Faceless Assessment Scheme Under Section 144B of Income Tax Act

The Central Government introduced the Faceless Assessment Scheme to provide greater transparency, efficiency and accountability in income tax assessments. 

All provisions introduced under Faceless Assessment, under the Income Tax Act 1961, are introduced to

• Eliminate the interface between the Assessing Officer and the assessee during the course of proceedings, to the extent that is technologically feasible
• Optimise the utilisation of resources through economies of scale and functional specialisation
• Introduce a team-based determination of arm’s length price with dynamic jurisdiction.

What is the Faceless Assessment Scheme?

In the Union Budget 2019, the Finance Minister proposed the introduction of a scheme of faceless e-assessment. The scheme seeks to eliminate the human interface between the taxpayer and the income tax department. The scheme lays down the procedure to carry out a faceless assessment through electronic mode. From 13 August 2020, the e-assessment scheme of 2019 stands amended and is hence known as the Faceless Assessment scheme.

The faceless assessment scheme applied only to scrutiny assessment and best judgment assessment. However, as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020, Faceless Assessment will now bring other provisions of the Income Tax Act, 1961 under its purview.

Faceless Assessment Under Income Tax Act

Under the Income-tax Law, there are four major assessments given below:

• Assessment under section 143(1), i.e., Summary assessment without calling the assessee.
• Assessment under section 143(3), i.e., Scrutiny assessment.
• Assessment under section 144, i.e., Best judgment assessment.
• Assessment under section 147, i.e., Income escaping assessment

Assessment under Section 143(1)

Assessment under section 143(1) is like preliminary checking of the return of income. At this stage, no detailed scrutiny of the return of income is carried out. At this stage, the total income or loss is computed after making the following adjustments (if any) like an arithmetical error or an incorrect claim.

Time limit

Assessment under section 143(1) can be made within 9 months from the end of the financial year in which the return of income is filed.

Assessment under Section 143(3)

This is a detailed assessment and is referred to as a scrutiny assessment. At this stage a detailed scrutiny of the return of income will be carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.

Faceless Assessment [Section 144]

This is an assessment carried out as per the best judgment of the Assessing Officer on the basis of all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144.

Assessment under Section 147

If any income of an assessee has escaped assessment for any assessment year, the Assessing Officer may, subject to the new provisions of sections 148 to 153, assess or reassess such income and also any other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings.

Section 144B of the Income Tax Act

Section 144B in the Income Tax Act,1961 has been introduced in the Income Tax Act by National e-Assessment Scheme. The ambitious scheme launched in August 2020 seeks to bring the much-needed reform revolution to the income tax procedure that encumbered tax filing for the common man, fostered corruption, and aided tax evasion.

The new initiative, "Transparent Taxation- Honouring the Honest Platform," has the admirable goal of implementing the "faceless system," a cutting-edge system to digitise the process of "scrutinising" a file, where no one would be subject to arbitrary demands made by officers of the IT department or "under the table" dealings. The plan is also seen as a relief because it gave taxpayers the convenience of filling out audit reports, representations, etc. electronically, saving them time, money, and effort.

Structure for Faceless Assessment

A faceless assessment will be as per the Income Tax Act and Income Tax Rules. The Central Board of Direct Taxes (CBDT) decides the scope of the faceless assessment such as territorial area, persons, class of persons, incomes, class of incomes, cases or class of cases to whom this faceless assessment is applicable. For the purpose of faceless assessment, the CBDT would set up the below ‘centres’ and ‘units’ and specify their respective jurisdiction:

• A ‘National e-Assessment Centre’ to facilitate and centrally control the e-assessment.
• ‘Regional e-Assessment Centres’ under the jurisdiction of the regional Principal Chief Commissioner for making assessment.
• ‘Assessment units’ for identifying points or issues, material for the determination of any liability (including refund), analysing information, and such other functions.
• ‘Verification units’ for enquiry, cross verification, examination of books of accounts, witness and recording of statements, and such other functions.
• ‘Technical units’ for technical assistance including any assistance or advice on legal, accounting, forensic, information technology, valuation, audit, transfer pricing, data analytics, management or any other technical matter.
• ‘Review units’ for reviewing the draft assessment order to check whether the facts, relevant evidence and law and judicial decisions have been considered in the draft order.

All the communications between all the units mentioned above, for the purpose of making an assessment under this scheme would be through the National e-Assessment Centre.

Procedure in Faceless Assessment

The procedure for e-assessment is as below:

• A notice under section 143(2) would be served by the National e-Assessment Centre specifying the issues for selection of taxpayer’s case for assessment.
• The taxpayer has a period of fifteen days for filing a response with the National e-Assessment Centre.
• The taxpayer’s case gets assessed under e-assessment if a taxpayer:
  • furnishes income tax return voluntarily under section 139
  • furnishes income tax return in response to notice under section 142(1) or 148(1) or 143(2)
  • fails to furnish an income tax return in response to a notice under section 142(1)
  • fails to furnish an income tax return in response to a notice under section 148(1)
• An assessment will include assessment under section 143(3) and under section 144. Scrutiny assessment and summary assessment will be through faceless assessment.
• The National e-Assessment Centre will assign the case selected for the purposes of e-assessment to a specific ‘assessment unit’ in any one ‘Regional e-Assessment Centre’ through an automated allocation system.
• Once a case is assigned to an assessment unit, it may make a request to the National e-Assessment Centre for:
• Obtaining such further information, documents or evidence from the taxpayer or any other person, as it may specify
• Conducting of certain enquiry or verification by verification unit; and
• Seeking technical assistance from the technical unit
• Upon a request being made by the assessment unit for any documents or evidence, the National e-Assessment Centre shall issue appropriate notice or requisition to the taxpayer or any other person for obtaining the information, documents or evidence requisitioned by the assessment unit
• The taxpayer can submit a response to the notice within the time specified in the notice.
• Upon a request being made for certain enquiry or verification as above, the request shall be assigned by the National e-Assessment Centre to a verification unit through an automated allocation system
• Upon a request being made seeking technical assistance as above, the request shall be assigned by the National e-Assessment Centre to a technical unit in any one Regional e-Assessment Centres through an automated allocation system
• The National e-assessment Centre will send the report it receives from the verification unit or technical unit to the concerned assessment unit
• In case a taxpayer fails to file response to the notice, the National e-assessment centre will issue a notice under section 144 for making a best judgement assessment
• The taxpayer can file a response to the notice issued under section 144. However, if the taxpayer does not file a response, the National e-assessment ceentre will inform the assessment unit who in turn will prepare a draft assessment order under best judgement assessment (section 144).
• The ‘assessment unit’ shall, after taking into account all the relevant material gathered as above, pass a draft assessment order either accepting the returned income of the taxpayer or modifying the returned income of the taxpayer, as the case may be, and send a copy of such order to the National e-Assessment Centre
• The ‘assessment unit’ shall, while making draft assessment order, provide details of the penalty proceedings to be initiated therein, if any
• The National e-Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the CBDT, including by way of an automated examination tool, whereupon it may decide to:
• Finalise the assessment as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, on the taxpayer, alongwith the demand notice, specifying the sum payable by, or refund of any amount due to the taxpayer on the basis of such assessment; or
• Provide an opportunity to the taxpayer, in case a modification is proposed, by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the draft assessment order; or
• Assign the draft assessment order to a review unit in any one Regional e-Assessment Centre, through an automated allocation system, for conducting review of such order
• The review unit shall conduct review of the draft assessment order, referred to it by the National e-Assessment Centre, whereupon it may decide to:
• Concur with the draft assessment order and intimate the National e-Assessment Centre about such concurrence; or
• Suggest such modification, as it may deem fit, to the draft assessment order and send its suggestions to the National e-Assessment Centre.
• The National e-Assessment Centre shall, upon receiving concurrence of the review unit finalise the draft assessment order or provide an opportunity to the taxpayer in case a modification is proposed
• The National e-Assessment Centre shall, upon receiving suggestions for modifications from the review unit, assign the case to an assessment unit, other than the assessment unit which has made the draft assessment order, through an automated allocation system.
• The assessment unit shall, after considering the modifications suggested by the review unit, send the final draft assessment order to the National e-Assessment Centre.
• The National e-assessment Centre shall, upon receiving final draft assessment order, finalise the draft assessment order, or provide an opportunity to the taxpayer in case a modification is proposed, as the case may be.
• The taxpayer may, in a case where notice is issued for making submissions against the draft assessment order, furnish his response to the National e-Assessment Centre on or before the date and time specified in the notice.
• The National e-Assessment Centre shall:
• In a case where no response to the show-cause notice is received, finalise the assessment as per the draft assessment order; or
• In any other case, send the response received from the taxpayer to the assessment unit.
• The assessment unit shall, after taking into account the response furnished by the taxpayer, make a revised draft assessment order and send it to the National e-Assessment Centre.
• The National e-Assessment Centre shall, upon receiving the revised draft assessment order:
• In case no modification against the interest of the taxpayer is proposed with reference to the draft assessment order, finalise the draft assessment; or
• In case a modification against the interest of the assessee is proposed with reference to the draft assessment order, provide an opportunity to the taxpayer for hearing and making submissions
• The response furnished by the taxpayer shall be dealt with by the National e-Assessment centre and the draft assessment order finalised
• If the eligible assessee files his objections with the Dispute Resolution Panel, the National Faceless Assessment Centre shall forward such directions received from Dispute Resolution Panel to the concerned assessment unit.
• The assessment unit shall prepare a draft assessment order in conformity of the directions issued by the Dispute Resolution panel and send a copy of order to the National Faceless Assessment Centre.
• The National Faceless Assessment Centre shall finalise draft assessment order received from assessment unit and serve a copy of order and notice for initiating penalty proceedings, if any, to the assessee. It shall issue a demand notice, specifying the sum payable by, or refund of any amount due to the assessee on the basis of such assessment.
• The National e-Assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over such action as may be required under the law.
• The National e-Assessment Centre may at any stage of the assessment, if it considers necessary, transfer the case to the Assessing Officer having jurisdiction over such case with the prior approval of the Board.

Procedure for Penalty

• Any unit may, in the course of assessment proceedings, for non-compliance of any notice, direction or order issued under this scheme on the part of the taxpayer or any other person, send recommendation for initiation of any penalty proceedings under the income tax law, against such taxpayer or any other person, as the case may be, to the National e-Assessment Centre, if it considers necessary or expedient to do so
• The National e-Assessment Centre shall, on receipt of such recommendation, serve a notice on the taxpayer or any other person, as the case may be, calling upon him to show cause as to why penalty should not be imposed on him under the income tax law
• The response to show – cause notice furnished by the taxpayer or any other person, if any, shall be sent by the National e-Assessment Centre to the concerned unit which has made the recommendation for penalty
• The said unit shall, after taking into consideration the response furnished by the taxpayer or any other person, as the case may be:
• Make a draft order of penalty and send a copy of such draft to National e-Assessment Centre; or
• Drop the penalty after recording reasons, under intimation to the National e-Assessment Centre
• The National e-Assessment Centre shall levy the penalty as per the said draft order of penalty and serve a copy of the same along with a notice for demand on the taxpayer or any other person, as the case may be, and also transfer the records of penalty proceedings to the jurisdictional assessing officer for further action.

Procedure for Appeal

An appeal against an assessment order or penalty order made by the National e-Assessment Centre under this scheme can be filed before the Commissioner (Appeals). The appeal before the Commissioner (Appeals) is also governed by the Faceless Appeals Scheme 2020 wherein right the appeal filing to the issue of notices to passing of the appellate order would be carried out through a Centralised communication centre. The National Faceless Appeal Center would be responsible for allocation appeals to specific Appeal Units (“AU”) having CIT(A)s in Regional Faceless Appeal Centers (“RFAC”) with the help of an automated allocation system.

Communication and Electronic Record

• All communications between the National e-Assessment Centre and the taxpayer, or his authorised representative, shall be exchanged exclusively by electronic mode; and
• All internal communications between the National e-Assessment Centre, Regional e-Assessment Centres and various units shall be exchanged exclusively by electronic mode. However, the electronic exchange of communication is not applicable where the verification unit approves a personal hearing.

All the electronic records issued under the scheme shall be authenticated by the National e-assessment Centre by affixing a or by the taxpayer or any other person by affixing their digital signature or through an EVC. Every notice or order or any other electronic communication under this scheme shall be delivered to the taxpayer, by way of:

• Placing an authenticated copy of the communication in the taxpayer’s registered account;
• Sending an authenticated copy thereof to the registered email address of the taxpayer or his authorised representative; and
• Uploading an authenticated copy on the assessee’s Mobile App; and followed by a real-time alert to the taxpayer.

The taxpayer shall file his response to any notice or order or any other electronic communication, under this scheme, through his registered account, and once an acknowledgement is sent by the National e-Assessment Centre containing the hash result generated upon successful submission of response, the response shall be deemed to be authenticated.

Appearance of Taxpayer Before the Centre and Units

A person is not required to appear either personally or through authorised representative in connection with any proceedings under this scheme before the income tax authority at the National e-Assessment Centre or Regional e-Assessment Centre or any unit set up under this scheme. 

In a case where a modification is proposed in the draft assessment order, the taxpayer will be given an opportunity to make submissions against such modifications. 

The taxpayer or his authorised representative can also request for a personal hearing or make oral submissions before income tax authority in any unit under this scheme. Such hearing would be conducted exclusively through video conferencing, including through video telephony, in accordance with the procedure laid down by the CBDT. 

An income tax authority has the power to examine a taxpayer or record the statement of any taxpayer under this scheme. The income tax authority would do the same through video conferencing or video telephony. For the purpose of facilitating the scheme, the CBDT shall establish suitable facilities for video conferencing and video telephony at such locations as may be necessary.

Power to Specify Process and Procedure

The Principal Chief Commissioner or the Principal Director General, in charge of the National e-Assessment Centre shall with the approval of CBDT lay down the standards, procedures and processes for effective functioning of the National e-Assessment Centre, Regional e-Assessment Centres and the units set-up under this scheme. The systems shall function in an automated and mechanised environment, including format, mode, procedure and processes in respect of the following, namely:

• Service of the notice, order or any other communication;
• Receipt of any information or documents from the person in response to the notice, order or any other communication;
• Issue of acknowledgement of the response furnished by the person;
• Provision of ‘e-proceeding’ facility including login account facility, tracking status of assessment, display of relevant details, and facility of download;
• Accessing, verification and authentication of information and response including documents submitted during the assessment proceedings;
• Receipt, storage and retrieval of information or documents in a centralised manner;
• General administration and grievance redressal mechanism in the respective Centres and units.
• Circumstances for approving a personal hearing.

Faceless Jurisdiction of Income Tax Authorities

Section 130 gives power to the Central Government to make a scheme by notifying the same in the Official Gazette, for the purposes of-

•  The exercise of any or all powers and performance of any or all the functions conferred on or assigned to the income-tax authorities under the Income Tax Act, as referred to in section 120; or
• To vest the jurisdiction with the Assessing Officer, as referred to in section 124; or
• To exercise the power to transfer cases under section 127; or
• To exercise jurisdiction in case of change of incumbency, as referred to in section 129

Faceless Collection of Information

Section 135A has been introduced to give powers to the Central Government to make a scheme for the purpose of calling for information under section 133, collecting information under section 133B, or calling for information by the prescribed income-tax authority under section 133C, or the exercise of power to inspect the register of companies under section 134, or power of the Assessing Officer under section 135.

Faceless Inquiry or Valuation

Section 142B has been introduced to give powers to the Central Government to make a scheme for the purposes of issuing a notice under sub-section (1) or making an inquiry before an assessment under sub-section (2), or to direct the assessee to get his accounts audited under sub-section (2A) of section 142, or to estimate the value of any asset, property or investment by a Valuation Officer under section 142A.

Faceless Assessment of Income Escaping Assessment

Section 151A has been introduced to give powers to the Central Government to make a scheme for the purposes of assessment, reassessment or re-computation under section 147 or issuance of notice under section 148 or sanction for issue of such notice under section 151.

Faceless Rectification, Amendments and Issuance of Notice or Intimation

Section 157A has been introduced to give powers to the Central Government to make a scheme for the purpose of rectification of mistakes apparent from record under section 154, or other amendments under section 155, or issue of a notice of demand under section 156, or intimation of loss under section 157.

Faceless Collection and Recovery of Tax

Section 231 has been introduced to give powers to the Central Government to make a scheme for the purposes of- 

• Issuing certificates for the deduction of income-tax at a lower rate or no deduction of income-tax under section 197, or 
• Deeming a person an assessee in default under sub-section (1) of section 201, or sub-section (6A) of section 206C, or 
• Issuing certificates for a lower collection of tax under sub-section (9) of section 206C, or 
• Passing an order or an amended order under sub-section (3) or sub-section (4) of section 210, or 
• Reducing or waiving the amount of interest paid or payable by assessees under sub-section (2A), or 
• Extending the time for payment or allowing payment by instalment under sub-section (3), or 
• Treating an assessee as not being in default under sub-section (6) or sub-section (7) of section 220, or 
• Levy of a penalty under section 221, or 
• Drawing of a certificate by the Tax Recovery Officer under section 222, or 
• Jurisdiction of the Tax Recovery Officer under section 223, or 
• Staying of proceedings in pursuance of certificate and amendment or cancellation thereof by the Tax Recovery Officer under section 225, or 
• Other modes of recovery under section 226, or 
• Issuance of tax clearance certificates under section 230.

Faceless Revision of Orders

Section 264B gives the Central Government powers to make a scheme for the purpose of giving effect to orders under sections 250, 254, 260, 262, 263 or 264.

Faceless Effect of Orders

Section 264B gives the Central Government powers to make a scheme for the purposes of giving effect to an order under section 250, 254, 260, 262, 263 or 264.

Faceless Approval or Registration

Section 293D has been introduced to give the Central Government powers to make a scheme  for the purposes of granting approval or registration by income-tax authority under any provision of the Act.   The provisions of Faceless Assessment will also apply to Section 253 (Appeals to the Apellate Tribunal), and Section 279 (Prosecution to be at the instance of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner) for the purpose of granting sanction under sub-section (1) or compounding under sub-section (2). 

The Central Government may direct that any provision of this Act shall not apply, or apply with exceptions, modifications and adaptations, which shall be specified in the notification, which needs to be issued in the Official Gazette. No direction will be issued after the 31st day of March, 2022. Every notification issued as stated above, shall be laid before each House of Parliament