Union of India Vs Smt. Aisshwarya DKS Hegde (Karnataka High Court)
Section 147A Turns Back the Clock: Karnataka HC Revives JAO Reassessment Battle, But Keeps Every Challenge Alive
Summary:
Relevant Facts
In Union of India & Others v. Smt. Aisshwarya DKS Hegde, the Karnataka High Court’s Division Bench considered the Revenue’s appeal against the Single Judge’s order dated 28.08.2025 in W.P. No.26825/2024. The Single Judge had allowed the assessee’s writ petition challenging the notices issued u/s 148/148A & the consequential reassessment order passed u/s 147 of the Income-tax Act, 1961.
The underlying controversy concerned the authority of the Jurisdictional AO or JAO to initiate reassessment proceedings after introduction of the faceless assessment regime. Various High Courts had expressed divergent views on whether reassessment notices could be issued by the JAO or must necessarily emanate from the faceless mechanism contemplated u/s 151A.
The Single Judge had accepted the assessee’s challenge & quashed the reassessment proceedings on the premise that the JAO lacked the requisite authority. During pendency of the Revenue’s writ appeal, however, Parliament enacted Act No.4 of 2026, retrospectively inserting section 147A with effect from 01.04.2021.
Section 147A declares that, notwithstanding any judgment, order or decree, section 151A or any scheme framed thereunder, the AO for purposes of sections 148 & 148A means, & shall always be deemed to have meant, an officer other than the National Faceless Assessment Centre or an assessment unit referred to u/s 144B(3). This retrospective amendment altered the statutory foundation of the Single Judge’s ruling.
Issue Before the Division Bench
The principal issue was whether the Single Judge’s order quashing the reassessment could survive after retrospective insertion of section 147A, which expressly recognised the authority of an AO outside the faceless units.
The connected issue was whether the Division Bench should itself decide the validity, retrospectivity, scope & constitutional effect of section 147A or remit the writ petition to the Single Judge, allowing both parties to raise comprehensive pleadings in accordance with the Supreme Court’s directions.
Revenue’s Contentions
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 contended that Parliament had always intended reassessment notices to be issuable by either the JAO or Faceless AO, while the subsequent quasi-judicial adjudication would be undertaken through faceless units.
According to the Revenue, section 147A was merely a clarificatory amendment intended to remove ambiguity caused by conflicting High Court decisions. Since the provision retrospectively operated from 01.04.2021, judgments quashing reassessment notices solely on the ground that the JAO lacked competence required fresh consideration.
Assessee’s Submissions
The assessee agreed that the appeal could be disposed of in terms of the Supreme Court’s directions but sought express liberty to challenge section 147A. Before the Supreme Court, assessees had argued that the amendment was not genuinely clarificatory but an impermissible attempt to retrospectively fasten adverse civil or penal consequences.
The assessee therefore requested that all objections to the reassessment notices, including the constitutional validity, retrospective operation, applicability & effect of section 147A, be preserved for adjudication by the Single Judge.
Supreme Court Framework
The Supreme Court had declined to decide the rival contentions on merits. Since section 147A had altered the very foundation of judgments holding that the JAO lacked competence, those judgments were set aside on that limited ground & the matters remitted to the respective High Courts.
Assessees were granted four weeks to amend their petitions for challenging section 147A or connected provisions. The Revenue was permitted to file affidavits or written submissions within three weeks thereafter. The Supreme Court clarified that it had expressed no opinion on the provision’s validity, scope, effect, retrospectivity or applicability.
The Division Bench also considered the Supreme Court’s subsequent order dated 04.05.2026. That order required High Courts first to determine whether a dispute pertained to AY 2015-16. If it did, no further adjudication was necessary because the notice would be time-barred in light of Union of India & Ors. v. Rajeev Bansal. Cases relating to other assessment years had to be considered afresh in terms of the order dated 10.04.2026.
Findings & Decision
The Division Bench declined to examine the merits because both parties sought disposal according to the Supreme Court’s framework. It allowed the Revenue’s writ appeal, set aside the Single Judge’s order dated 28.08.2025 & remitted the writ petition for fresh consideration.
The assessee was granted four weeks to challenge section 147A or any connected provision. The Revenue received three weeks thereafter to submit an additional affidavit or written arguments. All rival contentions were expressly kept open, while the interim protection granted by the Supreme Court was continued.
Legal Reasoning
The Court recognised that retrospective legislation had displaced the statutory premise of the earlier decision. Nevertheless, statutory declaration of retrospectivity does not automatically determine questions concerning constitutional validity, vested rights or impermissible retrospective consequences. Those questions require proper pleadings & detailed judicial consideration.
Consequently, the Division Bench neither upheld section 147A nor validated the reassessment. The decision amounts to a procedural revival rather than a final Revenue victory.
Practical Implications
Assessees who obtained relief solely because reassessment notices were issued by the JAO must now confront section 147A. They should timely amend pending petitions while preserving independent objections relating to limitation, sanction, jurisdiction & procedural violations.
Most importantly, AY 2015-16 cases continue to enjoy the separate limitation protection flowing from Rajeev Bansal. Thus, section 147A may revive the authority debate, but it does not automatically cure every reassessment: the power to issue a notice & the legality of its exercise remain separate questions.
Cases Discussed
- Union of India & Ors. Vs Rajeev Bansal (Supreme Court)
- Income Tax Officer & Others v. Tej Partap Singh (Supreme Court)
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 28.08.2025 in W.P.No.26825/2024 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 28.08.2025 in W.P.No.26825/2024 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.
