Faceless Appeal Scheme 2021: A Forward-Looking Initiative

The Central Board of Direct taxes (“CBDT”), with an objective of bringing in more transparency in the appeal proceedings and “honoring the honest”, had introduced the “Faceless Appeal Scheme 2020”[1] (“Old Scheme”), on September 25, 2020. The Old Scheme was introduced with an aim to eliminate human interference between the taxpayer and the First appellate authority (Commissioner Appeals), thereby ensuring that the appeals are disposed in a fair manner and are not influenced by any relation and human biasness.

The Old Scheme was introduced with the noble intention of curbing malpractices, easing compliance and make appeal process seamless and faceless. However, there were some post implementation hiccups experienced and accordingly taxpayers requested certain modifications in the Old Scheme.

In order to fix the hiccups and incorporate the changes requested by taxpayers, the CDBT, in supersession of the Old Scheme, has introduced a new appeal scheme called as “Faceless Appeal Scheme 2021”[2] (“New Scheme”) on December 28, 2021.

In this alert, we have made an effort to apprise the readers with the changes introduced in the New faceless appeal Scheme vis-à-vis the Old Scheme.

Key Changes in the New Faceless Appeal Scheme, 2021

The key changes brought in by the New Appeal Scheme are as follows:

  1. Mandatory personal hearing, if requested

In the Old Scheme, the appellant or his authorized representative had to make a request for personal hearing and the Chief Commissioner or Director General in charge of the Regional Faceless Appeal Centre (RFAC) had the discretion to approve such request, if he was of the opinion that the request is covered by the circumstances laid down by the CBDT.

In the New Scheme, there is no requirement for prescribed circumstances and the discretion for grant of personal hearing has been completely removed. CIT(A) shall allow personal hearing if requested by the appellant anytime during the course of the proceedings.

  1. Restructuring of the appeal center

In the Old Scheme, CBDT had set up a three-layer structure with National Faceless Appeal Centre (NFAC) at the top to conduct appeals in a centralized manner (nodal agency), followed by RFAC to support NFAC and Appeal Unit (AU) at the bottom, to facilitate the conduct of e-appeal proceedings and dispose them. In the composition structure, each AU unit had one or more Commissioner Appeals [CIT(A)].

In comparison, the New Scheme has done away with the RFAC and has set up a two-layered structure headed by NFAC and AU will directly coordinate with NFAC and conduct the appeal and dispose them. Further, in the New Scheme, each AU will have only one CIT(A).

  1. Elimination of review by multiple AUs

In the Old Scheme, the NFAC on receipt of draft order from AU, would  review the order and if the payable amount in respect of disputed issue was more than a specified amount, then send the draft order to another AU, other than the AU which had prepared it. In any other case, the NFAC would  examine the order based on the specified risk management strategy and then finalise the appeal or send the draft order to another AU.

The other AU who was assigned such case, would  either concur with the order or suggest variations as it would  deem fit. In case of variation, the NFAC would  assign the said appeal to another AU other than the one who had prepared or reviewed the draft order. The NFAC would then pass the final order, based on the order received from the last AU.

In the New Scheme, the CIT(A), after examining the submissions, shall now pass the order by digitally signing the same and send it to NFAC, along with details of penalty proceedings, if any, to be initiated therein.

Such order shall be final and will not be reviewed at multiple AUs as provided in the erstwhile scheme. NFAC shall communicate such order to the appellant and such other officers as may be prescribed.

  1. Penalty Proceedings

In the Old Scheme, AU in the event of any non-compliance during the appeal proceedings, had to send a recommendation to NFAC to initiate penalty proceedings. However, in the New Scheme, there is no need to send such recommendation and the CIT(A) can directly send the penalty notice through NFAC.

FM Comments:

The modifications provided in the New Scheme are certainly a move in the right direction by easing the process and building a robust appeal scheme. The CDBT, by removing the discretionary power of the authorities for grant of personal hearing, has also made an effort to meet the constitutional validity criteria, which has also been one of the matters, challenged before the Courts.


[1] Notification No 76/2020 dated 25 September 2020

[2] Notification No 139/2021 dated 28 December 2021

Image Credits: Photo by Arina Krasnikova from Pexels

In order to fix the hiccups and incorporate the changes requested by taxpayers, the CDBT, in supersession of the Old Scheme, has introduced a new appeal scheme called as “Faceless Appeal Scheme 2021”[2] (“New Scheme”) on December 28, 2021.


'Honoring the Honest'- A Perspective on Transparent Taxation

The administration of a country makes headway with fiscal reforms when the revenue framework starts hindering effectiveness. Further, the redesigning of tax administration is done to widen the tax base and to achieve budgetary objectives.

Over the years, policymakers have understood the need for having a balance between innovation and compliance systems. The Tax Administration Reform Strategy that has been adopted, therefore, entails a simplified compliance system. At the innovation front, it has prompted the introduction of E-assessments; revamping of the E-filling portal and strengthening of Central Processing Centers (CPCs) for processing the ITRs. 

In addition, mandating the need for computer-generated Unique Document Identification Number (DIN) followed by the announcement by the Finance Minister of Faceless Assessment Scheme in her Budget Speech on July 5th, 2019, has sequentially nourished the Tax administration with a unique technological advancement, the “Transparent Taxation System”. 

Now India has embraced its policy reforms by introducing a scheme to “Honour the Honest” and to balance automation with compliance. By adopting a system of process simplification, India has become the first on an International platform to set a unique practice of “Faceless Assessment Scheme.” 



Need for Transparent Taxation 


The policymakers widely felt that the current tax system had components of arbitrary use of power, and direly needed to have fair play and transparency. The human interface and the multiplicity of visits to tax offices were prejudicial to the spirit of an honest taxpayer paving the way for corruption and favoritism.  

The tax system was called for and the Government also recognized the need for having an administrative mechanism with a minimal interface between a Tax-officer and a Taxpayer.  

The complications in efficiency and effectiveness demanded a transparent taxation system. Thus, the Government presented before us a Faceless Assessment Scheme and a scheme of Faceless Appeals at the level of Commissioner of Income Tax (Appeals).  

Towards the Transparent Taxation regime, the Hon’ble Prime Minister on August 13th, 2020, on behalf of the Central Board of Direct Taxes launched a new platform to meet the requirements of the 21st-century Taxation system. The New facilities launched are a part of the Government’s initiative to provide “Maximum Governance with Minimum Government”. 

The platform, apart from being faceless, is also aimed at boosting the confidence of the Taxpayer and making him/her fearless. It aims to make the tax system indefectible, faceless and painless for the Assessee. After Banking the Unbanked, Securing the Unsecured and Funding the Unfunded”, the “Honoring the Honest” initiative by the Tax Department has given the Indian Tax system, global recognition. 



Elements & Features of Faceless Assessment 


In respect of the features of the scheme, it enumerates the selection of a case for scrutiny through Data Analytics and Artificial Intelligence. The approach is to abolish Territorial Jurisdiction for assessment proceedings. It prescribes automated and random allocation of cases where notices, when served, will have Document Identification No. (DIN).  

The scheme provides for team-based assessments and team-based review whereby draft assessment orders from one city will undergo review in a different City and finally be issued by the Nodal Agency located in Delhi. The Government has made the facility of Faceless Appeal available from September 25th, 2020, and it will randomly allot such Appeals to any Tax officer in the country. The identity of officers deciding an appeal will remain unknown, and the appellate decisions will be team-based and reviewed.  

Most importantly, the scheme of both the Faceless Assessment and Faceless Appeal, curbs the practice of physical interface. Therefore, from now, there is no need for an assessee to visit the Income Tax Office. 

In respect of efficiency and effectiveness, the scheme intends to benefit the Taxpayer through the ease of compliance, functional specialization, improved quality of assessments, and most notably expeditious disposal of cases.  



Implementation and Execution


The scheme prescribes the constitution of the National E-assessment Centre (NeAC) & Regional E-assessment Centres (ReAc). The NeAC will function as a nodal agency in coordination with the ReACs located at different places supported by Assessment Units (AUs), Verification Units (VUs), Review Units (RUs), and Technical Units (TUs). Towards the completion of the Assessment, NeAc will pass and issue final orders.  

In respect of the operational perspective of the scheme, the new set-up formulated under the Faceless Assessment Scheme will administer all assessment proceedings u/s 143, 144, 148 read with 143(2)/ 142(1) of the Income-Tax Act 1961. 

However, the scheme holds exceptions as well. It would not apply to cases assigned to Central Circles, matters related to International Taxation, and facts constituting offenses under the Black Money Act and the Benami Property Act.  

Henceforth two-third of the department officers will be deputed to perform the functions of faceless assessments. The balance one third will perform residual functions enumerated under the Act including rectification proceedings, statutory powers u/s 263/264 of the Act, handling of grievances, demand management, recovery, collection, prosecution, and compounding and administrative/HRD matters. The Officers of the Directorate of Investigation and TDS units will exercise power to conduct survey u/s 133A of the Act. 

Within the folds of the new system lies the roots of the Tax Charter, which addresses the expectations of both the Revenue Department and the Assessee. The Revenue Department by way of the Charter assures fair, courteous and rational behaviour towards the Assessee. The Charter holds statutory backing with a binding character anticipating a commitment from the Assessee to fulfill the expectations of the Income Tax Department.  



Incidental Tools, towards Transparency 


Alongside the reforms pertaining to tax administration, the Government also revived the existing framework in terms of disclosure and reporting of transactions.  

Accordingly, Income Tax Return will now seek details of House ownership, Passport number and details of Cash deposit exceeding prescribed limits. An Assessee must now also disclose expenditure incurred on foreign travel if it exceeds INR 2 lakh and even aspects of spending on electricity bills exceeding INR 1 lakh during a Financial Year.  

Under the newly developed Tax Regime, Form 26AS (Form) will now be a complete profile of the taxpayer w.e.f. June 1st, 2020. It will cover under its scope “Specified financial transactions” covering transactions of purchase/ sale of goods, property, services, works contract, investment, expenditure, taking or accepting any loan or deposits.  

Furthermore, the Form will include information about income tax demand, refunds, pending proceedings, and proceedings completed under section 148,153A 153C of the Act. 

Revision to an assessment and details of an appeal will also be shared under the new format of the Form and it will not be a one-time affair anymore, it will be live and updated quarterly. The Form will also address information received by the Tax Department from any other country under a Tax Treaty/Tax Information Exchange Agreements. 

The Government has also proposed to expand the scope of Section 285BA of the Act for reporting of Specified Financial Transactions following which the Revenue Department may have on record the payment towards educational fee/donation and purchase of jewelry and paintings exceeding a value of INR 1 lakh.  

Thus, in a nutshell, the consumption and investment patterns of the Taxpayer will fall under the tax radar. It will now be difficult for any taxpayer to hide any transaction with a vendor, Bank/Financial Institution, etc. notified under the Income Tax Law.  





On the face of it, the initiative is promising. Keeping in view, the intended simplicity and structure of the new administrative regime introduced for inducing better tax compliance in the Country. The question is how effectively it will overcome the challenges of and meet the intended objectives of the policymakers. The answer would depend on how seamlessly is the plan executed.   

Image Credits: Photo by Samantha Borges on Unsplash

On the face of it, the initiative is promising. Keeping in view, the intended simplicity and structure of the new administrative regime introduced for inducing better tax compliance in the Country. The question is how effectively it will overcome the challenges of and meet the intended objectives of the policymakers.