Faceless Assessment Scheme under Section 144B: Standard Operating Procedure, Legal Rights & Video Hearing Rules

1. Genesis of Section 144B: The Shift from Territorial to Dynamic Jurisdiction

For over seven decades, direct tax assessments in India operated on a territorial jurisdiction model. A taxpayer residing in Mumbai or operating a factory in Ahmedabad was assigned to a local Income Tax Officer (ITO) or Assistant Commissioner of Income Tax (ACIT) based on geographic pincodes and alphabetical surnames. This system suffered from endemic structural vulnerabilities: personal familiarity created opportunities for subjective discretionary power, harassment of honest assessees, opaque chamber hearings, and systemic delays.

To dismantle this archaic structure, the Prime Minister announced the "Transparent Taxation — Honoring the Honest" platform in August 2020. This administrative reform was codified into law through the enactment of Section 144B by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Following widespread early litigation, Parliament comprehensively restructured Section 144B through the Finance Act, 2022 to provide an airtight, codified statutory framework.

Section 144B completely severed the territorial nexus between the taxpayer and the assessing officer. An individual living in Delhi might have their return audited by an Assessment Unit in Chennai, verified by a Verification Unit in Kolkata, technically evaluated by a Technical Unit in Mumbai, and peer-reviewed by a Review Unit in Bengaluru. Neither the taxpayer nor the officers know each other's identity, ensuring absolute institutional impartiality.

2. Institutional Architecture: NaFAC, AU, VU, TU & RU Multi-Unit Grid

The Faceless Assessment Scheme does not rely on an individual officer acting as an investigator, prosecutor, and judge. Instead, Section 144B(2) establishes a team-based, specialized division of labor composed of five distinct administrative organs:

3. The 10-Step Standard Operating Procedure (SOP) of a Faceless Assessment

Sub-section (1) of Section 144B lays down an exhaustive, sequential statutory procedure that every faceless assessment must rigorously adhere to:

1. Selection & Notice Service (Clause i): Return selected under CASS. NaFAC serves notice under Section 143(2) specifying whether scrutiny is Limited or Complete.
2. Taxpayer Response (Clause ii): The assessee files a response to the notice within the specified 15-day window through the e-filing portal.
3. Assignment to Assessment Unit (Clause iii): NaFAC assigns the case to a specific Assessment Unit in an anonymous regional center through an automated allocation tool.
4. Information Requests via Section 142(1) (Clause iv): The AU formulates detailed questions and requests books of accounts. NaFAC issues notice under Section 142(1) to the taxpayer.
5. Request for Technical / Verification Support (Clause v): If needed, the AU requests NaFAC to obtain field verification from a VU or expert appraisal from a TU.
6. Preparation of Draft Assessment Order (Clause vii): After considering the assessee's submissions, the AU prepares a Draft Assessment Order (DAO) accepting the return or proposing modifications.
7. Risk Examination & Review Unit Referral (Clause ix): NaFAC subjects the DAO to automated risk algorithms. If flagged, it is routed to a Review Unit (RU) for peer review. The RU can either agree or suggest revisions.
8. Mandatory Show Cause Notice if Addition Proposed (Clause xii): If the final DAO proposes any variation prejudicial to the assessee, NaFAC must serve a Show Cause Notice (SCN) with the draft order, giving the assessee an opportunity to respond.
9. Assessee Response & Video Hearing (Clause xiv & vii): The assessee submits written objections and may request a personal hearing through video conferencing.
10. Final Assessment Order (Clause xxii): The AU finalizes the order after considering the video hearing arguments and written objections. NaFAC signs the final order with a DIN and transmits it to the taxpayer along with a notice of demand under Section 156.

4. The Draft Assessment Order & Mandatory Show Cause Notice Requirement

One of the greatest safeguards introduced by Section 144B is the statutory prohibition against "surprise additions". In the pre-faceless era, taxpayers frequently submitted detailed explanations only to receive a final assessment order on March 31 with multi-crore additions that had never been discussed during hearings.

Under Section 144B(1)(xii), this practice is illegal. The statute states that where the Assessment Unit proposes to make any variation which is prejudicial to the assessee:

"…the National Faceless Assessment Centre shall serve a show-cause notice on the assessee, specifying the variations proposed to be made to the income of the assessee and the basis on which such variations are proposed, together with a draft order of assessment."

This statutory provision requires the department to share its complete reasoning, factual deductions, and legal calculations before passing a final order. If the tax department skips this step and issues a final order under Section 143(3) without serving a prior Show Cause Notice with the draft order, the assessment order is legally void and will be summarily set aside by appellate courts.

5. Statutory Right to Video Conference Hearings: Section 144B(6)(vii) Jurisprudence

When the faceless scheme was first rolled out, tax officers routinely treated written PDF replies as sufficient compliance, rejecting taxpayer requests for oral hearings. This triggered an unprecedented wave of writ petitions before High Courts across the country.

To settle the controversy, Parliament amended Section 144B(6)(vii) and (viii). Under the current law:

The legal force of this requirement has been upheld in dozens of authoritative judicial precedents:

• Delhi High Court in Bharat Aluminium Company Ltd. (BALCO) v. Union of India [2022] 442 ITR 386 (Del): The High Court held that the right to an oral hearing via video conference is not discretionary; it is a fundamental element of natural justice codified by Parliament. An assessment order passed in defiance of a video hearing request is an incurable nullity.
• Bombay High Court in Piramal Enterprises Ltd. v. Additional CIT [2021] 436 ITR 97 (Bom): The court set aside an assessment order where NaFAC failed to grant an oral hearing despite multiple written requests, declaring the order void ab initio.
• Calcutta High Court in Cheviot Company Ltd. v. CCIT [2022] 443 ITR 292 (Cal): Confirmed that even if written replies are comprehensive, the taxpayer cannot be deprived of the opportunity to orally explain accounting complexities before an adverse order is finalized.

6. Procedural Violations that Render an Assessment Order Void Ab Initio

Tax litigation practitioners must scrutinize the procedural trail of a faceless assessment. Because Section 144B is a strict code of procedure, any material deviation by NaFAC or the Assessment Unit invalidates the assessment. Key legal grounds for challenging faceless orders include:

7. Statutory Exclusions: What Cases Remain Outside the Faceless Scheme?

While over 95% of routine scrutiny assessments are conducted through the faceless mechanism, Section 144B(2) authorizes the Central Board of Direct Taxes (CBDT) to exclude specific classes of assessees or categories of cases requiring intensive physical investigation.

Under notifications issued by the CBDT, the following two broad categories are explicitly carved out from the Faceless Assessment Scheme:

1. Central Charges (Search, Seizure & Surveys): Assessments initiated pursuant to search operations under Section 132, requisitions under Section 132A, or surveys under Section 133A are handled by specialized Central Circles headed by jurisdictional Additional Commissioners and Principal Commissioners. Because search assessments require handling seized physical cash, physical diaries, locker contents, and confidential forensic hard drives, these cases remain strictly non-faceless.
2. International Taxation Charges: Assessments of non-resident individuals, foreign companies, cross-border digital economy taxation (equalization levy), and complex Transfer Pricing audits referred to Transfer Pricing Officers (TPOs) under Section 92CA are handled by dedicated International Taxation and Transfer Pricing Directorates.

8. Step-by-Step e-Proceedings Guide: Submissions, Adjournments & Evidence

Navigating an active faceless assessment requires adherence to precise digital protocols on the income tax e-filing portal (eportal.incometax.gov.in). Follow these verified steps:

1. Monitoring e-Proceedings: Log in to your PAN account at least once a week during scrutiny season. Go to "Pending Actions" > "e-Proceedings". Ensure your primary email and mobile number are verified so automated SMS and email alerts are never missed.
2. Viewing Active Notices: Click on the active proceeding. You will see notices listed in chronological order (Section 143(2), Section 142(1), Section 144B SCN). Download the notice PDF and verify the Document Identification Number (DIN).
3. Seeking an Adjournment: If the 15-day notice deadline cannot be met due to unavoidable delays (e.g., awaiting bank audit reports, travel, illness), click on "Seek Adjournment". Choose a realistic extension date (usually 7 to 14 days) and upload an explanatory letter. Do not wait until the last day to request an adjournment!
4. Drafting the Written Response: Compose a clean, numbered covering submission addressing every query in the Section 142(1) notice point-by-point. Include a summary index referencing attached exhibits.
5. Uploading PDF Attachments: The portal enforces strict attachment constraints (maximum 5MB to 10MB per PDF file). Compress all PDF attachments, ensure scans are legible, and name each file clearly (e.g., Annexure-A-Bank-Statement-FY26-27.pdf).
6. Attending the Video Conference: If you requested a video hearing under Section 144B(6)(vii), NaFAC will generate an electronic hearing notice with a dedicated meeting link (typically Cisco Webex or Microsoft Teams) and time slot. Join promptly with your authorized Chartered Accountant or tax advocate, keep concise bullet-point notes ready, and ensure audio/video clarity.

9. Real-World Case Studies: Successful Defenses in Faceless Scrutiny

10. Frequently Asked Questions (Statutory Clarifications)