Introduction to Faceless Assessment Procedure under Section 144B of Income Tax Act

Introduction

The Indian taxation landscape has undergone significant reforms through the introduction of the Faceless Assessment Scheme under Section 144B of the Income Tax Act, 1961. This revolutionary framework eliminates direct physical interaction between assessing officers and taxpayers, establishing a digital ecosystem that prioritizes transparency, efficiency, and accountability. The scheme represents a paradigm shift in tax administration, leveraging technology to minimize human interface and reduce corruption while ensuring procedural fairness.

The Central Board of Direct Taxes (CBDT) operationalized Section 144B through Notification No. 60/2020 dated August 13, 2020, establishing the National Faceless Assessment Centre (NFAC) as the central coordinating authority [1]. This notification delineated the procedural framework, institutional structure, and operational guidelines governing the faceless assessment ecosystem. The scheme was further refined through subsequent amendments, including the establishment of NFAC headquarters in Delhi through an Office Order dated March 31, 2021 [2].

This article examines the critical procedural aspects of faceless assessment, focusing on the mechanisms for requesting information, conducting enquiries and verifications, addressing non-compliance, and providing opportunities for taxpayers to show cause. These provisions form the backbone of the assessment procedure, ensuring that tax authorities obtain necessary information while safeguarding taxpayer rights through structured processes and natural justice principles.

Request For Information And Documents

Under the faceless assessment framework, the assessment unit possesses powers to request information, documents, and evidence necessary for completing assessments. Section 144B(6) of the Income Tax Act mandates that all communications between the National Faceless Assessment Centre and the assessee shall be exchanged exclusively by electronic mode [3]. This digital communication framework ensures uniform standards, maintains proper documentation, and eliminates geographical barriers that traditionally affected tax proceedings.

When an assessment unit requires additional information for completing the assessment, it makes requests through the NFAC, which serves as the single point of contact between taxpayers and the tax administration. The assessment unit may request information under three distinct categories: obtaining further information, documents, or evidence from the assessee or any other person; requesting the conduct of enquiries or verifications by designated verification units; and seeking technical assistance on specialized matters including determination of arm’s length price, property valuation, or other technical aspects from technical units.

The NFAC serves appropriate notices or requisitions on the assessee under various provisions including Section 142(1) and Section 143(2) of the Income Tax Act. Section 142(1) empowers the Assessing Officer to require taxpayers to furnish returns, produce accounts and documents, or provide written information on specified matters [4]. This provision enables tax authorities to conduct preliminary inquiries before assessment, ensuring they have access to complete and accurate information necessary for proper tax determination.

Statutory Framework for Information Requisition

Section 142(1) of the Income Tax Act establishes a framework for pre-assessment inquiries. The provision states: “For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified.” This statutory language grants wide-ranging powers to tax authorities while maintaining procedural safeguards.

The Assessing Officer can request the taxpayer to produce accounts and documents, furnish information in writing on specific points, and provide statements of assets and liabilities. However, the Act provides important limitations: requests for information cannot extend to periods more than three years prior to the previous year, and requests for asset-liability statements not part of regular accounts require prior approval from the Joint Commissioner. These safeguards prevent potential harassment and ensure proportionality in information demands.

Filing of responses to such notices remains mandatory under the faceless assessment scheme. The assessee must file responses to notices within the time specified in the notice or as extended based on applications for extension. All responses must be submitted electronically through the NFAC, which forwards them to the concerned assessment unit. The centralized response processing system enables efficient document management, automated case updates, and seamless integration with assessment units for timely consideration of taxpayer submissions.

Conducting Enquiry Or Verification

The verification mechanism under Section 144B represents a crucial component ensuring the accuracy and reliability of information submitted by taxpayers. When the assessment unit requires verification of information or conducting of enquiries, the NFAC assigns such requests to verification units through an automated allocation system. This automation ensures random assignment, eliminating possibilities of favoritism or jurisdictional manipulation that characterized the traditional assessment system.

The CBDT significantly expanded the powers of verification units through an order dated August 1, 2024, issued under sub-section (5) of Section 144B [5]. This order outlined specific circumstances permitting physical verification even within the faceless assessment regime. Physical verification can be conducted when digital information regarding the taxpayer or connected parties proves insufficient, when taxpayers fail to respond to electronic verification demands, or when physical inspection of assets, locations, or persons becomes necessary despite absence of digital data.

Verification Unit Functions and Procedures

Verification units perform critical functions in the faceless assessment ecosystem. Upon receiving assignments from NFAC through automated allocation, these units conduct thorough enquiries or verifications as requested by the assessment unit. The verification process may involve examining books of accounts, conducting site visits where authorized, verifying the existence and valuation of assets, confirming the genuineness of transactions, and gathering third-party evidence supporting or contradicting taxpayer claims.

After completing verification activities, verification units prepare detailed reports documenting their findings, methodology employed, evidence collected, and conclusions reached. These reports are submitted to NFAC, which forwards them to the concerned assessment unit. The assessment unit must consider verification reports while formulating draft assessment orders, ensuring that factual findings established through verification processes inform the final determination of tax liability.

The integration of verification units within the faceless assessment framework addresses concerns about the adequacy of purely electronic assessments. While maintaining the core principle of minimizing physical interaction, the scheme recognizes situations requiring ground-level verification. This balanced approach ensures assessment accuracy without compromising the scheme’s fundamental objectives of transparency and objectivity.

Failure To Comply With Statutory Notices

The faceless assessment procedure establishes clear consequences for taxpayer non-compliance while ensuring procedural fairness through structured show cause mechanisms. When an assessee fails to comply with notices served under clause (v) of Section 144B(2), notices issued under Section 142(1), or terms of notices issued under Section 143(2), the NFAC takes note of such failure and intimates the assessment unit accordingly.

Section 143(2) notices play a particularly significant role in the assessment process. This provision requires that scrutiny assessment notices be served within specific timeframes – generally within three months from the end of the financial year in which the return is filed [6]. Non-compliance with Section 143(2) notices may lead to best judgment assessments under Section 144 of the Income Tax Act, where the Assessing Officer determines tax liability based on available information and best judgment.

Show Cause Notice Procedures

The opportunity to show cause represents a fundamental principle of natural justice embedded within the faceless assessment framework. When non-compliance occurs, the assessment unit serves a show cause notice on the assessee through NFAC under Section 144 of the Income Tax Act. This notice provides the assessee an opportunity to demonstrate why the assessment should not be completed to the best of judgment of the Assessing Officer.

Section 144 empowers Assessing Officers to make best judgment assessments when taxpayers fail to file returns, do not comply with notices under Sections 142(1) or 143(2), or fail to comply with directions issued under Section 142(2A) regarding special audits [7]. The provision states that before completing such assessments, the Assessing Officer must give the assessee an opportunity to be heard, unless the assessee completely ignores previous notices.

The assessee must file responses to show cause notices within the time specified in the notice or within extended time granted based on applications. If the assessee fails to respond within the specified or extended time, NFAC intimates such failure to the assessment unit. This intimation triggers the next phase of the assessment process, where the assessment unit proceeds with formulating proposals based on available material.

Preparation of Variation Proposals

Following non-compliance or after considering responses received, the assessment unit prepares income or loss determination proposals or show cause notices stating variations prejudicial to the assessee’s interest. This preparation phase requires the assessment unit to consider all relevant material available on record, including previously filed returns, information gathered during verification, responses submitted by the assessee, third-party information, and applicable legal precedents and statutory provisions.

The draft proposal must clearly articulate the basis for proposed adjustments, cite relevant legal provisions supporting the proposed variations, provide detailed calculations demonstrating the computation of proposed additions or disallowances, and reference evidence or material supporting the proposed variations. This detailed documentation ensures transparency and enables meaningful taxpayer participation in the assessment process.

Best Judgment Assessment Under Section 144

Best judgment assessment represents the ultimate consequence of persistent non-compliance within the faceless assessment framework. Section 144 provides: “If any person fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of section 142, the Assessing Officer, after taking into account all relevant material which he has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment.” [8]

Best judgment assessments are not arbitrary determinations but must be based on objective criteria. The Assessing Officer must consider past income tax returns and patterns, bank statements and financial transactions, industry benchmarks and comparable cases, third-party information from employers, banks, and financial institutions, and available documents and evidence. While the assessment relies on judgment, it must remain reasonable, rational, and supported by available material.

The consequences of best judgment assessment can be severe for taxpayers. Tax liability is typically determined conservatively, often resulting in higher assessments than would result from proper compliance. Additionally, penalties may be levied under Section 270A for underreporting or misreporting income, interest charges accrue under Sections 234A, 234B, and 234C for non-payment or delayed payment of taxes, and prosecution proceedings may be initiated under Section 276D for willful failure to furnish returns.

Judicial Interpretation And Case Law

Courts have consistently emphasized strict compliance with procedural requirements under Section 144B. The Gujarat High Court, in particular, has emerged as a significant forum for adjudicating disputes related to faceless assessment procedures. In Gandhi Realty (India) Private Limited v. Assistant/Joint/Deputy Commissioner of Income Tax, the Gujarat High Court held that faceless assessment orders are invalid if Section 144B procedures are not properly complied with, even when principles of natural justice are otherwise followed [9].

The Madras High Court has emphasized that faceless assessment does not diminish the requirement for providing adequate opportunities to taxpayers. Courts have established that minimum 21 days should be provided for responses to assessment notices, ensuring meaningful opportunity for case presentation. This judicial approach balances the efficiency objectives of faceless assessment with constitutional requirements of procedural fairness and natural justice.

In M Tech Developers Pvt. Ltd. v. National Faceless Assessment Centre, the Delhi High Court examined the interaction between faceless assessment procedures and the Insolvency and Bankruptcy Code, holding that tax authorities cannot sustain invocation of Section 144B based on their own failure to lodge claims within stipulated timeframes under insolvency proceedings. This decision reinforces the principle that procedural requirements bind both taxpayers and tax authorities equally.

Conclusion

The faceless assessment procedure under Section 144B represents a transformative achievement in Indian tax administration. The provisions governing information requisition, verification procedures, non-compliance consequences, and show cause opportunities create a balanced framework that advances administrative efficiency while preserving taxpayer rights. The scheme successfully eliminates opportunities for corruption and bias through automated allocation systems, standardized procedures, and electronic communication protocols.

The procedural safeguards embedded within Section 144B ensure compliance with constitutional principles of natural justice. Taxpayers receive adequate notice of proposed adverse actions, opportunities to present evidence and arguments, access to draft assessment orders before finalization, and structured mechanisms for appealing assessment determinations. These safeguards transform faceless assessment from a purely efficiency-focused reform into a system balancing administrative convenience with taxpayer protection.

Successful implementation of faceless assessment requires continued attention to procedural compliance, technological infrastructure maintenance, capacity building for tax officials and taxpayers, and responsive grievance redressal mechanisms. As the scheme matures, ongoing judicial interpretation will further refine procedural requirements and establish clear boundaries for faceless assessment application. The scheme represents not merely a procedural change but a fundamental reimagining of the taxpayer-tax authority relationship, prioritizing transparency, objectivity, and efficiency in tax administration.

References

[1] Central Board of Direct Taxes, Notification No. 60/2020, August 13, 2020. Available at: https://www.indiafilings.com/learn/section-144b-of-income-tax-act/

[2] Central Board of Direct Taxes, Office Order establishing National Faceless Assessment Centre, March 31, 2021. Available at: https://taxguru.in/income-tax/cbdt-set-up-national-faceless-assessment-centre-nafac.html

[3] Income Tax Act, 1961, Section 144B(6). Available at: https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=3299

[4] Income Tax Act, 1961, Section 142(1). Available at: https://cleartax.in/s/understanding-notice-under-section-1421-of-the-income-tax-act-ita

[5] Central Board of Direct Taxes, Order dated August 1, 2024 under Section 144B(5). Available at: https://www.indiafilings.com/learn/section-144b-of-income-tax-act/

[6] Income Tax Act, 1961, Section 143(2). Available at: https://www.taxbuddy.com/blog/notice-under-section-143-2-of-income-tax-act

[7] Income Tax Act, 1961, Section 144. Available at: https://cleartax.in/s/section-144-of-income-tax-act-best-judgement-assessment

[8] Income Tax Act, 1961, Section 144 (Full Text). Available at: https://indiankanoon.org/doc/1650322/

[9] Gandhi Realty (India) Private Limited v. Assistant/Joint/Deputy Commissioner of Income Tax, Gujarat High Court. Available at: https://taxguru.in/income-tax/faceless-assessment-valid-section-144b-procedure-complied.html

Published and Authorized by Vishal Davda