, and Notice Issuance

The Central Government is now able to create a plan for correcting errors that are evident from records under section 154, make other changes under section 155, issue a notice of demand under section 156, or notify someone of a loss under section 157 thanks to the introduction of section 157A.

Faceless Income-Escaping Assessment

The Central Government now has the authority to create a plan for assessment, reassessment, or re-computation under section 147, notice issuance under section 148, or sanction for issuing such a notice under section 151 thanks to the introduction of section 151A.

Faceless Tax Recovery

The Central Government now has the authority to create a plan for the following purposes due to the introduction of Section 231.

Granting certificates for a reduced income tax deduction or for no income tax deduction at all under section 197, or
Making someone an assessee in default under section 201, subsection (1), or section 206C, subsection (6A), or
Granting certifications under section 206C, subsection (9) for a reduced tax collection, or
Approving an order or a modified order under section 210's subsections (3) or (4), or
Lowering or eliminating the interest that assessees must pay or accrue under sub-section (2A), or
Extending the deadline for payment or permitting installment payments under subsection (3), or
Considering an assessee to be exempt from default under section 220 subsections (6) or (7), or
Imposition of a fine pursuant to section 221, or
The Tax Recovery Officer drawing a certificate under section 222, or
Section 223 jurisdiction of the Tax Recovery Officer, or
Procedures according to the certificate being stayed while the Tax Recovery Officer modifies or cancels under section 225, or
Additional recovery techniques under section 226; or
Tax clearance certificates are issued under Section 230.

Latest CBDT Notification on Section 144B

The Central Board of Direct Taxes issued a new rule on August 1, 2024, giving Income Tax Verification Units more authority. The directive, issued under subsection 5 of Section 144B of the Income Tax Act of 1961, delineates particular scenarios in which physical verification is permissible, including within the framework of the faceless assessment system. Prior to now, the scope of physical verification was constrained by the emphasis on digital procedures and the faceless assessment system. The revised rule does acknowledge, though, that field investigation may be necessary in some circumstances. The conditions that allow for physical verification are as follows:

When the taxpayer or connected parties have insufficiently available digital information.
When a taxpayer does not reply to demands for electronic or web verification.
In situations where it is judged necessary to physically inspect assets, locations, or people, even in the absence of digital data.
The tax department's capacity to carry out exhaustive investigations and guarantee proper tax compliance is intended to be enhanced by this increased authority.

Conclusion

The Income Tax Act's Section 144B has improved the assessment process's accountability and transparency. It has given the taxpayer the ability to contact the DRP if they disagree with the assessment order that the assessing officer has issued. The taxpayer has the option to make a case and give the assessing officer pertinent information thanks to the pre-show cause notification provision and response opportunity. All things considered, Section 144B has been a beneficial addition to the Income Tax Act, aiding in the quicker and more effective resolution of disputes.

FAQ

Q1. What is the Faceless Assessment Scheme in income tax?

The goal of the program's introduction was to reduce the amount of time taxpayers and the income tax department interact directly. The income tax laws specify a thorough process for carrying out these anonymous evaluations.

Q2. How can a taxpayer respond to a notice issued under the faceless assessment scheme?

The taxpayer has until the deadline specified in the notification to prepare his answer to the notice they got under this program via the income tax portal to the National e-assessment centre.

Q3. What cases are not covered under the Faceless Assessment Scheme?

The faceless assessment scheme does not apply to situations that are under central charges, such as search and survey cases, foreign tax difficulties, etc.

Q4. What is Section 144B of the Income Tax Act?

The Income Tax Act was amended to include Section 144B, which gives taxpayers the chance to contest the assessing officer's assessment order. The advantages of Section 144B are available to any taxpayer who has received a show cause notice from the assessing officer.

Q5. What is the Dispute Resolution Panel (DRP)?

The Central Board of Direct Taxes (CBDT), which appoints a panel of three senior income tax officials, is in charge of examining the draft assessment order that the assessing officer has approved.

Q6. Can the taxpayer request for an oral hearing before the DRP?

It is possible for the taxpayer to request an oral hearing before the DRP; however, the hearing needs to take place no later than 15 days after the request is made.