Section 144B faceless assessment: NaFAC structure and the VC personal hearing right

The Scenario

You opened your registered email on 12 May 2026 to find a notice from the National Faceless Assessment Centre (NaFAC) under Section 143(2) of the Income Tax Act, 1961, listing your ITR-2 for assessment year 2025-26 for limited scrutiny on a Rs 18 lakh long-term capital gain claim. The notice is digitally signed, the sender is "no-reply@incometax.gov.in", and there is no jurisdictional assessing officer (AO) named anywhere. Twenty days later, an Assessment Unit (AU) sitting in a city you have never visited issues a show-cause notice proposing to disallow Rs 6.8 lakh of indexation benefit. You have ten days to respond. Should you walk into the local Aaykar Bhavan, hire a counsel for an in-person hearing, or accept the digital order as final?

This is exactly the situation Section 144B of the Income Tax Act was designed to govern. Since 1 April 2021, every scrutiny assessment under Section 143(3) and every best-judgement assessment under Section 144 in eligible cases must be made through the faceless process unless excluded by a CBDT order. The Central Action Plan 2024-25 issued by CBDT reported that over 4.43 lakh assessments were completed under the faceless regime in financial year 2023-24, a tenfold jump from the 38,500 completed in the first full year of operation. For salaried filers using the income tax calculator to model a refund and for investors weighing the old vs new regime, the practical question is no longer "who is my AO" but "which unit is reading my response and what procedural rights do I retain".

Statutory Answer

Section 144B was inserted into the Income Tax Act, 1961 by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from 1 April 2021, replacing the earlier Section 143(3A) Faceless E-assessment Scheme, 2019. Sub-section (1) opens with a non-obstante clause overriding Section 143(3) and Section 144, mandating that the assessment shall be made in a "faceless manner" through automated allocation, dynamic jurisdiction, and team-based mechanisms. Notification S.O. 1466(E) dated 28 March 2022 issued by CBDT under sub-section (2) prescribes the operational scheme.

The architecture rests on a single point of contact and four functional units. The National Faceless Assessment Centre (NaFAC), headquartered in Delhi, is the only authority that communicates with the assessee. Cases are randomly allocated to:

Sub-section (1)(xvi) of Section 144B requires that where a variation prejudicial to the assessee is proposed, a show-cause notice with the draft assessment order shall be served, and an opportunity to respond must be given. Sub-section (6)(vii) and (viii) read together provide that, upon a written request, the assessee shall be granted a personal hearing through video conferencing. The Faceless Assessment (1st Amendment) Scheme, 2022 dated 18 August 2022 made the VC hearing a substantive right rather than a discretionary grant, although NaFAC controls the slot allocation.

The Finance Act, 2022 omitted explicit sub-section (9), but courts have continued to read the procedural requirements as mandatory. In Mantra Industries Ltd v. NaFAC (Bombay High Court, Writ Petition No. 1625 of 2021, decided 11 August 2021), the assessment was quashed because no draft assessment order had been issued before the final order under Section 143(3) read with Section 144B. The Delhi High Court in Bharat Aluminium Co. Ltd v. Union of India (W.P.(C) 5604/2021, decided 14 January 2022) similarly set aside an assessment for denial of VC personal hearing despite a written request.

The appellate counterpart is the National Faceless Appeal Centre (NFAC) under the Faceless Appeal Scheme, 2021 (Notification S.O. 5429(E) dated 28 December 2021) read with Section 250(6B). Appeals before the Commissioner (Appeals) below the rank of Joint Commissioner are now disposed of by NFAC, with the same VC hearing right on request.

Worked Resolution

Return to the 12 May 2026 notice. Assume Ramesh, a Mumbai-based equity trader, has filed ITR-2 for AY 2025-26 declaring total income of Rs 32.6 lakh, including Rs 18 lakh long-term capital gain (LTCG) on listed equity at 12.5% under Section 112A (rate raised from 10% by the Finance (No. 2) Act, 2024 effective 23 July 2024). The AU has flagged Rs 4 lakh of grandfathered cost (1 February 2018 fair market value) as unsubstantiated and proposes to recompute the gain. The proposed addition takes taxable LTCG to Rs 22 lakh and the additional tax demand to approximately Rs 50,000 plus interest under Sections 234B and 234C.

The procedural map Ramesh must follow has eight checkpoints. Missing any of them weakens his case at the self-assessment tax settlement stage or in subsequent appeal.

The substantive defence on the Rs 4 lakh grandfathering point rests on Section 55(2)(ac), which fixes the cost of acquisition of listed equity acquired before 1 February 2018 at the higher of actual cost and the lower of (a) FMV on 31 January 2018 and (b) full value of consideration on transfer. Ramesh should upload the BSE-published closing quote of his scrip on 31 January 2018, which is admissible under Rule 11UA without independent valuation.

The time limit under Section 153(1) for AY 2025-26 is 12 months from the end of the assessment year, i.e., 31 March 2027 (the Finance Act, 2021 reduced the limit from 18 months for returns filed under Section 139). If NaFAC does not pass an order by 31 March 2027 and Ramesh has cooperated, the assessment becomes time-barred. The Supreme Court in Union of India v. Ashish Agarwal (2022 SCC OnLine SC 543, decided 4 May 2022) made clear that procedural lapses in faceless assessment cannot be cured by extension; the only remedy is fresh proceedings, if at all permissible under Section 148 read with the reassessment time limits framework post Finance Act 2021.

If the final order on 18 February 2027 adds Rs 4 lakh and raises a demand of Rs 50,000 plus interest of approximately Rs 8,000 under Section 234B, Ramesh has three concurrent remedies. First, file Form 35 appeal to NFAC under Section 246A within 30 days, paying 20% of the disputed demand under CBDT Instruction No. 1914 (modified by Office Memorandum dated 31 July 2017) to obtain stay. Second, file a rectification application under Section 154 if there is a mistake apparent on record. Third, if procedural breach is clear (no draft order, no VC despite request), a writ petition under Article 226 before the jurisdictional High Court is the faster route, as Mantra Industries shows.

FAQ

Can I refuse the faceless route and demand an in-person hearing?

No. Section 144B(1) opens with a non-obstante clause overriding Sections 143(3) and 144. Personal hearing is available only through video conferencing under sub-section (6)(viii) on written request. The Delhi High Court in Sanjay Aggarwal v. NaFAC (W.P.(C) 5741/2021, decided 2 June 2021) confirmed that the assessee cannot insist on physical hearing. Categories excluded from the faceless scheme are listed in CBDT Order F.No. 187/3/2020-ITA-I dated 13 August 2020, covering search assessments under Sections 153A and 153C.

How is "random allocation" actually done?

Allocation is by an automated algorithm operated by NaFAC under Section 144B(1)(ii). The assessee has no visibility into which AU or VU receives the file. Jurisdiction challenges under Section 124 do not lie against a faceless unit because dynamic jurisdiction is statutorily conferred on NaFAC, not on individual officers.

What if NaFAC issues a final order without the draft assessment order?

The assessment is liable to be set aside as a nullity. Mantra Industries Ltd v. NaFAC, Bharat Aluminium Co Ltd v. Union of India, and over 47 reported High Court decisions between August 2021 and December 2024 have quashed faceless assessments for non-compliance with Section 144B(1)(xvi). The cure is a writ petition before the jurisdictional High Court.

Is the VC hearing a right or a discretion?

After the 18 August 2022 amendment scheme, the VC hearing is a right when requested in writing in response to the show-cause notice. The Delhi High Court in Bharat Aluminium held that the earlier discretion was structured by Article 14 and could not be exercised arbitrarily. CBDT Instruction dated 3 August 2022 directs AUs to grant VC hearings on request without further enquiry.

What is the time limit for faceless assessment for AY 2025-26?

Under Section 153(1), assessment must be completed within 12 months from the end of the assessment year, i.e., by 31 March 2027 for AY 2025-26 returns filed under Section 139. The limit was reduced from 18 months by the Finance Act, 2021 for AY 2021-22 onwards. Time excluded under the Explanation to Section 153 covers stay periods, the DRP reference period, and Section 142(2A) audits.

Can I appeal a faceless order to the same officer who passed it?

No. Appeals lie to the National Faceless Appeal Centre (NFAC) under Section 246A read with the Faceless Appeal Scheme, 2021. Form 35 is filed electronically within 30 days. The same VC hearing right applies. From 1 October 2024, appeals before the Joint Commissioner (Appeals) under Section 246 (introduced by the Finance Act, 2023) cover orders with disputed demand below Rs 10 lakh.

What if the order cites a precedent I had not been confronted with?

That is a breach of natural justice under Section 144B(6). The Delhi High Court in YCD Industries v. NaFAC (W.P.(C) 8092/2021, decided 11 October 2021) set aside an order that relied on a Tribunal decision not put to the assessee in the show-cause notice. Remedy is Section 154 rectification or appeal before NFAC.