Court declares Section 147A unconstitutional for conflicting with faceless assessment scheme; mandates reassessment notices under Section 148 must be issued by randomly allocated faceless officers as per Section 151A scheme.
In a landmark judgment delivered on September 10, 2026, the Division Bench of the Punjab and Haryana High Court, comprising Mr. Deepak Sibal and Rupinderjit Chahal, declared Section 147A of the Income Tax Act, 1961, unconstitutional. The Court held that the retrospective amendment introduced by Section 147A, which sought to validate reassessment notices issued by jurisdictional Assessing Officers (AOs) instead of faceless AOs, was in direct conflict with the faceless assessment regime prescribed under Section 151A of the Act and the scheme framed thereunder dated March 29, 2022.
The case arose from a batch of petitions initiated by taxpayers, including advocate Jyoti Sareen, challenging the validity of notices issued under Section 148 by their jurisdictional AOs. The petitioners contended that such notices were invalid as the law mandates issuance only by faceless AOs selected through randomized automated allocation, as prescribed by Section 151A and the related scheme.
Background and Legal Framework:
The Income Tax Act, through amendments effective from 2021 and 2022, introduced a faceless assessment regime aimed at enhancing transparency, efficiency, and eliminating human interface in tax assessments. Key provisions include:
- Section 144B: Mandates faceless assessment, reassessment, or recomputation carried out by the National Faceless Assessment Centre (NFAC) and its assessment units.
- Section 151A: Empowers the Central Government to frame schemes for faceless issuance of notices under Section 148 and assessment proceedings under Section 147, requiring randomized automated allocation of cases.
- Scheme dated March 29, 2022: Implements faceless issuance of notices under Section 148 through automated allocation in accordance with the risk management strategy.
Despite these provisions, divergent judicial opinions emerged regarding whether jurisdictional AOs could issue notices under Section 148 or if such issuance was exclusive to faceless AOs. Several High Courts, including Telangana, Bombay, Rajasthan, Madras, Karnataka, Andhra Pradesh, and Gauhati, held that notices must be issued only by faceless AOs via automated random allocation. Conversely, some High Courts like Calcutta, Delhi, and Gujarat upheld the jurisdiction of jurisdictional AOs to issue such notices, relying on departmental circulars and notifications.
Retrospective Amendment and Supreme Court's Role:
Amidst this judicial uncertainty, Parliament enacted Section 147A retrospectively effective from April 1, 2021, declaring that Assessing Officer for Sections 148 and 148A shall mean an AO other than NFAC or its units, effectively validating notices issued by jurisdictional AOs and overriding conflicting judicial decisions.
The Supreme Court, while setting aside earlier High Court judgments on this issue and remitting matters back for fresh consideration, explicitly refrained from expressing opinions on the constitutional validity, scope, or retrospective effect of Section 147A, leaving these questions open for High Courts.
Judgment and Reasoning:
The Punjab and Haryana High Court undertook a detailed analysis of the legislative scheme, judicial precedents, and constitutional principles, concluding:
1. Legislative Overreach and Separation of Powers:
The Court emphasized that the legislature cannot directly overrule or nullify judicial decisions by mere declarations or non-obstante clauses. Validating legislation must cure the defects identified by courts. Section 147A did not amend Section 151A or the faceless scheme to cure the defects relied upon by courts, thus failing the test of a valid retrospective validation law. The amendment represented legislative overreach, breaching the constitutional doctrine of separation of powers and Article 14's guarantee of equality.
2. Faceless Assessment Scheme Mandate:
The Court reiterated that the scheme framed under Section 151A mandates issuance of notices under Section 148 only through faceless AOs selected by randomized automated allocation. This procedure is mandatory and non-compliance renders notices invalid. Departmental circulars or office memoranda cannot override statutory provisions or judicial pronouncements.
3. Conflict Within the Statute:
Section 147A's "clarification" that jurisdictional AOs (excluding NFAC) could issue notices under Section 148 conflicts with Section 151A and its scheme, which remain unamended and enforceable. Such internal inconsistency within the statute cannot be resolved by Section 147A's non-obstante clause.
4. Retrospective Validation Requirements:
Drawing on Supreme Court precedents such as Janapada Sabha Chhindwara, Prithvi Cotton Mills, Indian Aluminium, and NHPC Ltd., the Court held that retrospective validation is permissible only if it removes the defects on which judicial decisions were based. Section 147A failed to do so, merely attempting to override judicial findings without curing the underlying statutory defects.
5. Notices Issued by Jurisdictional AOs Invalid:
Given the above, the notices issued under Section 148 by jurisdictional AOs without randomized automated allocation and faceless issuance violate Section 151A and the scheme dated March 29, 2022, and are therefore invalid.
Conclusion and Directions:
The Court struck down Section 147A of the Income Tax Act as unconstitutional and set aside the reassessment notices issued under Section 148 by jurisdictional AOs for non-compliance with faceless randomized allocation procedures. The judgment aligns with the majority of constitutional courts recognizing the faceless regime's mandatory requirements to ensure transparency and reduce arbitrariness in tax assessments.
This decision reaffirms the principle that legislative amendments cannot circumvent judicial decisions without addressing their foundational defects and underscores the importance of adherence to statutory procedural mandates in tax administration.
Bottom Line:
Retrospective enactment of Section 147A of the Income-tax Act, 1961, which seeks to validate the issuance of notices under Section 148 by jurisdictional Assessing Officers (AOs) to the exclusion of faceless AOs, is unconstitutional as it fails to cure the defects pointed out by constitutional courts regarding the mandatory faceless and randomized issuance of such notices under Section 151A and the scheme framed thereunder dated 29.03.2022.
Statutory provision(s): Income Tax Act, 1961 Sections 147, 148, 148A, 151A; Finance Act 2026 Section 147A; Scheme under Section 130 (Faceless Jurisdiction of Income Tax Authorities Scheme, 2022); Scheme under Section 151A (e-Assessment of Income Escaping Assessment Scheme, 2022)
Jyoti Sareen v. Union of India, (Punjab And Haryana)(DB) : Law Finder Doc Id # 2976759
