Section 144B, Faceless Assessment, Income Tax, Tax Law, NFAC, Tax Appeal, Taxpayer Rights, CBDT, ITAT, Direct Tax

Executive Summary

The faceless assessment 144b challenge has emerged as one of the most consequential procedural topics in Indian direct tax law since the introduction of mandatory faceless assessment under Section 144B of the Income Tax Act, 1961 by the Finance Act, 2021. The faceless assessment scheme was conceived to eliminate the human interface between the income tax officer and the taxpayer, thereby reducing opportunities for corruption, ensuring anonymity of the assessing officer, and creating a more objective, technology-mediated assessment environment. However, the implementation of the scheme has generated a substantial body of litigation concerning natural justice, the right of the taxpayer to an effective hearing, the adequacy of the show cause notice process, and the legality of final assessment orders passed without affording a reasonable opportunity to respond. This article examines the statutory architecture of Section 144B, the institutional structure of the National Faceless Assessment Centre (NFAC) and its regional units, the rights of the taxpayer during the assessment process, and the full spectrum of remedies available to challenge a final assessment order—from revision under Section 264 to a second appeal before the Income Tax Appellate Tribunal, and ultimately to the High Court and the Supreme Court. The article also compares faceless assessment under Section 144B with ordinary assessment under Section 143(3) and highlights the procedural safeguards that have been interpreted by courts as mandatory prerequisites for a valid assessment order.

Statutory Framework

Section 144B of the Income Tax Act, 1961

Section 144B was inserted into the Income Tax Act, 1961 by the Finance Act, 2021 with effect from 1 April 2021. The provision mandates that all assessments required to be made under Sections 143(3) and 144 of the Act shall be made in accordance with the faceless assessment procedure where the case is selected for scrutiny assessment. Section 144B provides a detailed procedure for the faceless assessment, including the issuance of notices, the assignment of cases to the NFAC and its constituent units, the preparation of draft assessment orders, the review of draft orders, and the finalisation and communication of the assessment order.

The key institutional actors under Section 144B are the National Faceless Assessment Centre (NFAC), the Assessment Units, the Verification Units, the Technical Units, and the Review Units. The NFAC is headquartered at New Delhi and serves as the central coordinating authority for all faceless assessments. Cases are assigned to Assessment Units located in different cities through a computer-based allocation system, and the identity of the officer handling a particular case is not disclosed to the taxpayer.

Under Section 144B(7), the NFAC is required, before passing a final assessment order that is prejudicial to the taxpayer, to issue a show cause notice (SCN) specifying the additions or disallowances proposed in the draft assessment order. The taxpayer is entitled to respond to the SCN within the time stipulated therein, which the statute provides must be at least fifteen days. Where the taxpayer requests an opportunity for hearing, the NFAC is required to provide a hearing by video conferencing in accordance with the scheme notified by the Central Board of Direct Taxes (CBDT).

Distinction Between Section 143(3) and Section 144B

Section 143(3) of the Income Tax Act, 1961 governs the regular scrutiny assessment procedure in which the assessing officer (AO) conducts the assessment after issuing a notice under Section 143(2) and calls for information, documents, or explanations under Section 142(1). In the conventional Section 143(3) process, the AO may conduct personal hearings, examine the taxpayer’s representatives, inspect documents produced, and interact directly with the taxpayer’s authorised representative. The taxpayer has a reasonable expectation of oral advocacy and direct engagement with the AO on points of fact and law.

Section 144B represents a fundamental departure from this model. The communication between the NFAC and the taxpayer is entirely electronic. The taxpayer’s representative uploads documents and written submissions through the income tax portal; the Assessment Unit prepares a draft order based on the uploaded material; the draft order may go through a review by the Review Unit before being finalised by the NFAC. The absence of physical interaction is both the design feature and the source of litigation, as taxpayers have contended that complex matters involving factual disputes, expert evidence, or voluminous documentation cannot be adequately adjudicated through an exclusively electronic interface.

CBDT Scheme and Notifications

The CBDT has issued multiple circulars and notifications governing the operationalisation of the faceless assessment scheme. The scheme has been amended since its introduction to address implementation difficulties, extend timelines for responses, and expand the facility for video conferencing. As of June 2026, the faceless scheme covers all cases selected for scrutiny assessment, except for assessments involving searches (under Section 153A/153C), international taxation matters handled by dedicated transfer pricing officers, and certain other notified exceptions.

Procedural Landscape

Rights of the Taxpayer During Faceless Assessment

The taxpayer retains several important rights during a faceless assessment under Section 144B, and an understanding of these rights is essential to both responding effectively during the assessment and formulating grounds of challenge if the final order is adverse.

The first right is the right to receive the SCN and to respond within the stipulated time. The SCN issued under Section 144B(7) must be specific: it should identify each proposed addition or disallowance, the evidence or material on the basis of which the addition is proposed, and the statutory provision under which the addition is made. A SCN that is vague, omnibus, or fails to identify the material relied upon violates the principles of natural justice and provides a ground for challenge.

The second right is the right to request a video conferencing hearing. Where the taxpayer’s response involves complex factual or legal issues, or where the taxpayer wishes to orally present arguments or take the officer through extensive documentary evidence, a request for video conferencing may be submitted. The NFAC is obligated to schedule and conduct the video conference, and a failure to grant the requested hearing is a procedural error that may vitiate the final order.

The third right is the right to be represented by an authorised representative. Under Section 288 of the Income Tax Act, 1961, a taxpayer may appear before income tax authorities through a range of authorised representatives including advocates, chartered accountants, and other qualified persons. In faceless proceedings, the authorised representative accesses the portal using the taxpayer’s credentials and submits written responses on behalf of the taxpayer.

The fourth right is the right to a reasoned order. The final assessment order under Section 144B must address each objection raised by the taxpayer in response to the SCN. A non-speaking order or an order that does not engage with the taxpayer’s submissions has been consistently struck down by High Courts as violating natural justice.

Step-by-Step Challenge Pathway for a Final Assessment Order

Step 1: Revision Under Section 264

The first option available to a taxpayer who receives an adverse final assessment order under Section 144B is to apply for revision to the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT) under Section 264 of the Income Tax Act, 1961. Section 264 enables the superior officer to revise any order passed by a subordinate authority, provided the revision is not barred by limitation (the period for application under Section 264 is generally one year from the date of the order) and the matter is not sub judice in an appeal. Revision under Section 264 is particularly useful where the error is a clear factual error, where there is a computational mistake in the assessment order, or where the assessee did not file an appeal but seeks administrative correction. However, Section 264 revision and appeal to the Commissioner of Income Tax (Appeals) are mutually exclusive remedies: once an appeal is filed, the revision route is foreclosed and vice versa.

Step 2: Appeal to CIT(A) or NFAC Appeals

The primary statutory appeal remedy against a final assessment order under Section 144B lies under Section 246A of the Income Tax Act, 1961, which provides for an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. With effect from amendments introduced by the Finance Act, 2023, the appellate function of the CIT(A) has been partly transitioned to the NFAC Appeals framework, where appeals are assigned to faceless appellate units without disclosure of the appellate officer’s identity. The procedure at the first appellate stage mirrors the faceless scheme: responses are submitted electronically, hearings are conducted by video conferencing if requested, and the appellate order is communicated electronically.

An appeal before the CIT(A) must be filed within thirty days of the date of service of the assessment order, accompanied by the prescribed form and a statement of facts and grounds of appeal. The grounds should be specific, identify each addition that is challenged, and articulate the factual and legal basis for the challenge. Payment of tax on the undisputed amount, or payment of a mandatory pre-deposit as prescribed, is a condition for the maintainability of the appeal.

Step 3: Further Appeal to the Income Tax Appellate Tribunal (ITAT)

If the order of the CIT(A) is adverse, either the taxpayer or the Department may prefer a further appeal before the Income Tax Appellate Tribunal (ITAT) under Section 253 of the Income Tax Act, 1961. The ITAT is a quasi-judicial body constituted under Section 252 and has benches in major cities across India, including Ahmedabad for Gujarat matters. An appeal before the ITAT must be filed within sixty days of the date of the CIT(A)’s order. The ITAT hears both questions of fact and questions of law and is the final fact-finding authority; its findings of fact are ordinarily conclusive unless they are perverse or based on no evidence.

Step 4: High Court Appeal Under Section 260A

A further appeal from the ITAT lies to the High Court under Section 260A of the Income Tax Act, 1961, but only on a substantial question of law. Section 260A, modelled on the civil appellate jurisdiction of the High Court under Section 100 of the Code of Civil Procedure, 1908, does not permit a fresh examination of findings of fact made by the ITAT unless the finding is shown to be perverse. The appeal must be filed within one hundred and twenty days of the date of receipt of the ITAT’s order. The High Court must first admit the appeal by formulating the substantial question(s) of law arising from the order before proceeding to hear the case on merits.

In the context of faceless assessment under Section 144B, several questions of law have arisen that High Courts across India have treated as substantial: whether the principles of natural justice were complied with in the conduct of the faceless assessment, whether the SCN adequately disclosed the material on which the addition was based, whether the NFAC was obligated to grant a video conferencing hearing before passing the final order, and whether the time afforded to respond to the SCN was sufficient in the facts of the case.

Step 5: Supreme Court

An order of the High Court on a Section 260A appeal may be challenged before the Supreme Court by way of a Special Leave Petition under Article 136 of the Constitution of India. The Supreme Court’s jurisdiction is discretionary and is typically invoked where the High Court’s decision involves a substantial error of law, creates a conflict with a prior Supreme Court decision, or raises a question of constitutional importance relating to the procedural rights of taxpayers in faceless proceedings.

Natural Justice in Faceless Proceedings

The most significant procedural safeguard in faceless assessment is the obligation to comply with natural justice—the right to a fair hearing before an adverse decision is made. Multiple High Courts, including the Delhi High Court, the Bombay High Court, and the Gujarat High Court, have held that the mandatory requirement under Section 144B to issue a SCN, to allow a response period, and to provide video conferencing on request are not mere procedural formalities but are substantive components of the right to a fair hearing under Article 21 of the Constitution of India.

Courts have consistently quashed assessment orders passed without issuing an adequate SCN, passed without granting a video conferencing hearing that was requested, or passed within a time so short after the SCN that the taxpayer could not meaningfully respond. The principle that emerges from this body of jurisprudence is that the faceless process must afford a genuine and effective hearing, and that the removal of the physical interface cannot serve as a pretext for reducing the quality of the opportunity given to the taxpayer.

Key Judicial Precedents

Several High Court decisions have addressed the legality of faceless assessment orders under Section 144B and the procedural requirements that must be satisfied.

The Gujarat High Court has in multiple writ petitions under Article 226 granted interim stays of demand raised in faceless assessment orders where the taxpayer has shown prima facie that the SCN was issued without adequate particulars or that the opportunity to respond was effectively denied. These decisions have reinforced the principle that even in a faceless environment, the obligation to comply with natural justice cannot be diluted.

The Delhi High Court has in several decisions addressed the interface between Section 144B and the constitutional guarantee of a fair hearing, holding that a final order passed without issuing a mandatory SCN is void ab initio and not merely voidable. The distinction between void and voidable orders is significant because a void order does not carry a limitation period for challenge in the same manner as a voidable order.

The Bombay High Court has addressed the question of whether the taxpayer’s right to a video conferencing hearing is absolute or contingent on the NFAC’s satisfaction. Courts have generally held that where a request for video conferencing is made in good faith and within the time allowed, the NFAC is obligated to grant the facility, and a refusal to do so vitiates the subsequent order.

Conclusion

The faceless assessment 144b challenge landscape as of June 2026 reflects a mature body of law that has developed over five years of the scheme’s operation. The key statutory provisions—Section 144B for the assessment process, Section 246A for the first appeal, Section 253 for the ITAT appeal, and Section 260A for the High Court—together constitute a comprehensive appellate framework. The rights of the taxpayer to receive a specific SCN, to respond within an adequate time, and to obtain a video conferencing hearing are treated by courts as mandatory safeguards whose breach renders the final order legally vulnerable. Practitioners advising taxpayers who have received adverse faceless assessment orders must carefully examine the assessment record, the adequacy of the SCN, the time allowed for response, and whether all the taxpayer’s objections were considered in the final order, before selecting the appropriate challenge route. The availability of both the administrative remedy of revision under Section 264 and the judicial remedy of appeal and writ petition provides taxpayers with multiple avenues to secure a fair determination of their tax liability.