Section 147A Struck Down, JAO Notices Invalid: Jyoti Sareen (Punjab & Haryana HC)

JAO vs FAO: When a Retrospective Clarification Crosses the Constitutional Line — Punjab & Haryana High Court Strikes Down Section 147A

Summary: In Jyoti Sareen v. Union of India & Others, the Punjab & Haryana High Court has held that Section 147A of the Income-tax Act, 1961 is unconstitutional and directed that it be struck down, while independently holding that Section 148 notices issued by jurisdictional Assessing Officers were invalid where they were not issued through the automated allocation and faceless mechanism mandated by Section 151A read with the e-Assessment of Income Escaping Assessment Scheme, 2022. The Court examined whether Parliament could retrospectively validate JAO-issued reassessment notices through Section 147A after several High Courts had held that such notices were contrary to the statutory faceless reassessment framework. Applying the principles governing validating legislation and separation of powers, the Court held that Parliament may retrospectively amend the law and remove the statutory foundation of a judicial decision, but cannot merely neutralise the effect of judicial decisions while leaving the underlying statutory defect untouched. Section 151A and the 29 March 2022 Scheme, which expressly required issuance of Section 148 notices through automated allocation and in a faceless manner, remained unchanged. The Court also rejected the Revenue’s concurrent-jurisdiction argument based on Section 120, holding that the statutory Scheme prevailed. The judgment follows the assessee-favouring line of decisions from several High Courts and disagrees with contrary views. It consequently sets aside the impugned notices and raises significant constitutional questions concerning retrospective validating legislation, statutory jurisdiction and the limits of legislative power. The judgment is likely to have substantial significance before the Supreme Court, particularly concerning the validity and consequences of Section 147A.

Introduction

The long-running controversy over whether a Jurisdictional Assessing Officer (JAO) or a Faceless Assessing Officer (FAO) is competent to issue a reassessment notice under Section 148 has now entered a far more significant constitutional phase.

In Jyoti Sareen v. Union of India, the Punjab & Haryana High Court has not merely held the impugned reassessment notices to be without jurisdiction. It has gone a decisive step further and struck down Section 147A of the Income-tax Act, 1961 as unconstitutional.

The judgment is significant because Section 147A was itself enacted retrospectively from 1 April 2021 after several High Courts had held that notices under Section 148 issued by JAO violated Section 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022. Parliament attempted, through Section 147A, to clarify retrospectively that the Assessing Officer for Sections 148 and 148A meant an officer other than NaFAC or an assessment unit. The Punjab & Haryana High Court has now held that the amendment did not cure the statutory defect identified by the earlier judgments. It merely attempted to neutralise their effect.

Central Controversy

The controversy arose from the interaction between the statutory architecture of faceless reassessment and the traditional territorial jurisdiction of the assessee’s JAO.

Section 151A empowered the Central Government to frame a scheme for, inter alia, issuance of notices under Section 148. Pursuant thereto, the e-Assessment of Income Escaping Assessment Scheme, 2022, notified on 29 March 2022, expressly provided that issuance of Section 148 notices shall be through automated allocation and in a faceless manner. “Automated allocation” itself was defined as an algorithm-based randomised allocation of cases.

Several High Courts, including Bombay, Telangana, Gauhati and Punjab & Haryana High Courts, consequently held that a jurisdictional AO could not bypass this statutory scheme and independently issue Section 148 notices.

The Revenue challenged those rulings before the Supreme Court. While those proceedings were pending, Parliament inserted Section 147A through the Finance Act, 2026 with retrospective effect from 1 April 2021. The provision sought to clarify that, notwithstanding any judgment, Section 151A or any scheme framed thereunder, the Assessing Officer for Sections 148 and 148A would mean an Assessing Officer other than NaFAC or an assessment unit under Section 144B(3).

The Supreme Court thereafter remitted the cases to the respective High Courts, expressly leaving open the validity, scope, effect, retrospectivity and applicability of Section 147A.

The controversy before the Punjab & Haryana High Court therefore became much larger:

Could Parliament retrospectively validate JAO-issued notices by inserting Section 147A without curing or altering the statutory foundation which is Section 151A and the 29 March 2022 Scheme on which the earlier High Court judgments were based?

The High Court’s answer was No.

Issue under Consideration

The Court was essentially required to answer two interrelated questions.

First, whether Section 147A constituted a valid retrospective validating legislation or whether Parliament had merely attempted to overturn judicial decisions without removing the statutory defects on which those decisions were founded.

Second, even assuming Section 147A could not survive constitutional scrutiny, whether Section 148 notices issued by jurisdictional AOs could independently survive under Section 151A read with the Scheme dated 29 March 2022.

The second issue was particularly important because striking down Section 147A would not, by itself, automatically determine who was competent to issue a Section 148 notice. The Court therefore independently revisited the JAO-versus-FAO jurisdiction question.

Observations of the Court

Parliament may validate a law retrospectively but it must remove the defect

The most important part of the judgment concerns the constitutional limits of validating legislation.

Relying upon a long line of Supreme Court authorities, including Janapada Sabha Chhindwara, Shri Prithvi Cotton Mills, Indian Aluminium, State of Tamil Nadu v. Arooran Sugars, State of Tamil Nadu v. State of Kerala and NHPC Ltd., the High Court drew a critical distinction:

Parliament may undoubtedly amend the law retrospectively. It may even render an earlier judicial decision ineffective by fundamentally altering the statutory basis on which the judgment was rendered.

But Parliament cannot simply declare that a judicial interpretation shall no longer bind without first curing the underlying defect.

The Court encapsulated the governing test by holding that the effect of a valid validating legislation must be such that, had the amended law existed when the earlier judgment was delivered, the Court could not have reached the same conclusion.

That distinction became fatal to Section 147A.

Section 151A and the 29 March 2022 Scheme remained untouched

The earlier High Court decisions did not rest merely on the meaning of the expression “Assessing Officer”.

Their foundation was Section 151A read with the statutory Scheme dated 29 March 2022 which expressly required issuance of Section 148 notices through:

automated allocation + randomised selection of the AO + faceless mechanism.

Yet Section 151A and the Scheme were never amended.

The Court therefore observed that the very statutory foundation upon which the earlier decisions stood continued to exist unchanged. Section 147A sought to change the result without removing the legal basis which had produced that result.

This is perhaps the central ratio of the judgment.

The non-obstante clause could not perform the work of a proper validating amendment

Section 147A opened with an unusually wide non-obstante clause overriding judgments, Section 151A and schemes framed thereunder.

But the Court found that merely using the expression “notwithstanding anything contained in any judgment…” could not convert an otherwise defective legislative exercise into constitutionally valid validating legislation.

More significantly, the Court noticed that although Section 147A expressly referred to Section 151A, its non-obstante clause made no reference to Section 130 or the Scheme dated 28 March 2022 which had also formed part of the statutory faceless framework relied upon in the earlier decisions.

A non-obstante clause, therefore, could not substitute for removing the actual legal foundation of the judgments.

Legislature may change the law but cannot exercise judicial power

The Court treated the question as one involving the constitutional separation of powers.

It held that Parliament has plenary authority under Articles 245 and 246 to make and retrospectively amend laws. But there is a constitutional difference between:

changing the law upon which a judgment rests, and

declaring that the Court’s interpretation of an unchanged law should be treated as wrong.

The latter trespasses into the judicial domain.

The Court consequently held that setting aside the effect of judicial decisions without removing their statutory foundation offends the rule of law and separation of powers which the Supreme Court has recognised as informing Article 14.

Section 151A(2) created an additional difficulty

The Court placed considerable emphasis on an aspect that may become particularly important in any Supreme Court appeal.

Section 151A(2) permitted the Central Government, through notification, to provide that provisions of the Act would apply with exceptions, modifications or adaptations for implementing the faceless scheme. However, the proviso stipulated that no such direction could be issued after 31 March 2022.

The Government had already included Section 148 within the Scheme before that date and had not excluded it.

The Court therefore reasoned that what could no longer be done administratively after the statutory cut-off could not effectively be achieved later through Section 147A while leaving Section 151A and the Scheme untouched.

Section 148 notices are expressly covered by the faceless scheme

The Court then separately examined Clause 3 of the 29 March 2022 Scheme.

Clause 3 specifically provides that:

• assessment/reassessment under Section 147 and
• issuance of notice under Section 148

shall be through automated allocation and in a faceless manner.

The High Court concluded that a plain and purposeful reading permitted only one interpretation: Section 148 notices must follow randomised automated allocation and the faceless mechanism.

Concurrent jurisdiction argument rejected

The Revenue relied upon Section 120 notifications to contend that JAO and FAO possessed concurrent jurisdiction.

The High Court rejected this contention.

Once the statutory Scheme itself requires randomised automated allocation, permitting the Revenue to choose between a JAO and a faceless AO would defeat the very concept of random allocation. The Court therefore held that there was no question of concurrent jurisdiction in the manner contended by the Revenue.

Further, where an administrative notification under Section 120 conflicts with Section 151A and the parliamentary-approved statutory Scheme, the Act and the Scheme prevail.

Decision of the Court

The Division Bench ultimately reached two distinct conclusions.

First, Section 147A was declared unconstitutional and directed to be struck down.

Second, quite independently of the constitutional invalidity of Section 147A, the Section 148 notices issued to the petitioners by their JAOs were set aside because they had not been issued through randomised allocation of Assessing Officers and in a faceless manner as mandated by Section 151A read with the 29 March 2022 Scheme.

The writ petitions were accordingly allowed.

The Court expressly concurred with the assessee-favouring line of decisions of Bombay, Telangana, Gauhati, Rajasthan, Madras, Karnataka and Andhra Pradesh High Courts, while respectfully disagreeing with the contrary views represented by T.K.S. Builders (Delhi High Court), Snehdham Trust (Gujarat High Court) and Triton Overseas (Calcutta High Court).

That inter-High Court conflict makes eventual Supreme Court consideration virtually inevitable.

Principle of Statutory Interpretation / Legal Maxim Applied

The Nazir Ahmad Principle — prescribed manner means prescribed manner alone

The Court expressly relied upon the settled proposition:

Where a statute requires something to be done in a particular manner, it must be done in that manner and in no other manner.

Relying upon Chandra Kishore Jha, Cherukuri Mani, Municipal Corporation of Greater Mumbai v. Abhilash Lal and the classic Nazir Ahmad principle, the Court held that once the statutory Scheme prescribed automated allocation and faceless issuance of Section 148 notices, an alternative administrative route could not be adopted.

A statute should not be interpreted so as to make part of it otiose

The Revenue’s interpretation would effectively have rendered Clause 3(b) of the 2022 Scheme meaningless. Relying upon Hardeep Singh v. State of Punjab, the Court reiterated that no statutory provision should be reduced to a “dead letter” or “useless lumber.”

In classical interpretative terminology, this reasoning reflects the principle ut res magis valeat quam pereat: an interpretation which makes the provision effective is preferred over one which renders it futile.

Validating legislation must remove the cause of invalidity

This is the deeper constitutional principle underlying the judgment.

A legislature may retrospectively change the law and thereby neutralise a judgment but it cannot simply reverse the judicial result by legislative declaration. The defect or statutory foundation identified by the Court must first be fundamentally altered.

As the Supreme Court’s validation-law jurisprudence teaches, the question is not whether Parliament used a sufficiently strong non-obstante clause. The question is whether it changed the legal conditions on which the earlier judgment rested.

That test ultimately proved decisive against Section 147A.

Practitioner’s Key Takeaway

For practitioners, the judgment should not be read merely as another technical ruling on who signs a Section 148 notice. It elevates the JAO–FAO controversy into a question of statutory jurisdiction and constitutional limits on validating legislation.

For cases falling within the territorial jurisdiction of the Punjab & Haryana High Court, a Section 148 notice issued by a JAO without demonstrable compliance with automated allocation and the faceless mechanism prescribed by Section 151A and Notification No. 18/2022 now faces a formidable jurisdictional objection.

From a litigation perspective, practitioners should particularly examine:

• who actually issued the Section 148 notice;
• whether there is evidence of automated/randomised allocation;
• whether the Department merely relies upon territorial jurisdiction or Section 120 notifications;
• whether reliance is placed upon the CBDT Office Memorandum dated 20 February 2023;
• whether proceedings were initiated through the statutory faceless mechanism; and
• whether the jurisdictional objection has been preserved independently of other objections relating to limitation, information, sanction and merits.

The Court’s reasoning also reinforces an important broader principle for tax litigation: executive instructions cannot cure a statutory jurisdictional defect. Circulars, instructions and office memoranda may supplement the statute, they cannot supplant or override it. The earlier Punjab & Haryana decisions quoted in the present judgment had expressly articulated this proposition.

At the same time, practitioners outside Punjab and Haryana should exercise caution. Because contrary High Court views exist, the judgment should not be treated as though every JAO-issued notice throughout India presently stands automatically annulled. The binding precedent applicable in the relevant territorial jurisdiction, the procedural stage of the case and any forthcoming Supreme Court interim order will remain important.

The safer litigation strategy is therefore to preserve the jurisdictional ground while continuing to protect the assessee on limitation and merits, rather than treating this judgment as the sole defence.

Future of the Controversy before the Supreme Court

The Supreme Court is now likely to become the final battleground for the JAO vs. FAO controversy.

Indeed, this would not be the Supreme Court’s first encounter with the dispute. In its order dated 10 April 2026, the Supreme Court had set aside the earlier High Court judgments only on the limited ground that the statutory landscape had meanwhile changed through Section 147A. It deliberately expressed no opinion on the validity, scope, effect, retrospectivity or applicability of the new provision and remitted precisely those questions for determination by the High Courts.

The Punjab & Haryana High Court has now supplied one constitutional answer to those questions.

When the controversy returns to the Supreme Court, at least four questions are likely to dominate:

First, did Section 147A genuinely remove the statutory basis of the earlier JAO vs. FAO judgments or did it merely legislate a different conclusion, while leaving Section 151A and the 2022 Scheme untouched?

Second, can the Section 147A non-obstante clause override Section 151A and its Scheme, notwithstanding the continued requirement of randomised automated allocation and what is the consequence of its failure to expressly deal with Section 130 and the Scheme dated 28 March 2022?

Third, what is the correct construction of Clause 3 of the e-Assessment of Income Escaping Assessment Scheme, 2022? Does its reference to Section 148 create exclusive faceless jurisdiction for issuance of the notice or does the phrase relating to Section 144B permit the JAO to conduct pre-assessment proceedings and issue the notice before the matter moves into the faceless system?

Fourth, if Section 147A is ultimately held invalid, what should be the consequence for the very large universe of reassessment proceedings already undertaken by JAOs since 1 April 2021?

The last question could become especially important from the remedial perspective. Before the High Court, the Revenue submitted that more than 95% of assessees had submitted to JAO-issued notices and that the financial impact involved was approximately ₹17 lakh crore. These were Revenue submissions rather than independent findings of the Court, but they illustrate the scale of the controversy.

Accordingly, even if the Supreme Court agrees with the constitutional reasoning of the Punjab & Haryana High Court, it may separately have to consider the consequences for completed and pending proceedings. Conversely, if it upholds Section 147A, it will have to explain how the retrospective amendment constitutionally removed the foundation of the earlier judgments despite the continued presence of Section 151A and its Scheme.

The Punjab & Haryana High Court itself anticipated that the controversy would ultimately require a Supreme Court quietus, noting that litigation was pending across several High Courts and was unlikely to end with the respective High Court judgments.

Concluding Thought

The importance of Jyoti Sareen therefore extends well beyond reassessment procedure.

At its heart, the judgment poses a classic constitutional question:

Can Parliament change the law retrospectively? Certainly.
Can it neutralise a judicial decision by curing the law on which that decision rests? Certainly.
But can it preserve the statutory foundation and declare the judicial interpretation ineffective and call the exercise a “clarification”?

The Punjab & Haryana High Court has answered that final question emphatically in the negative.

That proposition, and not merely whether a JAO or FAO should issue the notice, is likely to define the next and perhaps final chapter of the controversy before the Supreme Court.