Faceless Assessment Scheme - Applicability, Procedure and Eligibility

What is the Faceless Assessment Scheme?

The income tax department introduced the faceless assessment scheme to meet the shortcomings of the existing assessment methods. Considering that the assessments did not require a physical interface with the income tax officials, the faceless assessment scheme 2020 was launched. As per the scheme, the entire assessment proceedings shall be conducted online through a defined procedure. Who is authorized to conduct faceless assessment proceedings and what is its procedure? Find out in this guide!

Authorities for Conducting Faceless assessment

The following are the authorities for conducting the faceless assessment scheme under the Income Tax Act, of 1961:

1) National Faceless assessment Center (NFAC): It is the central authority that facilitates the conduct of the faceless assessment.

2) Regional Faceless assessment Center (RFAC): It facilitates the faceless assessment proceedings in the regions under the control of the Principal Chief Commissioner.

3) Assessment Units (AUs): AU performs the faceless assessment proceedings by carrying out the following functions:

• Identifying the issues and points that are material for the determination of any liability or refund
• Seeking clarification or information on the issues and points so identified
• Analysis of the information and material furnished by the assessee or any other person
• Such other functions are necessary for the conduct of a faceless assessment scheme

4) Verification Units (VUs): They are formed to cross verify, enquire, examine books of accounts, examine witnesses and record statements and perform such other functions as are necessary for the conduct of the faceless assessment.

5) Technical Units (TUs): They are set up to provide technical assistance for the conduct of faceless assessment that includes advisory on accounting, legal, information technology, forensics, transfer pricing, valuation, management, data analytics, or any other technical matter.

6) Review Units (RUs): They are set up to perform the review of draft assessment orders that include reviewing:

• Whether the material and relevant evidence has been brought on record
• Whether all the issues on which the disallowance and additions have been made are discussed in the order
• Whether the relevant facts and law have been incorporated in the order
• Arithmetical accuracy of the variations proposed in the order, if any
• Whether the judicial decisions applicable have been considered in the draft order 
• Any other review functions

Faceless Assessment Procedure

The faceless assessment scheme is governed by Section 144B of the Income Tax Act, 1961. It states that the scrutiny assessment [under section 143(3)] or best judgment assessment [under section 144] shall be made in a faceless manner. The following faceless assessment procedure will be adopted to conduct assessment proceedings:

1) The NFAC will serve the notice to the assessee under section 143(2). The assessee shall reply within 15 days of receipt of the notice.

2) Through an automated allocation system, the case will be assigned by the NFAC to a specific AU in any one RFAC.

3) The AU may request the NFAC for:

• Obtaining documents, information, or any other evidence from the assessee or any other person
• Conducting verification or inquiry by any verification unit
• Seeking technical assistance from the specialized unit

4)  The NFAC shall issue notice or requisition to the assessee or any other person from whom the document, information, or evidence is sought. The assessee shall furnish the response within the specified time.

5) In case the verification or inquiry is requested from the verification unit or technical assistance is sought from the specialized unit, then the NFAC will assign the request to a verification unit or technical unit, as the case may be, through an automated allocation system in any one of the RFAC. The reports received from the verification unit or specialized unit shall be sent to the concerned assessment unit.

6) In case the assessee fails to comply with the requirements specified in the notice or requisition as stated above or the notice issued u/s 142(1) or direction issued u/s 142(2A) for a special audit, then the NFAC shall issue a notice under section 144 seeking show cause as to why the assessment should not be completed to the best of its judgment. The assessee shall file its response to the notice issued within the specified time to the NFAC.

7) In case of failure by the assessee to furnish a response to the notice issued under section 144, the NFAC shall intimate the same to the AU.

8) The AU shall prepare the draft assessment order after considering all the relevant materials available on record or the failure of the assessee to furnish requisite details and send a copy of the same to the NFAC. The AU shall also specify the details of penalty proceedings to be initiated in the draft assessment order itself.

9) The NFAC shall examine the draft assessment order according to the risk assessment strategy specified by the CBDT. The NFAC shall:

a) Finalise the assessment if no variation is proposed that is prejudicial to the assessee. A copy of the order shall be served to the assessee along with the notice for initiating penalty proceedings and demand notice, if any, stating the sum payable or refund due.
b) Provide an opportunity of being heard by the assessee if any variation is proposed that is prejudicial to the interest of the assessee.
c) Assign the order to a review unit in any one of the RFAC for conducting the review. After review, the review unit may either agree with the draft assessment order or suggest any variation. It shall communicate the same to the NFAC.

10) In case the review unit agrees with the draft assessment order, the NFAC shall follow the procedure as stated in points 9(a) or 9(b) above.

11) In case the review unit provides suggestions, then upon receipt of suggestions from the review unit, the NFAC shall assign the case to an AU other than the AU that prepared the draft assessment order through the automated allocation system. The AU shall send the final draft assessment order to the NFAC who shall follow the procedure as stated in points 9(a) or 9(b) above.

12) Where the show cause notice was served to the assessee (as per points 9, 10, or 11 above), the assessee shall furnish a response to the same within the specified time. The NFAC shall:

A. Where the response is not received from the assessee

• In case of an eligible assessee where the variation is prejudicial to the interest of such assessee, forward the draft assessment order or final assessment order to such assessee.
• In other cases, finalize the assessment as per the draft assessment order or final assessment order and serve a copy of the order to the assessee along with the notice for initiating penalty proceedings and demand notice, if any, stating the sum payable or refund due.

B. Where the response is received from the assessee

• The NFAC shall send the response received to the AU.

13) After considering the response of the assessee, the AU shall make a revised draft assessment order.

14)  Where the revised draft assessment order does not contain any variations that are prejudicial to the interest of the assessee as compared to the draft assessment order or final draft assessment order, then the NFAC shall:

• In case of an eligible assessee, where there were variations that were prejudicial to his interest in the draft assessment order or final draft assessment order, forward the revised draft assessment order to such assessee
• In other cases, finalize the assessment as per the revised draft assessment order and serve a copy of the order to the assessee along with the notice for initiating penalty proceedings and demand notice, if any, stating the sum payable or refund due.

15) In case there are variations in the revised draft assessment order that are prejudicial to the interest of the assessee as compared to the draft assessment order or final draft assessment order, then NFAC shall provide an opportunity of being heard by the assessee. In such cases, the procedure is laid down in points 12, 13, and 14 above. 

16) The eligible assessee shall file his acceptance to the variations in the draft assessment order or final draft assessment order or revised draft assessment order, as the case may be, within a period of 30 days of receiving the draft order.

17) The NFAC shall finalize the assessment, upon receipt of acceptance from the eligible assessee or non-receipt of objections within the time specified u/s 144C(2), within 1 month from the end of the month:

• in which the acceptance is received or
• 30 days for filing of the objections expires.

The NFAC shall serve a copy of the order along with the notice for initiating penalty proceedings and demand notice, if any, stating the sum payable or refund due.

18) In case the eligible assessee files his objections with DRP, the NFAC shall forward the directions received from DRP to the concerned AU. The AU shall prepare a draft assessment order in conformity with DRP and forward a copy of such order to the NFAC.

19) The NFAC shall finalize the assessment within 1 month from the end of the month in which the direction was received and serve a copy of the order to the assessee along with the notice for initiating penalty proceedings and demand notice, if any, stating the sum payable or refund due.

20) After the assessment gets completed, the NFAC shall transfer all the electronic records to the Assessing Officer having jurisdiction over the such case for initiating such action as may be required.

Who is the Eligible Assessee?

The ‘Eligible Assessee’ has been discussed under section 144C(1) and includes:

• Any person in whose case variation arises as a consequence of an order passed by the Transfer Pricing Officer under section 92CA(3) and
• Any non-corporate non-resident or foreign company

The faceless assessment Scheme has revolutionized the way assessment proceedings are conducted in India. In case you require any assistance with respect to your faceless assessment proceedings,   

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