DCIT Vs Divyasree Infrastructure Projects Pvt. Ltd. (Karnataka High Court)
JAO Reassessment Gets a Legislative Lifeline: Karnataka HC Revives Revenue’s Appeal After Retrospective Section 147A Rewrite
Summary:
Relevant Facts
In Deputy Commissioner of Income Tax & Others v. Divyasree Infrastructure Projects Pvt. Ltd., the Karnataka High Court’s Division Bench considered the Revenue’s writ appeal against the Single Judge’s order dated 24.09.2025 in W.P. No.11207/2025. The Single Judge had allowed the assessee’s writ petition challenging notices u/s 148/148A & the consequential reassessment order u/s 147 of the Income-tax Act, 1961.
The controversy concerned the competence of the Jurisdictional AO or JAO to initiate reassessment after introduction of the faceless regime. High Courts had differed on whether notices must issue through the faceless mechanism or could be issued by the JAO. The Single Judge held that the JAO lacked competence.
During the appeal, Parliament enacted Act No.4 of 2026, inserting section 147A retrospectively from 01.04.2021. Notwithstanding any judgment, section 151A or related scheme, it declares that the AO for sections 148 & 148A means, & always meant, an officer other than the National Faceless Assessment Centre or an assessment unit u/s 144B(3).
This legislative development substantially altered the foundation on which the Single Judge had quashed the reassessment proceedings.
Issue Before the Division Bench
The central issue was whether the Single Judge’s order could continue after retrospective insertion of section 147A, which purported to validate the JAO’s authority from 01.04.2021.
The connected question was whether to decide section 147A’s validity, retrospectivity, scope & effect or remit the petition, permitting amendment in accordance with Supreme Court directions.
Revenue’s Submissions
The Revenue relied upon the Supreme Court’s order dated 10.04.2026 in Civil Appeal No.4716/2026, reported in [2026] 185 Taxmann.com 1007 (SC). It argued that Parliament always intended either the JAO or Faceless AO to issue notices, with subsequent adjudication through faceless units.
It was submitted that section 147A was a clarificatory amendment enacted to remove doubts generated by conflicting High Court judgments. Since it operated retrospectively, the statutory foundation of judgments quashing notices solely for want of JAO competence had changed. Fresh consideration by the jurisdictional High Courts was therefore necessary.
Assessee’s Contentions
The assessee sought disposal consistent with the Supreme Court’s order but requested liberty to challenge section 147A. Assessees had contended that the amendment was not clarificatory but an impermissible attempt to impose retrospective adverse consequences requiring strict scrutiny.
The respondent accordingly sought preservation of every contention against the notices, including the validity, retrospectivity, applicability & constitutional sustainability of the newly inserted provision.
Supreme Court Framework Considered
The Supreme Court refrained from deciding merits. It set aside assessee-favouring judgments because their statutory foundation had changed & remitted the disputes. Assessees received four weeks to challenge section 147A; the Revenue received three weeks thereafter. Further proceedings were stayed during pendency.
The Division Bench also noticed the Supreme Court’s subsequent order dated 04.05.2026, directing High Courts first to ascertain whether a matter related to AY 2015-16. If so, the notice had to be declared time-barred in light of Union of India v. Rajeev Bansal, without further adjudication. For other assessment years, all issues were to be decided within the framework of the order dated 10.04.2026.
Findings & Decision
Both parties requested disposal in terms of the Supreme Court’s directions. The Division Bench therefore considered it inappropriate to pronounce upon the merits. It allowed the Revenue’s writ appeal, set aside the Single Judge’s order dated 24.09.2025 & restored the writ petition for fresh adjudication.
The assessee was granted four weeks to challenge section 147A or any connected provision. The Revenue was granted three weeks thereafter to file an additional affidavit or written submissions. All contentions were expressly kept open. The interim protection granted by the Supreme Court was directed to continue for the parties’ benefit.
Legal Reasoning
The judgment rests on disciplined judicial restraint. Once retrospective legislation changed the premise of the earlier ruling, appellate adjudication based solely upon the pre-amendment position would be incomplete. Yet retrospective wording does not automatically settle questions of constitutional validity, legislative competence or vested consequences. Those questions require pleadings, responses & full consideration by the writ court.
The Division Bench therefore neither validated section 147A nor invalidated the reassessment notices. Its order is a procedural revival, not a Revenue victory on merits.
Practical Implications
Assessees whose reassessment notices were quashed solely because the JAO issued them can no longer treat those rulings as final without considering section 147A. They must timely amend pending petitions to challenge the new provision & preserve other grounds such as limitation, sanction, absence of information suggesting escapement or procedural violations.
Crucially, cases concerning AY 2015-16 retain a separate limitation shield under Rajeev Bansal. The practical message is clear: section 147A may have revived the JAO controversy, but it has not conclusively validated every reassessment. Authority to issue a notice & legal validity of that notice remain distinct questions awaiting fresh judicial examination.
Cases Discussed
- Civil Appeal No.4716/2026 — Supreme Court order dated 10.04.2026.
- Union of India & Ors. Vs Rajeev Bansal — Supreme Court, 03.10.2024.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The above writ appeal is filed under Section 4 of the Karnataka High Court Act, 1961 directed against the learned Single Judge’s order dated 24.09.2025 in W.P.No.11207/2025 allowing the writ petition, whereunder the respondent/assessee had challenged the notice(s) issued under Sections 148/148A of the Income Tax Act, 1961 (for short, ‘the Act’) and/or reassessment order passed under Section 147 of the Act.
2. Learned counsel appearing for the parties bring to the notice of this Court the order passed by the Hon’ble Apex Court in Civil Appeal No.4716/2026 dated 10.04.2026 reported in [2026] 185 Taxmann.com 1007 (SC), whereunder the Hon’ble Apex Court in identical fact situation, taking note of the amendment by way of insertion of Section 147A into the Income Tax Act, passed the following order:
“15. It is stated by the Learned Assistant Solicitor General that by inserting Section 147A into the IT Act, the term ‘Assessing Officer’ has been expressly clarified to mean an officer other than the faceless units and the same is deemed to have come into effect retrospectively from 01.04.2021. The said provision reads as follows:
Insertion of new section 147A.
9. After section 147 of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2021, namely:––
“147A. Notwithstanding anything contained in any judgement, 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.”.
16. It is also asserted that the amendment to Section 279 of the Income Tax Act, 2025 is to bring it in consonance with the newly inserted Section 147A of the IT Act, thereby implying that the “Assessing Officer” for the purposes of Sections 280 and 281 of the Income Tax Act, 2025 shall mean to be an Assessing Officer other than the NFAC or any assessment unit referred to in Section 273(3). The amended Section 279 reads as follows:
71. In section 279 of the Income-tax Act, after sub-section (2), the following sub-section shall be inserted, namely: –– ‘(3) The “Assessing Officer” for the purposes of sections 280 and 281 shall mean to be an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit referred to in section 273(3).’
17. In this backdrop, where an interpretative issue concerning the older provisions is already under consideration, it is contended on behalf of the Appellant-Revenue that the Parliament, from the outset, intended that while notices could be issued by either the JAO or the Faceless Assessing Officer (FAO), the subsequent quasi-judicial adjudication of such notices was to be undertaken by the FAOs.
18. It is urged that, in light of the divergent views taken by the High Courts owing to perceived ambiguity in the existing law, Parliament has now made the clarificatory amendment with retrospective effect from 01.04.2021, the date on which the original provisions came into force, and that the alleged anomalous situation, if any, has been removed. It was additionally submitted that the power to enact retrospective amendments is well settled in law, and that fresh notices will now be issued to assessees in accordance with the clarified position, so that pending reassessment proceedings may be concluded in accordance with law.
19. Conversely, it has been vehemently urged on behalf of the assessees that the new Amendment is not ‘clarificatory’ in nature but is rather an abortive attempt to fasten penal liability retrospectively, which is impermissible under law. It is their contention that the amending laws having antedated civil consequences ought to be construed strictly.
20. In all fairness, we may add that several other contentions have also been raised by both sides, which we do not consider it necessary to advert to at this stage in light of the order we propose to pass. In the facts of the present batch, we are of the considered view that it is not necessary for this Court to examine the merits of the rival submissions concerning the correctness of the impugned judgments or the scope of the competing precedents at this juncture.
21. It appears to us that the assessees would be entitled to challenge the amending provisions as elaborated upon heretofore, for which it would only be appropriate to relegate them to the jurisdictional High Courts. All contentions raised before us, as well as any other grounds available to them to question the impugned notices, may be urged before the High Courts instead.
22. Since the High Courts have primarily quashed the reassessment notices on the ground that the JAOs lacked competence to initiate such proceedings, and the very foundation of that view now stands altered by the amending legislation, the impugned judgments in favor of the assessees are set aside on this limited ground. The matters are accordingly remitted to the respective High Courts for fresh consideration. Ordered accordingly.
23. The assessees are granted liberty to amend their writ petitions, if so advised, within a period of four (4) weeks from the date of uploading of this order, so as to enable them to lay challenge to Section 147A of the IT Act, as introduced by Act No. 4 of 2026, or to any other connected or consequential provision.
24. Similarly, the Appellant-Revenue shall be at liberty to file their written submissions and affidavits before the jurisdictional High Courts within a period of three (3) weeks thereafter.
25. No additional time shall be granted to the parties beyond what has been granted above.
26. We make it clear that we have not expressed any opinion on the merits of the controversy, including the validity, scope, effect, retrospectivity or applicability of the amended provisions, and all such questions are left open to be decided by the High Courts.
27. Finally, during the pendency of the writ petitions before the High Courts, there shall be an interim stay of further assessment/reassessment proceedings pursuant to the impugned notices, subject to such terms and conditions as may be imposed by the High Courts.
28. The High Courts are requested to decide the matters preferably by 30.09.2026. Learned counsel for the parties undertake to extend full cooperation to the High Courts in this regard. No adjournments may be granted by the High Courts on mere asking of the parties.”
3. Learned counsel appearing for the parties seek disposal of the above writ appeal in terms of the order passed by the Hon’ble Apex Court, referred to above. Further, learned counsel appearing for the respondent/assessee seeks liberty to lay challenge to Section 147A of the Act in terms of the liberty granted by the Hon’ble Apex Court.
4. Learned counsel for the parties also brings to the notice of this Court, order dated 04.05.2026 in SLP(C).No.8682/2024 passed by the Hon’ble Apex Court taking note of the order dated 10.04.2026 in Civil Appeal.No.4716/2026, which reads as follows:
“7. Consequently, keeping in mind the reasons set out in order dated 10.04.2026, the impugned judgment in each appeal is set aside and the instant appeals are disposed of by remitting the matters to the jurisdictional High Courts for redetermination of the issues. As observed above, the High Courts shall firstly determine whether the matters pertain to Assessment Year 2015-16. If it is found to be so, no further adjudicatory exercise shall be required to be undertaken by the High Court, except to declare the notices as being time-barred in light of Rajeev Bansal (supra). However, if it is found that the case does not pertain to Assessment Year 2015-16, then all the issues shall be resolved in terms of the order dated 10.04.2026 passed in Civil Appeal No.4716 of 2026.”
5. Taking note of the submissions of the learned counsel appearing for the parties as well as taking note of the above referred orders of the Hon’ble Apex Court, we do not deem it fit to go into the merits of the case. We deem it appropriate to set aside the order passed by the learned Single Judge and remit the matter to the learned Single Judge with liberty to the respondent/assessee to lay challenge to Section 147A of the Act, keeping open all the contentions of the parties, including the observations made by the Hon’ble Apex Court in order dated 04.05.2026 in SLP(C).No.8456/2025 and Connected Appeals.
6. Hence, the following:
ORDER
a) Writ appeal is allowed.
b) Order passed by the learned Single Judge dated 24.09.2025 in W.P.No.11207/2025 is set aside.
c) Liberty is granted to the respondent/assessee to lay challenge to Section 147A of the Act as introduced by Act No.4 of 2026 or to any other connected or consequential provisions, within four weeks from today.
d) The appellant/Revenue is granted three weeks thereafter to file additional affidavit or submission.
e) Learned Single Judge is requested to take note of the timeline laid down by the Hon’ble Apex Court as extracted above.
f) The interim order as granted by the Hon’ble Apex Court would enure to the benefit of the parties herein.
