Faceless Penalty Scheme AY 2026-27

By | May 9, 2026
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Faceless Penalty Scheme

Scope and Applicability

The scheme applies to penalty proceedings relating to specified territorial areas, persons, income, or cases. The following are excluded:

  • Penalty proceeding in cases assigned to Central Charges, International Tax Charges, TDS Charges [Order F. NO. 187/4/2021-ITA-I, dated 20-1-2021],
  • Penalty proceedings arising/pending in the Investigation Wing, and DG (Risk Assessment) [Order F. NO. 187/4/2021-ITA-1, dated 26-2-2021]
  • Penalty proceedings arising out of other statutes [Order F. NO. 187/4/2021-ITA-1, dated 26-2-2021]
  • Penalty orders by officers at the level of Commissioner and above [Order F. NO. 187/4/2021-ITA-1, dated 26-2-2021]
  • Penalty proceedings in cases not having PAN or where pendency could not be created on ITBA due to technical issues [Order F. No. 187/4/2021-ITA-I, dated 10-03-2022]

Key Functional Units

National Faceless Penalty Centre (NFPC): The National Faceless Penalty Centre facilitates centralized conduct of faceless penalty proceedings. All communication related to penalty between units, the assessee, other persons, or tax authorities shall be routed through this Centre.

Penalty Units (PU): The Penalty Unit is responsible for drafting penalty orders, including identifying issues, seeking clarifications, providing the assessee an opportunity of being heard, analysing submitted material, and performing other functions required for imposing penalty. It refers to an Assessing Officer empowered by the CBDT.

Penalty Review Units (PRU): The Penalty Review Unit reviews draft penalty orders to ensure:

  • all relevant evidence is on record;
  • facts and legal points are properly incorporated;
  • penalty issues are adequately discussed;
  • applicable judicial decisions are duly considered;
  • penalty computation is arithmetically correct; and
  • any other necessary review functions are performed.

It refers to an Assessing Officer empowered by the CBDT.

Officers Empowered in Units

The Penalty Unit and Penalty Review Unit shall have the following authorities:

  • Additional/Joint Commissioners or Additional/Joint Directors
  • Deputy/Assistant Commissioners or Deputy/Assistant Directors, or Income-tax Officers
  • Other Income-tax authority, ministerial staff, executive or consultant as authorised by CBDT

Procedure for Levy of Penalty

The faceless penalty proceedings are conducted through the National Faceless Penalty Centre (NFPC) as per the following procedure:

  • Reference to NFPC– Where any Income-tax Authority or NFAC initiates or recommends penalty, the case is referred to NFPC in the prescribed form.
  • Case Assignment– NFPC assigns the case to a Penalty Unit using an automated allocation system.
  • Draft Notice or Rejection of Recommendation– The Penalty Unit issues a draft show-cause notice or records reasons for not initiating penalty proceedings and forwards it to NFPC.
  • Service of Notice– NFPC serves the show-cause notice to the assessee based on the draft. If initiation is not agreed upon, the penalty is not initiated.
  • Ongoing Proceedings– If proceedings have already been initiated, the Penalty Unit prepares a draft notice, which is served by NFPC.
  • Filing of Response– The assessee must respond to the show-cause notice within the specified or extended time. NFPC forwards the response to the Penalty Unit; non-response is also reported.
  • Request for Additional Inputs– Penalty Unit may request NFPC to gather more information from concerned authorities or the assessee, seek technical assistance, or conduct verification.
  • Support by NFPC– NFPC issues a notice or requisition to submit such information and forwards filed responses or reports to the Penalty Unit. In case of no response, it is duly informed.
  • Penalty Proposal– The Penalty Unit proposes either imposition or non-imposition of penalty, with reasons, and sends it to NFPC.
  • NFPC’s Action on Proposal– NFPC may:

Direct passing or dropping of the penalty;

Refer the proposal for review to a Penalty Review Unit.

  • Penalty Order or Dropping Proceedings– Based on NFPC’s direction, the Penalty Unit issues the penalty order or drops proceedings and communicates the outcome to the assessee via NFPC.
  • Review by Penalty Review Unit– The Review Unit examines the proposal and may concur or suggest modifications. The review report is sent to NFPC, which forwards it to the Penalty Unit.
  • Final Order after Review– The Penalty Unit considers the review report, passes the final order imposing a penalty or dropping the penalty proceedings, and serves it to the assessee through NFPC. If suggestions are rejected, the reasons are recorded.
  • Communication to Initiating Authority– NFPC sends a copy of the order or intimation to the original Income-tax authority for further action.
  • Transfer of Proceedings– The PCCIT or PDGIT, in charge of NFPC, may transfer such proceedings to the jurisdictional Income-tax authority or NFAC with CBDT approval.

In such cases, proceedings are conducted electronically to the extent possible, and may involve video conferencing, digital tools, and compliance with Section 274(2) for approval. The jurisdictional authority shall consider all prior actions under the faceless regime. [Circular F. No. 225/97/2021/ITA-II, dated 06-09-2021]

Appeal against Penalty Order

An appeal against a penalty order passed by the National Faceless Penalty Centre (NFPC) lies before the jurisdictional JCIT(A) or CIT(A) or the NFAC, as applicable.

Electronic Communication Protocol

  • All communications between NFPC and the assessee or authorised representative, as well as internal communications between NFPC, NFAC, Income-tax authorities, Penalty Unit, and Penalty Review Unit, shall be conducted electronically.
  • NFPC shall authenticate records through electronic communication. Penalty-related units shall use digital signatures. The assessee or any other person shall authenticate records by digital signature, electronic verification code (EVC), or login via the e-filing portal.
  • Electronic communications, such as notices or orders, shall be delivered via the assessee’s registered account, registered email address, or Mobile App, followed by real-time alerts.
  • The assessee or any other person shall submit their response through the registered account. Upon successful submission, an acknowledgement with a hash result from NFPC shall deem the response as authenticated.

No Physical Appearance Required

  • No personal appearance is required before NFPC, Penalty Unit, or Penalty Review Unit, either by the assessee or their authorised representative.
  • An assessee or authorised representative may request a personal hearing. The hearing shall be conducted exclusively via video conferencing or telephony, using suitable telecommunication software.
  • The CBDT will ensure the availability of video conferencing facilities at designated locations to prevent denial of the scheme’s benefits due to the lack of access on the assessee’s end.

Administrative Powers

The Principal Chief Commissioner or Principal Director General in charge of NFPC, with prior CBDT approval, may specify format, mode, procedure, and processes for the automated operations of the NFPC, Penalty Unit, and Penalty Review Unit, including:

  • Service of notices, orders, or other communications;
  • Receipt of information or documents;
  • Issuance of acknowledgements;
  • Provision of e-proceeding facilities (login, tracking, display, download);
  • Access, verification, and authentication of submissions;
  • Centralised storage and retrieval of data;
  • General administrative and grievance redressal mechanisms; and
  • Forms for referring the penalty cases.