Andhra Pradesh High Court struck down Section 147A of the Income Tax Act, 1961 as unconstitutional

In a recent judgment Andhra Pradesh High Court struck down Section 147A of the Income Tax Act, 1961 as unconstitutional. As a result, all the proceedings initiated by the respective Jurisdictional Assessing Officers (JAOs) under Sections 148A and 148 are without jurisdiction and are liable to be set aside.

ABCAUS Case Law Citation:
5247 (2026) (10) abacus.in HC

The Finance Act, 2018 had introduced “e-Assessment Scheme, 2019” describing a detailed procedure to be followed for the purpose of making assessment. The Scheme was notified on 12.01.2019.

Section 151A of the Income Tax Act, 1961 (the Act) was introduced to the Income Tax Act, 1961 by Finance Act 2020 (38 of 2020) with effect from 01.11.2020 for Faceless Assessment of Income Escaping Assessment. CBDT issued Notification No, 18/2022 dated 29.03.2022 formulating the scheme for e-Assessment of Income Escaping Assessment Scheme, 2022.

The Finance Act, 2021 introduced Section 144B to the Act with effect from 01.04.2021 incorporating the “Faceless Assessment” directly into the Act. Later, the Finance Act, 2022 included the proceedings under Section 147 of the Act under Faceless Assessment. In pursuance of the said CBDT Notification, procedure to be followed were laid under Section 144B.

Thus, Faceless Assessment Scheme, 2019 was rendered inapplicable with effect from 01.04.2021 after introduction of the said scheme as per Section 144B of the Act.

However, despite the above the Jurisdictional Assessing Officer (JAO) for the Assessment Year falling beyond the scope of Faceless Assessment Scheme, 2019 issued notices under Sections 148A of the Income Tax Act, 1961 to the petitioners requiring them to furnish return of income for the relevant assessment year on the premise that certain transactions chargeable to tax has escaped assessment. 

The High Court of Punjab and Haryana (ABCAUS 5246 (10) abacus.in HC) rendered its decision on the issue whereunder after referring to various contentions raised by the assessees and the revenue, Section 147A of Income Tax Act was held to be unconstitutional. However, the operation of the order was stayed by the Hon’ble Supreme Court.

In the present case, the petitioners had filed writ petitions on the ground that notices/orders have been issued by the Jurisdictional Assessing Officer deviating the procedure prescribed under e-Assessment of Income Escaping Assessment Scheme, 2022 which contemplates that any procedure to be initiated under Section 147 and 148 of the Act shall be through Faceless manner, which came into force from 29.03.2022, as the impugned notices/orders were issued by the Jurisdictional Assessing Officer, the same is without jurisdiction. 

The contention of the Revenue was that Notification dt.29.03.2022 does not state whether the notice is to be issued by National Faceless Assessment Centre (NFAC) or the Jurisdictional Assessing Officer (JAO). It was further contended that the said notification deals with the procedure to be followed, while exercising the powers under Section 148 of the Act. Further, for the purpose of issuance of notice under Section 148 of the Act, the same is done in accordance with the risk management strategy and the assessment shall be in a faceless manner as prescribed under Section 144B of the Act.

A co-ordinate bench of the High Court having considered the respective submissions made by the counsel for the petitioners and the Revenue, by order dt.28.10.2025, allowed the writ petitions by setting aside the impugned notices/orders issued under sections 148A(b), 148A(d) and 148 of Income Tax Act, 1961, holding that the same were violative of provisions of Section 151A of the Act r/w. CBDT Notification No.18/2022, dt.29.03.2022.

Aggrieved by the said order, the Revenue preferred Special Leave Petitions before the Hon’ble Supreme Court. During the pendency of the SLPs, the Finance Act, 2026, introduced Section 147A whereunder the term “Assessing Officer” has been expressly clarified to mean officer other than the National Faceless Assessment Centre (NFAC) or any assessment unit and the same is deemed to have come into effect retrospectively from 01.04.2021.

Section 147A was introduced by the Finance Act 2026 (Act No.4 of 2026) retrospectively w.e.f. 01/04/2021 as under:

“Assessing Officer for purposes of sections 148 and 148A.

147A. Notwithstanding anything contained in any judgment, order or decree of any court or in section 151A or in any scheme framed thereunder, for the removal of doubts, it is hereby clarified that the Assessing Officer for the purposes of sections 148 and 148A shall mean and shall always be deemed to have meant to be an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit referred to in sub-section (3) of section 144B.”

In view of the insertion of Section 147A the Hon’ble Apex Court disposed of the SLPs with liberty to the assesses to challenge Section 147A.

In the challenge, the contention of the assesses were inter alia that the Jurisdictional Assessing Officer (JAO) has no power to issue notice under Section 148 of the Income Tax Act especially after introduction of Section 151A and the Notification No.18 of 2022. It was contended that the Legislative intent was explicitly mentioned under Section 151A i.e., to impart efficiency, transparency, accountability, eliminate personal interface by introducing dynamic jurisdiction through technology-driven allocation, whereas the notices issued under Section 148 by the JAO are in contravention of the statutory mandate which speaks that the same shall be issued by Faceless Assessing Officers (FAO), therefore all the proceedings initiated are without jurisdiction.

It was further contended that by introducing Section 147A with retrospective effect, the Legislative intent behind the same is to nullify the decisions rendered by the High Court and various other High Courts, which cannot be permitted inasmuch as the Legislature has no competence to nullify the judgment rendered by Constitutional Courts through the present amendment.

The Revenue contended that the legislature has clearly demarcated the line between the assessment and pre-assessment enquiry process which culminates in issuing of notice under section 148. By referring to this Memorandum explaining the provisions in the Finance Bill, 2026, it was never the intention of the Legislature to mandate the assessment units in NFAC to involve in pre-assessment enquiry in any manner, whether for issuance of notice under Section 148A or under section 148. It was specifically contended that the faceless assessment for re-assessment under Section 147 was only required to be carried out to the extent provided under Section 144B and the objective of the scheme framed under Section 151A was also the same.

The Hon’ble High Court observed that e-Assessment of Income Escaping Assessment Scheme, 2022. Scheme notified by the Central Government laid down procedure to be undertaken for the purpose of assessment, reassessment or re-computation under Section 147 of the Act and 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 faceless manner to the extent provided in Section 144B.

The Hon’ble High Court further observed that issuance of notice under Section 148 of the Act, shall be through automated allocation in accordance with risk management stagey formulated by the board. Admittedly, in all these matters, the cases are identified by the respective Jurisdictional Assessing Officers, so as to initiate proceedings under section 148A and 148 of the Act. Further, this aspect of the matter was not disputed by the Revenue inasmuch as it was categorically submitted during the course of hearing that no such arrangement was made so as to identify the cases for the purpose of initiating proceedings under Section 148A and 148. With this admission made by the Revenue, it is clear that the cases were identified by the JAOs’ which cannot be permitted as the same runs contrary to the scheme formulated as per section 151A of the Act. 

The Hon’ble High Court observed that adherence to provisions of section 127 had not been followed by the Revenue while transferring the case to National Faceless Assessment Centre (NFAC) after issuance of notice under Section 148.

With regard to contention of the Revenue that since there is no Notification issued conferring power on Faceless Assessing Officer (FAO), the question of exercising the powers by FAO under Sections 148A or 148 do not arise, the Hon’ble High Court opined that then it is for the Revenue to show that after issuance of notice under Section 148, there is an order passed by the proper officers mentioned under Section 127 of the Act, so as to transfer the case from Jurisdictional Assessing Officer (JAO) to National Faceless Assessment Centre (NFAC).

The Hon’ble High Court held that when the Act and the scheme specifically state that proceedings are to be initiated in a faceless manner, the same cannot be allowed to be exercised by the Jurisdictional Assessing Officer (JAO) through the Notification No.61 of 2022, dt.10.06.2022.

The Hon’ble High Court held that a plain reading of the scheme made under Section 151A, it is apparently clear that Section 148 is brought under the said scheme, so as to initiate proceedings in faceless manner as aforesaid. By introducing Section 147A, admittedly the scheme made under Section 151A remained un-amended. Without amending the said scheme, any clarification or validation through amendment cannot be permitted especially when the basis is not removed. Therefore, by introducing Section 147A of the Act, the Legislature is trying to over reach the judgments rendered by various High Courts in this regard, in direct conflict with Doctrine of separation of powers, which is the basic structure of the Constitution.

The Hon’ble High Court observed that when all that the Courts has held that JAOs have no jurisdiction to exercise powers under Section 148 of the Act. In such circumstances, without amending the scheme made under Section 151A of the Act, insertion of Section 147A into Income Tax Act, 1961 in the name of clarification or validation cannot be permitted. 

Accordingly, the Hon’ble High Court held that newly inserted Section 147A of the Income Tax Act, 1961 is unconstitutional and the same was accordingly struck down. As a result, all the proceedings initiated by the respective Jurisdictional Assessing Officers (JAOs) under Sections 148A and 148 are without jurisdiction and are liable to be set aside,

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