Summary: The Faceless Assessment Scheme, introduced in India on April 1, 2021, aimed to eliminate corruption and bias by removing direct interaction between taxpayers and tax officials. Implemented under Section 144B, it centralized assessments through a National Faceless Assessment Centre (NFAC), using AI and data analytics. However, jurisdictional conflicts have emerged between the Faceless Assessment Officers (FAO) and Jurisdictional Assessing Officers (JAO). The Supreme Court’s ruling in Ashish Agarwal validated reassessment notices under the new framework but left ambiguity regarding the roles of JAO and FAO in issuing notices and conducting reassessments. The Telangana High Court, in Kankanala Ravindra Reddy and Venkataramana Reddy Patloola, ruled that reassessments should strictly follow the Finance Act, 2021, favoring faceless assessment. However, other High Courts have varied in their interpretations, causing legal uncertainty. The debate centers on Clause 3 of Notification No. 18/2022-Income Tax, which governs the scope of faceless assessments and automated allocation of reassessments under Section 148. The conflicting judgments highlight the tension between technological efficiency and jurisdictional authority in tax administration. The issue is expected to reach the Supreme Court for final resolution. A hybrid approach combining faceless and traditional assessments may be a pragmatic long-term solution, ensuring taxpayer rights while maintaining departmental efficiency.
Introduction
The faceless Assessment scheme was termed as a revolutionary step in the Indian tax regime. It was termed as a critical procedural safeguard against invalid assessment procedures and a tool of eradicating vices like that of corruption and favouritism from the department as well as to provide the taxpayers, an equitable chance to present their case without any fear of obstruction of justice. Section 144B brought the Faceless Assessment Scheme which was introduced in India with effect from 1st of April 2021. The major issues in front of the revenue previous to the amendment were manifold. Corruption, bribery and extortion with or against assessing officers were common. Often they crumbled under political strong-arming. Faceless assessment meant that assessing taxpayers would have no physical interaction with the Income Tax Department and will not be face to face or in direct communication with any officials. In fact, they wouldn’t know which officer is performing the scrutiny nor would the officer be informed as to who is the assessee. Elimination of human interface was the primary goal by usage of data analytics and artificial intelligence. The most important concept that was crucial with this step was to introduce team-based assessment i.e. no single person as the Assessing officer which shall provide a rather dynamic jurisdiction and which replaced the conventional territory based jurisdiction methodology. Section 151A[1] was also inserted through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, which gave the powers of faceless assessment and reassessment. Though this is a very significant ‘eureka’ moment for the department, the underlying issue relating to faceless assessment is a very primordial and basic issue which perhaps was left intentionally or by error on the part of the department remains a mystery. The question is, of jurisdiction. The jurisdiction of the Faceless Assessment Officer (herein onwards, FAO) and the traditional Jurisdictional Assessing Officer (herein onwards, JAO) has been marred by litigation. In this article we analyse the jurisdictional issues, the judgements of variety of courts and the jurisprudence around it.
Page Contents
How Does the Faceless Assessment Scheme Work?
To facilitate this faceless assessment, a ‘National Faceless Assessment Centre (herein onwards, NFAC, for brevity) has been created to centrally control e-assessment[2]. Along with this, regional centres operate in metropolitan cities. NFAC can serve a show-cause notice on the taxpayer under section 143(2) of the Act. The assessee then shall be required to file response to the notice within 15 days from receipt. The NFAC deals with cases where assessee;
1. Has furnished his ITR under Section 139 or in response to notice issued or under 148(1) and a notice has been issued for scrutiny assessment under section 143(2) by the AO.
2. Has not furnished his return of income in response to a notice issued under 142(1) for enquiry by the AO.
3. Has failed to furnish his ITR in response to notice for reassessment under 148(1) and a notice is issued under Section 142(1) for enquiry by the AO[3].
There are provisions of appeal, personal hearings through Commissioners of Income Tax (Regional Faceless Assessment Centre) sanctioned by the Pr. CCIT (NFAC). Further on, there are Verification Units, Technical Units and Review units to conduct enquiry and examination, technical assistance and revaluation of income determination proposals respectively.
Section 144B (1) further provides for the procedure of the conduct of faceless assessment. All regular assessment in Section 143(3), income escaping assessments in section 147, and best judgement assessments in section 144, except those cases like that of search and survey and international taxation charges, are to be conducted in a faceless manner as per the procedure under Section 144B.
The Beginning of the Controversy
The infamous Ashish Agrawal judgement[4] was passed by the Hon’ble Supreme Court. The case challenged the legitimacy of reassessment notices given under the existing provisions of the Income Tax Act, 1961, after the Finance Act, 2021, adopted new processes effective April 1, 2021. Although the notices were technically invalid under the amended law, the Supreme Court decided that the new Section 148A(b) would regard them as show-cause notices and treat them anew. This made it possible for the reassessment process to proceed without putting taxpayers through excessive hardship or interfering with revenue collection. The Court protected the rights of taxpayers and administrative effectiveness by using its authority under Article 142 to achieve a fair resolution. While the Court saw an effective resolution regarding these proceedings, certain provisions of the act had also been amended with effect from 1-4-2021 through the Finance Act, 2021. Section 144B was introduced for faceless assessment through the same Finance Act. While Ashish Agarwal case provided relief to both, the department and the taxpayers, the judgement was very specifically in favour of the new amended Finance Act 2021[5] and should be adhered by the revenue was the general perception. On the other hand, it can be assumed that the revived notices would be disposed off by the Jurisdictional Assessing Officers who had issued the re-assessment proceedings and now became the issuers of show-cause notices post judgement, thereby granting them authority to exercise jurisdiction over the issuance of assessment and re-assessment proceedings. The following issues, became the premise for the first major judgement regarding the JAO v. FAO jurisdictional dispute. The scope of the Faceless Assessment Scheme has also been a subject of debate to determine whether it falls under the scope of FAO to be in exclusive power in isolation. Also, the notification regarding the faceless assessment scheme were brought through notification no. 18/2022[6]. The major debate of interpretation is around Clause 3 of the Scheme and hence, the relevant extracts are provided hereunder;
“3. Scope of the Scheme.––For the purpose of this Scheme,–(a) assessment, reassessment or recomputation under section 147 of the Act, (b) issuance of notice under section 148 of the Act, shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.”
Divergent views of High Courts
Majority of the High Courts have divergent views regarding the issue of jurisdiction. While the initial cases do stretch towards the faceless schema, some High Courts have not towed that line.
Views against concurrent jurisdiction
1. The Telangana High Court had the first brush. In the case of Kankanala Ravindra Reddy[7], the HC emphasised that the Ashish Agarwal judgement[8] was explicitly directing the tax authorities that the procedure of reassessment should be strictly adhered to as noted in the Finance Act, 2021. The Court observed that the Hon’ble Supreme Court used its extraordinary powers under Article 142[9] of the Constitution and did not, in any way, dilute the provisions of the new Act.
The Revenue department, urged that these show cause notices in this case were issued before the amendments under the Finance Act came into effect. Department also argued that the notifications regarding the schema were issuance of notice under section 148 of the Act is through automated allocation in accordance and to the extent as provided under section 144B and both of these can be followed.
The Department argued that neither Section 148A nor the Faceless Reassessment Scheme introduced on March 29, 2022, provides detailed procedural guidelines but instead establishes general principles aimed at enhancing efficiency, transparency, and accountability. The scheme mandates that reassessment notices under Section 148 must be issued through automated allocation in accordance with Section 144B of the Income Tax Act.
Additionally, the Central Board of Direct Taxes (CBDT) issued Instruction No. 01/2022 on May 11, 2022, to guide the implementation of the Supreme Court’s ruling in Ashish Agarwal. Consequently, the Department maintained that its actions—specifically, the issuance of a notice under Section 148 on July 31, 2022, and the order under Section 148A(d) dated July 29, 2022—were legally valid and in compliance with the Supreme Court’s ruling.
Furthermore, the Department contended that an order under Section 148A(d) does not constitute a final assessment but merely determines whether reassessment proceedings should be initiated. The notice under Section 148 serves only as a preliminary step, and the assessee retains the right to challenge the final assessment order before the Commissioner of Income Tax (Appeals). The Department asserted that due process was followed, including obtaining appropriate sanctions, providing the petitioner with an opportunity to be heard, and considering their submissions before issuing the impugned notices. Consequently, it argued that no prejudice was caused to the petitioner as the reassessment process had been conducted in accordance with the law.
A similar stance was taken by another bench of the Telangana High Court in Venkataramana Reddy Patloola v. Deputy Commissioner of Income Tax & Others[10]. In that case, the court examined the Faceless Reassessment Scheme, 2022, which was introduced on March 29, 2022. The Revenue Department argued that jurisdictional assessing officers (JAOs) retained concurrent authority to conduct reassessment proceedings. However, the court rejected this argument, aligning its decision with the reasoning set forth in Kankanala Ravindra Reddy[11].
2. The Hexaware decision[12] came as another blow to the department. The Court ultimately decided that the notice was invalid because it was not in accordance with the Section 151A of the Act. The scheme, the HC held, was for administrative efficiency and the department has power to create them for assessment, reassessment under section 147 and for issuing notices under Section 148. The court held that concurrent jurisdiction for passing such orders would be unfair as that would mean random allocation to officers who then has jurisdiction. Moreover, with respect to the office memorandum dated 20/02/2023, the HC clearly clarifies that it makes several erroneous statements in its third and fifth paragraphs and the sub-paragraphs therein. It also said that the Office Memorandum merely contains the comments of the Revenue issued with the approval of Member (L&S) CBDT and the said Office Memorandum is not in the nature of a guideline or instruction issued under Section 119 of the Act so as to have any binding effect on the Revenue. Moreover, given its clear contravention of the 29/03/2022 Scheme, it is also bad in law.
3. Clause 3 of the Faceless Assessment Scheme; subclause (a) deals with assessment, reassessment and recomputation, whereas (b) concentrates on the issue of notices under Section 148. It was pointed out that Clause 3 is separated into two sections. The Court underlined that that notices under Section 148 must adhere to automatic allocation system specified in clause 2(b) as required by subclause (b). Furthermore, the part of subclause b that comes after the word “and” has to do with assessment and reassessment under Section 144B, not notices. This distinction has been pointed out[13].
Views for Concurrent Jurisdiction
1. The Gujarat High Court[14], however, has opined in favour of the revenue accepting the concurrent jurisdiction view. The Court observed that the faceless scheme does not apply to cases where notice is issued under Section 148 in the context of section 132, which is reading search and seizure. In such cases, the Jurisdictional Assessing Officer (JAO) is required t record their satisfaction based on material for affirmation of opinion in an honest and bonafide manner. The Risk Management Strategy was also discussed, “It is stated therein that as per Paragraph 3(iii) of the F.No. 225 / 135 / 2021 / ITA – II (Part – I) dated 11.01.2023 “information arising out of search or survey action” was to be uploaded on CRIU / VRU. However information, which is arising out of Search and Survey cases, is not required to be uploaded on the portal (CRIU / VRU) since it does not require Risk Management Strategy and in such cases, information should not be uploaded on the portal, but it should be sent directly to the JAO for taking action under the Act. Explanation 2 of Section 148 reproduced therein is relevant to be noted hereinunder for ready reference”.[15] Information arising out of Search and Survey cases, is not required to be uploaded on the portal (CRIU / VRU) since it does not require Risk Management Strategy and in such cases, information should not be uploaded on the portal, but it should be sent directly to the JAO for taking action under the Act. The court emphasised that after careful reading of the notification, it is revealed that the notification does not cover cases under Section 132 nor the requisition cases under Section 132A of the IT Act, 1961.
2. Similar view was taken by the Delhi High Court[16]. The court fancied a harmonious construction of the provisions of the Act. The Court held that Section 144B cannot be viewed in isolation. According to the Court, it is procedural arrangement and primarily was more focused upon the way a faceless assessment may be conducted rather than drawing exclusionary powers from the statute. The Court stated that it would be wholly incorrect to view the faceless assessment scheme as introduced by virtue of Section 144B as being the solitary route which the Act contemplates being tread for the purposes of assessment and reassessment. The Court mentioned that within the framework of faceless assessment system, the JAO retains powers that do not conflict with, but complement the objectives of neutrality and efficiency. Within the framework of the faceless assessment system, the JAO retains powers that do not conflict with, but rather complement, the objectives of neutrality and efficiency. The faceless assessment scheme centralizes processes under the Faceless Assessing Officer (FAO) to reduce direct interaction. However, this structure does not diminish the JAO’s authority. Instead, the JAO’s retained jurisdiction is vital for ensuring continuity and accountability, acting as a complementary element to the faceless assessment framework. Even beyond this concurrent jurisdiction, the JAO independently wields powers under various provisions, is granted access to distinct sources of information that may substantiate grounds for reassessment[17]. It was also said that the JAO’s retained jurisdiction is vital for ensuring continuity and accountability, acting as a complementary element to the faceless assessment framework. The Court perused Clause 3 of the Faceless Reassessment Scheme 2022 and stated that the draftsman has used a comma after the phrase “shall be through automated allocation” and after “for issuance of notice” which clearly shows the intent to separate and segregate the phases of initiation of action in accordance with the RMS, the formation of opinion regarding the need for action under Section 148, and the actual undertaking of the assessment.
The Court was guided by the principles of beneficial construction and avoided an interpretation that would render portions of the Act or the Scheme superfluous or ineffective. Thus, the Court held that they had been unable to countenance a situation where the JAO stands completely deprived of the jurisdiction to evaluate data and material that may be placed in its hands.
The Court also observed the case of Sanjay Gandhi Memorial Trust v. CIT (Exemptions)[18] as another case where this issue has been discussed and order passed in favour of revenue.
The Delhi High Court herein observed that a specific record of notification is available which specifies that there is concurrent jurisdiction. This Court is of the view that though in the year 2019, the concept of e-assessment and in 2020, the concept of faceless assessment were introduced, yet the jurisdictional assessing officer continues to exercise concurrent jurisdiction with faceless assessing officer. In fact, pursuant to exercise of power under Section 120(5) of the Act which empowers CBDT to confer concurrent jurisdiction on two or more assessing officers for proper management of the work, the CBDT has vide Notification No. 64/2020 dated 13-8-2020 conferred power upon the income tax authorities of the National eAssessment Centre to exercise the power and function of assessment “concurrently” while the original jurisdiction continues with the jurisdictional assessing officer. The relevant portion of the said notification is reproduced hereinbelow:
“S.O. 2756(E).- In pursuance of the powers conferred by subsections (1), (2) and (5) of Section 120 of the Income Tax Act, 1961 (43 of 1961) (hereinafter referred to as “the said Act”), the CBDT hereby directs that the Income Tax Authorities of the National e-Assessment Centre (hereinafter referred to as “the NeAC”) specified in column (2) of the Schedule below, having its headquarters at the place mentioned in column (3) of the said Schedule, shall exercise the powers and functions of assessing officer concurrently, to facilitate the conduct of faceless assessment proceedings) ….(emphasis supplied)”[19]
3. In the very recent cases in front of the Madras High Court like that of, Mark Studio India (P.) Ltd. vs. Income-tax Officer[20] [20-12-2024] as well as the Delhi High Court reiterated its past orders/judgment in the case of Kanwaljeet Kaur vs. Assistant Commissioner of Income-tax[21]. Accordingly, the JAO is statutorily responsible for the initial assessment and data. “As noted above, section 144B is fundamentally concerned with the assessment of returns duly filed and their distribution by way of randomised allocation to different assessment units. We, for reasons aforenoted, find ourselves unable to view that provision as being the singular and exclusive repository of the power to assess as contemplated under the Act. This would appeal to reason additionally in light of the provisions contained in sub-sections (7) and (8) of section 144B and which enable the Principal Chief Commissioner or the Principal Director General to relegate assessment back to the jurisdictional Assessing Officer. The randomised allocation of cases based on the adopted algorithm and the use of technological tools including artificial intelligence and machine learning would appear to be primarily aimed at subserving the primary objective of faceless assessment, namely, of reducing a direct interface, for reasons of probity and to obviate allegations of individual arbitrariness. However, it would be wholly incorrect to view the faceless assessment scheme as introduced by virtue of section 144B as being the solitary route which the Act contemplates being tread for the purposes of assessment and reassessment.”[22]
This assimilates into the extent of powers of the JAO. The JAO can access sources independently, which can justify the initiation of reassessment. The risk management strategy and insight portal provide access of information to the AO, giving access to ITRs. Also, the PCIT (pr. Chief Commissioner) or Principal Director General can transfer cases back to JAO when appropriate. This flexibility emphasizes that Section 144B cannot be viewed in isolation.
4. Interpretation of Clause 3 of the Faceless Assessment Scheme, 2022;
In clause 3, the Delhi High Court stressed on importance of punctuation emphasising how commas can divide different stages of reassessment procedure. The first comma separates “shall be through automated allocation” suggesting that the Risk Management Strategy serves as a direction for action intitation. The second comma, which follows “for issuance of notice” designates the notification’s issuance as a separate step. The draftsman’s intention to distinguish between intitation, opinion formation under Section 148 and assessment while preserving their interconnectedness is evident in this meticulous structuring[23].
Conclusion
While the final decision rests with the Hon’ble Supreme Court, it becomes imperative that this issue be resolved with rapid pace because a lot of High Courts have encountered this jurisdictional issue. But, on a personal note, concurrent jurisdiction is the way to go for the long run and to make the faceless system more robust. The balance between technology and human judgment is becoming very evident in this ‘generative AI’ age. Even so, the coherent rights of the taxpayer and balancing of department’s independence and efficiency is utmost important, therefore this issue needs crucial attention.
[1] 151A. Faceless assessment of income escaping assessment.
(1)The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of assessment, reassessment or re-computation under section 147 or issuance of notice under section 148 10[or conducting of enquiries or issuance of show-cause notice or passing of order under section 148A] or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability by—
(a) eliminating the interface between the income-tax authority and the assessee or any other person to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
(c) introducing a team-based assessment, reassessment, re-computation or issuance or sanction of notice with dynamic jurisdiction.
(2)The Central Government may, for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, 2022.
(3) Every notification issued under sub-section (1) and sub-section (2) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.]
[2]Notification No. 65/2020 [F. No. 187/3/2020-ITA-I] / SO 2757(E) :- 13 August, 2020
[3] Tax Bulletin –by Rakesh Mishra, IRS CCIT Ranchi, 3rd anniversary edition – the Institute of Cost Accountants of India
[4] Union of India v. Ashish Agarwal, 2022 SCC Online SC 543
[5]‘It cannot be disputed that by substitution of sections 147to 151 of the Income Tax Act (IT Act) by the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings.
Amended sections 147 to 149 and section 151 of the IT Act prescribe the procedure governing initiation of reassessment proceedings’ Ashish Agarwal judgement (supra)
[6] Ministry of Finance, Central Board of Direct Taxes [Notification No. 18/2022/F. No. 370142/16/2022-TPL(Part1)
[7] [2023] 156 taxmann.com 178 (TELANGANA)
[8] Supra
[9] Article 142. Enforcement of decrees and orders of Supreme Court and orders as to discovery, etc
(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or order so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe.
(2) Subject to the provisions of any law made in this behalf by Parliament, the Supreme Court shall, as respects the whole of the territory of India, have all and every power to make any order for the purpose of securing the attendance of any person, the discovery or production of any documents, or the investigation or punishment of any contempt of itself.
[10] Sri Venkataramana Reddy Patloola vs. Deputy Commissioner of Income-tax [2024] 167 taxmann.com 411 (Telangana)/[2024] 468 ITR 181 (Telangana)[24-07-2024]
[11] supra
[12] Hexaware Technologies v. Asst. CIT [2024] 162 taxmann.com 225/464 ITR 430 (Bombay)
[13] Para 36, Hexaware decision (supra)
[14] Talati and Talati LLP vs. Assistant Commissioner of Income-tax [2024] 167 taxmann.com 371 (Gujarat)/[2024] 301 Taxman 321 (Gujarat)/[2024] 469 ITR 643 (Gujarat)[01-10-2024]
[15] Para 12, Talati judgment ibid
[16] T.K.S. Builders (P.) Ltd. vs. Income-tax Officer [2024] 167 taxmann.com 759 (Delhi)/[2024] 469 ITR 657 (Delhi)
[17] Pg.49 of the judgment.
[18] [2023] 150 taxmann.com 459 (Delhi)
[19] Para 83 of the tks judgement, para 48 of sanjay Gandhi
[20] [2024] 169 taxmann.com 542 (Madras)
[21] [2025] 171 taxmann.com 174 (Delhi)
[22] Para 78, Kanwaljeet Kaur vs. Assistant Commissioner of Income-tax [2025] 171 taxmann.com 174 (Delhi)
[23] Para 103, T.K.S Builders case (supra)
Author Bio
