Faceless assessment Is this the right cure

The government has over the years strived to modernize the taxation system in our country to remove the discretions and unnecessary harassments experienced by the taxpayers. It has continuously integrated new technologies with the various tax compliances and other proceedings under the IT Act. With continuous planning and efforts, the Indian Revenue Authorities (“IRA”) have enabled electronic filing of several applications and returns under the Income Tax Act, 1961 (“IT Act”) and have even intimated their approvals or objections directly through the e-filing portal.

The new procedures for electronic filings have required constant upgrading of the IT infrastructure of the IRA. The adoption of these new procedures has also pushed the taxpayers to learn and adapt to newer technologies. It has also reduced the physical interaction of the taxpayers with the IRA. With manual filings been done away with in most income tax related compliances, long lines at tax counters have become a thing of the past. It has also brought in the much-needed transparency at the ground level that reduces the chances of any bribery to hide instances of  late filings or other nefarious activities used to obtain  undue approvals.

Additionally, it also offers a great deal of convenience at the time of undertaking various compliances under the IT Act and saves considerable time and resources of the tax administrators as well as the taxpayers. It also provides a paperless trail of tax filings made by a taxpayer or notices issued by the tax officer, bringing in much more accountability for both.

Taking a giant leap forward in this direction, the government came up with the idea of conducting the assessment proceedings under the IT Act  online  so that  taxpayers would no longer be required to appear physically before the Assessing Officer (“AO”) in a particular case. The assessment proceedings hold great importance in the overall scheme of things under the IT Act as it is through these proceedings that the AO undertakes a verification of claims made by the taxpayer including scrutiny of various documents to determine whether income has been understated or taxes underpaid in any manner in a particular year.

Earlier, when the assessment proceedings were initiated against any taxpayer, he/she was required  to appear physically before the AO to file the necessary documents and replies on the date and time fixed for hearing either himself or through his authorised representatives. . This also gave an opportunity to the taxpayers to directly answer any queries and offer their justification for any issues that the AOs wanted to further investigate during the course of assessment proceedings.

One of the most striking features of the newly-introduced mechanism of faceless assessment proceedings, as discussed in  detail below, is that the requirement for physical presence of any taxpayer has been done away with and all communication between the taxpayer and the tax administrators, including the AO, shall take place electronically. It also removes the individuality of the tax officer because all the cases are monitored through a centralised system.

Systemisation of the new assessment scheme        

A pilot project for Paperless Assessment Proceedings[1] was launched by CBDT on October 19, 2015, for a select number of non-corporate taxpayers in select metro cities. This pilot project was adopted only on a voluntary basis i.e. with the consent of the taxpayers and thereafter extended to a few other cities. In furtherance to this, the Central Board of Direct Taxes (“CBDT”) constituted a high-level committee to prepare a roadmap for the conduct of various income tax proceedings in a faceless manner. In 2018, the Hon’ble Finance Minister announced the launch of a new system of e-assessment proceedings across the country and amended the relevant provisions of IT Act, thereby enabling the government to notify a scheme for this purpose. Pursuant to the above, the CBDT vide CBDT Instruction[2] dated August 20, 2018, announced that the assessment proceedings i.e. scrutiny assessment under Section 143(3) of IT Act for the Financial Year (“F.Y”) 2018-19 would be conducted online mandatorily.

The CBDT launched the “E-assessment Scheme, 2019” (“Scheme”) containing detailed procedures for the conduct of faceless assessment proceedings. The new procedures were not restricted to scrutiny assessment proceedings carried out under the IT Act for assessment of income, but were extended to proceedings carried out before the Dispute Resolution Panel (“DRP”), penalty proceedings etc.

The aforesaid Scheme got renamed as Faceless Assessment Scheme, 2019 and was made applicable to best judgment assessments under the IT Act as well. This signified the government’s intention of expanding the scope of faceless proceedings and eliminating, as far as possible, the traditional face-to-face hearings under the IT Act.

The working of the Scheme has been encapsulated below, providing an insight into the working model of the Scheme for faceless proceedings:

Design of the new Scheme:

National Faceless Assessment Centre (“NFAC”) at New Delhi will serve as a central hub for communication between the IRA and the taxpayers. It would be responsible for assigning any case selected for e-assessment to a specific Assessment Unit (“AU”) in any one Regional Faceless Assessment Centre (“RFAC”) through an automated allocation system. The RFACs will operate at a regional level with the assistance of AUs, Verification units (“VU”) and Technical units (“TU”) as each of these units will perform specific allocated functions as described below:


Upon receipt of draft assessment order from AU that is framed basis the verification procedures already undertaken by it as per the process set out above, the NFAC will analyse such draft assessment order using automated examination tools and undertake one of the following steps:


It may be noted that under the Scheme, a taxpayer does have an option to apply for extension of time in furnishing a reply to a SCN or any other notice issued by NFAC. Also, it has been provided that the Principal Chief Commissioner or the Principal Director General in charge of NFAC will have the powers to transfer a particular case to the jurisdictional AO of that case, with the prior approval of the CBDT, where deemed necessary by it.

Taking the Faceless Regime Forward

 Budget 2020 brought in the necessary amendments for introduction of a scheme for  penalty proceedings in a faceless manner. In this regard, the CBDT vide Notification dated January 12, 2021[3] has introduced the Faceless Penalty Scheme 2021 for faceless penalty proceedings under the IT Act. For this purpose, it has proposed to set up National Faceless Penalty Centre to facilitate the conduct of penalty proceedings in a centralised manner along with penalty units, penalty review units and other designated units for its assistance.

A detailed scheme to undertake proceedings before the first appellate authority i.e. the Commissioner of Income Tax Appeals (“CIT(A)”) in a faceless mode has also been introduced by the CBDT vide separate Notification dated September 25, 2020[4], and is named the ‘Faceless Appeal Scheme 2020’. It has laid down a step-by-step procedure for the adjudication of appeals at the CIT(A) level through a faceless mechanism.

Further, amendments have been made vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“Amendment Act, 2020”), to enable AOs to perform in a faceless manner various other functions under the IT Act such as those pertaining to collection of information or making reference to a Valuation Officer or issuance of reassessment notice or carrying out of reassessment or rectification proceedings or issuance of a nil or low withholding tax certificate under the IT Act. Even the process of grant of registration or approval under various provisions of the IT Act and proceedings before a Transfer Pricing Officer or DRP have been proposed to be made faceless and the Amendment Act 2020 has empowered the Central Government to notify an appropriate scheme for this purpose.

Appraisal of Faceless Assessment Scheme 2019: Moving Towards A Paperless, Faceless and Transparent Regime

 Faster and efficient

Faceless assessment makes the assessment process or other proceedings under IT Act faster and more efficient for both sides especially the taxpayers and their authorised representative(s) including their tax consultants who spend valuable and countless hours visiting the tax departments and waiting for what is usually a short hearing. Often such hearings turn out to be a mere intimation of the next date. This move to  faceless assessment will ensure effective utilisation of time of the officers as well as the taxpayer.

Further, the Scheme bids farewell to the general practice of obtaining acknowledgement stamps on submissions filed by taxpayers before concerned AOs to serve as proof of filing such submissions before higher appellate authorities. It may be noted that several applications have been filed under the RTI Act in the past by the taxpayer requisitioning the date of issuance of notice and for obtaining the copy of the satisfaction recorded by the higher officials. Faceless assessment would eliminate the need for filing any such applications as the relevant dates would be recorded online.


Transparency usually implies conduct of any proceedings in an open and clear manner. Under the Scheme, the entire communication between the taxpayer and the IRA will be routed through the NFAC and communicated on the e-filing portal of the taxpayer. Further, the cases will get assigned to any AU of any of the RFACs through an automated allocation system, determined by an artificial intelligence and machine learning based advanced algorithm. Therefore, there is no discretion with any authority to allocate a particular case of any taxpayer to a specific unit, thus ensuring a great degree of transparency in the system.

Further, it will help in reducing the physical interaction between the IRA and the taxpayers. It has been seen that physical interaction between the taxpayers and the tax authorities during assessment proceedings can sometimes lead to unnecessary harassment of the taxpayers or demands for illegal gratification. Owing to such exchanges, genuine tax demands get suppressed by the concerned tax officials, leading to reduction in tax collection. The new system will help in concluding assessment proceedings in a fair and transparent manner.

Challenges for Implementing the Faceless Assessment Scheme, 2019

The new scheme takes us ahead by leaps and bounds in terms of modernisation of existing system of conducting income tax proceedings under the IT Act. It will be the responsibility of the government to take effective steps for clearing any hurdles that may arise during the implementation of the Scheme including addressing impediments that the taxpayers may face while undergoing proceedings as per the Scheme.

For instance, many times assessment proceedings entail filing of bulky voluminous submissions and it would not be appropriate to assume all taxpayers have the requisite IT infrastructure in place to have the documentation of such excessive records in electronic format. Hence, it is imperative that suitable facilities or guidance centres in the form of e-centres be made available by the IRA to assist the taxpayers who need technological assistance while making filings or who are facing specific issues. Further, it is only fair that e-centres may be established near income tax departments that could provide latest IT infrastructure and technological tools to taxpayers at a minimal cost.

 Entitlement to a personal hearing

For a personal hearing with an AO under the new Scheme, a request by a taxpayer needs to be approved by the Chief Commissioner or Director General of Income Tax in charge of the concerned RFAC. Such hearing would be conducted exclusively through video conferencing, including through video telephony, in accordance with the procedure laid down by the CBDT. A taxpayer’s right to a hearing or right to be heard in income tax matters is an absolute right as any adverse orders passed in such hearings can have huge implications on the taxpayer. Under such circumstances, denial of such rights or leaving them to the discretion of the IRA can make such rights illusory and, may also have to be examined by the judiciary in India as to whether this violates the fundamental rights of the taxpayer.

As for the faceless mechanism, going forward, a lot will depend on the quality of the legal and factual submissions filed by the taxpayers before the IRA. Sometimes the facts involved in a particular case are so complex or a single taxpayer has multiple additions that are so intertwined with each other that a physical hearing to put forth certain points or to ensure that the AO has at the very least understood the facts correctly becomes imperative. It is advisable that the IRA gives due consideration to a taxpayer’s request of a personal hearing and allow such requests freely at least in the initial years of the Scheme.


 While it is definitely a step in the right direction that was much anticipated and awaited, the actual efficacy of the new assessment scheme can only be seen after it is implemented fully and the assessees undergo a few years of experience. Irrespective of the outcome, this is the way forward and we hope that the CBDT is willing to make the requisite changes in its administration for the initiative to be a success. India definitely needs this as it would go a long way to establish India’s position as a preferred investment jurisdiction for foreign companies and institutional investors.

[1] CBDT F No. 225/267/2015-ITA-II dated October 19, 2015

[2] CBDT Instruction No. 3/ 2018 dated August 20, 2018

[3] CBDT Notification S.O. 118(E) dated January 12, 2021

[4] CBDT notification no. 77/2020 dated September 25, 2020.