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Show Cause Notices in Faceless Assessments: Are They Becoming a Mere Formality?
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....<br> Article By: - Aratrik Banerjee Dated:- 30-7-2025<br> Got 1 Replies <br> Income Tax<br> <br> The establishment of the Faceless Assessment Scheme under Section 144B of the Income Tax Act, 1961, was widely heralded as a pivotal reform intended to reduce corruption, dismantle personal bias, and foster a more efficient, technology-driven tax administration. This scheme is claimed to be more accountable, faster, and fairer by replacing the physical interface and concentrating on the assessment process. However, as the implementation was completed almost 5 years ago, severe reservations have been raised, especially with regard to issuing Show Cause Notices (SCNs). To an increasingly larger extent, SCNs are no longer seen as means by which nat....
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....ural justice is achieved but standardized, so-called tick-the-box formalities. The conundrum that therefore presents itself is to what degree the digital dream of transparency impacted procedural fairness? Strictly speaking, show-cause notices can be regarded as a critical phase in the system of adjudication. Through giving explanations of reasons behind proposed assessments, they give strength to taxpayers to give reasonable trends to the expected adjustments before anything negative is determined by the Government. Yet, section 144B of the Income Tax Act, 1961 mandates an assessee to receive an opportunity to contest a draft assessment, a requirement grounded in audi alteram partem, which in practice is increasingly reduced to a formalist....
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....ic exercise. Moreover, the show-cause notices emanating under the Faceless Regime are often created by use of template forms that rarely reflect the coloring of a given case. A literal analysis of SCNs issued by the Department appears to demonstrate that there is a sharp ambiguity that marks the notices. Instead of providing clear explanations and referring to exact evidence, the notices tend to refer to generalised wordings of the information that is available on record or the details, have been disclosed in the process of risk assessment. Further, the documents or materials that substantiates the allegation are hardly ever submitted along with the notice. There are cases where the assessee is not even informed about the exact nature of th....
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....e discrepancy or inconsistency. In turn, this undermines any rebuttal that would be made. The procedural right to have recourse presents merely a hope when the taxpayer is denied a clear insight into the charge labeled against them. Another point of interest entails the response time frame. The procedural mechanism developed in the provision of Section 144B of the Income Tax Act, 1961 requires the officials to convey notice in writing and provides a chance to individuals to furnish evidence. However, in reality, the specified period, which is usually 24-48 hours, is not enough. It has been particularly the case where taxpayers are imposed with a duty to examine unexplained profitability, justify dealings, or rationalize accounts for numerou....
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....s years. The available parameters, as a result, combine the process failures linked to unclear SCNs and hamper both the content and procedural aspects of the legal right to reply. The emergence of the faceless assessment regime has prompted judicial scrutiny. The Supreme Courts have already started reviewing this type of order, and on several occasions, they have quashed findings made contrary to principles of natural justice. The Hon'ble Delhi High Court quashed an assessment order in the case of Vedanta Ltd. v. ACIT (2022) since there was a failure to provide the material relied upon to the assessee before the order was reached. The Court held that, as per the previously decided jurisprudence, it is not enough to issue a SCN and the notic....
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....e should inform the assessee about the alleged tax liability in a manner that he can reply to it. The case of Ramakrishna Electricals v. The Madras High Court has stated that when the relevant documents are not inserted in the SCN, they deny the assessee of an effective opportunity of reply (NFAC 2023). At the same time, in Ahuja Radios v. NFAC (2023), the Delhi High Court proceeded to reiterate that such orders, which follow a reasoned approach supporting its decision based on due consideration of the assessee, are non-negotiable- even in the faceless system. Switching to digital formats does not legitimise the curtailing of the procedure through the flawed giving of notice. Instead, the constitutional right to a clear, intelligible, and e....
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....vidence-based notice is a constitutional right, and is based on Articles 14 and 21 of the Constitution of India. When SCNs are converted to standardised documents and when the responses that have been analysed, yielding favourable results, are not examined with the diligence that a judge applies during judicial proceedings, the procedure can be narrowed down to a mere formality with no content at all. Equally troubling is the limited transparency afforded by the National Faceless Assessment Centre (NFAC). The system is defined by back-end automation, whereby the different modules perform the discrete processes- risk assessment, draft order, review, and finalisation, in what is at times non-sequential accountability. This horizontal division....
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...., which is efficient in the abstract, produces units of responsibility that can be separated and causes one to neglect the real commitment to facts or arguments beneath it. This form of an organized institutionalized process might fulfill the formality of procedure, but does not culminate in genuine justice. It is also important to understand the consequences of such defective SCNs. Where an assessment order, which was made under an insufficient notice, is challenged, the burden falls on the taxpayer to join the fight against the order through a writ petition or an appeal. This situation will involve spending money on litigation and, by extension, erode the confidence of the taxpayer in the administrative machinery. These lapses in the proc....
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....edures can be a deathblow to the small and medium-sized businesses. The practice in court also shows that the appellate courts tend to avoid interfering on procedural grounds except where the breach is provable, thus denying the taxpayer a way to get adequate redress. There should be an overall review of the internal procedures. CBDT needs to reconsider the processes that dictate SCNs issued in the faceless regime. At least, the notices must accurately describe the basis on which the proposed adjustments were made, identify the documentary evidence upon which it was decided, and give assessees a sufficient period in which to respond. The standardised formats would allow proper customisation and would bring in clarity of narratives. At the s....
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....ame time, the officers who would have to judge the responses would be required to be trained in ways that would also enable them to consider the responses comprehensively and make speaking orders that would exhibit serious exercise of the mind. Faceless assessment, while progressive, must be scrutinized within the broader framework of legality. Technological innovation cannot serve as a substitute for fair procedure protection. Educational accountability should not be undermined even through anonymity. To be able to retain the Show Cause Notice as the centerpiece of procedural fairness, it should be formulated in precise, transparent, and serious seriousness. Failure to meet these requirements means that the notice will turn into a decorati....
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....on without content. Examining the efficacy of the faceless regime, it is not just enough to look at the number of digital judgments being evaluated, but also those that stand the test of judicial assertions and leave a feeling of assurance on the taxpayer. Even a system that lacks human contact is not supposed to lack human consideration, and it is here that the law, in whatever form of technology it is imparted, should retain some of its basic qualities, viz., fairness, clarity, and justice. --Reply By: Ramanathan Seshan The Reply: Dear sir, Can you please share the link to read the judgements cited by you. Regards, S Ram ....