Summary: Hon’ble High Court of Punjab and Haryana at Chandigarh, in the case of M/s Jyoti Sareen Vs Union of India & connected matters, CWP No. 15791 of 2024 & Connected Matters, pronounced a significant judgement on the continuing controversy concerning who has jurisdiction to issue a notice u/s 148 of the Act—the Jurisdictional Assessing Officer (JAO) or the Faceless Assessing Officer (FAO)—in favour of the petitioner and on the constitutional validity of Section 147A of the Act, holding that:
- Notices issued u/s 148 of the Act are directed to be set aside because such notices were not issued through the process of randomized allocation of assessing officer and in a faceless manner as mandated u/s 151A of the Act read with the scheme framed thereunder dated 29.03.2022.
- Section 147A of the Income Tax Act, 1961, introduced via Finance Act, 2026 with retrospective effect from 01-Apr-2021 to cure defects of jurisdiction in respect of issue of notice by JAO instead of FAO selected through automatic allocation as envisaged under Section 151A of the Act, is unconstitutional and directed to be struck down.
1. Sequence of Events
1.1. Notice issued u/s 148 by respective JAO on 15-Mar-24.
1.2. Notice received on 28-Apr-24 informing that reassessment proceedings will be conducted in a faceless manner.
1.3. Petitioner challenged the notice dated 15-Mar-24 before this Court contending that it violates Section 151A of the Act.
1.4. This Court passed the order dated 19-July-24 in favour of the petitioner and against the Revenue.
1.5. The aforesaid judgement dated 19-July-24 was challenged by the respondent before the Hon’ble Supreme Court through SLP. In the meantime, new Section 147A of the Act was introduced via Finance Act, 2026 with retrospective effect from 01-Apr-21.
1.6. The Hon’ble Supreme Court set aside the impugned judgement dated 19-July-24, remitting the matter back to the respective Hon’ble High Courts for fresh consideration in light of the introduction of Section 147A of the Act via Finance Act, 2026 with retrospective effect, and permitted the petitioner to challenge the constitutional validity and applicability of Section 147A of the Act.
2. Contentions of Petitioner
2.1. Section 151A expressly empowers the Central Government to frame a scheme for:
- assessment/reassessment under Section 147;
- issuance of notices under Section 148;
- proceedings under Section 148A; and
- sanction under Section 151.
The e-Assessment of Income Escaping Assessment Scheme, 2022, notified on 29 March 2022, specifically provides that issuance of a notice under Section 148 shall be through automated allocation and in a faceless manner.
2.2. Several constitutional courts had already held that Section 148 notices issued by JAOs were invalid because of the mandate contained in Section 151A read with the Scheme dated 29 March 2022. However, instead of amending Section 151A or the Scheme, Parliament introduced Section 147A. According to the petitioners, this did not remove the legal defect identified by the Courts; it merely attempted to neutralise the effect of their judgments.
2.3. Section 147A of the Act is also in conflict with Section 151A and Section 130 of the Act read with the scheme framed thereunder dated 28.03.2022, as per which all the functions and duties by Income Tax authorities are required to be done through the faceless regime in terms of Section 144B of the Act. As per the memorandum attached to the Finance Bill, 2026 through which Section 147A of the Act was introduced, Section 147A was promulgated by the legislature to achieve certainty and clarity as also to avoid litigation. However, the introduction of Section 147A of the Act has resulted in everything to the contrary.
2.4. There were divergent views expressed by different High Courts as to whether notices under Section 148 of the Act could be issued by the assessees’ jurisdictional AOs. There were cross Special Leave Petitions filed by the respective aggrieved parties, pending before the Supreme Court at the time when Section 147A was introduced.
2.5. Partial implementation of the faceless regime at the assessment/reassessment stage defeats the entire purpose behind introduction of the faceless regime.
2.6. Even the timing of introduction of Section 147A of the Act by the legislature, when the issue as to whether an assessee’s jurisdictional AO could issue a notice under Section 148 of the Act was pending adjudication before the Supreme Court, was not appropriate because, by doing so, the respondents have literally stalled an opinion by the Supreme Court which, in the aforesaid facts, was highly desirable. Section 147A of the Act is also arbitrary because it artificially bifurcates the different stages of assessment, especially when proceedings under Sections 148 and 147 of the Act are statutorily required to be an integral part of the same process.
2.7. As an alternative contention, notices u/s 148 of the Act are liable to be set aside as they have not been issued by AOs chosen randomly by way of automated allocation in terms of Section 151A of the Act read with the scheme framed thereunder dated 29-Mar-22.
3. Contentions of Revenue
3.1. The assessees’ jurisdictional AOs are entitled not only to do the pre-assessment process but also issue a notice under Section 148 of the Act on a harmonious reading of Sections 130, 135A, 147, 148, 148A and 151A of the Act.
3.2. Introduction of Section 147A was necessary because the Act stood repealed with effect from 01-Apr-26 and, therefore, no amendment to the Act could have been carried out post 01-Apr-26 to bring uniformity of assessment.
3.3. On the strength of the collected data, more than 95% of the assessees in the country had submitted themselves to the notices issued to them under Section 148 of the Act by their respective jurisdictional AOs. Financial impact of the reassessment notices issued by JAOs was approximately ₹17 lakh crore.
3.4. The Act, being a central legislation, mandates uniform assessment practice and, therefore, divergent opinions expressed by the different constitutional courts necessitated uniformity through the introduction of Section 147A of the Act.
3.5. The substantive assessment/reassessment process under Section 147 is ultimately conducted through the faceless system. However, the dispute raised by the petitioners centres only around the pre-assessment proceedings under Sections 148A/148 of the Act. Moreover, it has been contended that existence of JAO at this stage did not defeat the ultimate faceless mechanism.
3.6. There are two broad technological systems which work in conjunction, one of which is the Risk Management Strategy, which works under the control and supervision of the Director General system and picks up cases on an automated allocation basis for assessment, reassessment or recomputation, with there being no manual interference either by the assessees or by the income tax authorities. Cases which are picked up under the Risk Management Strategy are handed over to the NFAC under Section 144B of the Act, which is also done through electronic means.
3.7. The scheme framed under Section 135A of the Act is totally non-faceless, while the scheme framed under Section 151A of the Act is hybrid—both faceless and non-faceless.
3.8. The entire process of assessment by either the assessee’s jurisdictional AO or faceless AO is through electronic means with no personal interface.
3.9. Pre-assessment process under Section 148A of the Act and collection of information under Section 135A of the Act does not and need not involve a faceless assessment. However, finalization of assessment, reassessment or recomputation is done under Section 147 of the Act also in a faceless manner.
3.10. The expression notwithstanding anything contained in any judgment, order or decree of any Court in Section 147A of the Act seeks to convey that the ratios rendered by the constitutional courts holding that notices under Section 151A of the Act or the scheme framed thereunder ought to have been issued only by a faceless assessment officer stands altered. Consequently, the first part of Section 147A of the Act clearly proceeds to alter, modify or change the basis of the judgments of the constitutional courts rendered against the Revenue.
3.11. The later portion of Section 147A of the Act provides the basis of the change by clearly prescribing that the interpretation given by different constitutional courts against the Revenue—that the faceless assessment officer of the assessee ought to have issued notices under Section 148 of the Act—stands clearly altered, modified or removed by substituting or overcoming the decision by clarifying that Section 148A proceedings, culminating in the issuance of notices under Section 148 of the Act by the assessee’s jurisdictional AO are deemed to have been validly issued.
3.12. As an alternative argument, if Section 147A of the Act is tested today, it will not be possible for any Court to interpret that the faceless Assessing Officer alone should have issued a notice under Sections 148A and 148 of the Act, as such an inference is now not possible because the ratios of the judgments of the constitutional courts to that effect now stand altered or substituted and, therefore, the twin requirements of validation stand fulfilled.
3.13. Pre-assessment proceedings under Section 148A and notice under Section 148 were specifically kept outside the purview in Section 144B(1) of the Act. Thereafter, Section 151A and the scheme framed thereunder was introduced, wherein there is no reference to Section 148A. Therefore, in terms of the aforesaid notifications issued under Section 120 of the Act, only the assessee’s jurisdictional AO could conduct proceedings under Section 148A of the Act. That being so, mere reference to Section 148 in the scheme under Section 151A of the Act would not confer exclusive jurisdiction on the AO under the faceless regime.
4. Observations of Hon’ble High Court
4.1. Through the retrospective enactment of Section 147A, the legislature primarily sought to validate the notices issued to the assessees under Section 148 of the Act by their respective jurisdictional AOs by neutralizing the effect of judgments of the constitutional courts through which it had been held that notices issued to the assessees under Section 148 of the Act by their jurisdictional AOs were illegal because, in terms of Section 151A of the Act read with the scheme framed thereunder, such notices were required to be issued only by a faceless AO.
4.2. In Janapada Sabha Chhindwara etc. Vs. The Central Provinces Syndicate Ltd. & another (1970) 1 SCC 509, a Constitution Bench of the Supreme Court held that, though it is open to the legislature, within certain limits, to amend the provisions of a statute even retrospectively, the legislature, through an enactment, cannot overrule or set aside decisions rendered by the constitutional courts or say that a judgment of a Court rendered in exercise of its powers in a matter brought before it shall be deemed to be ineffective and that the interpretation of the law declared by the Court shall be otherwise than what has been held by the Court.
4.3. In Shri Prithvi Cotton Mills Ltd. and another Vs. Broach Borough Municipality and others, AIR 1970 SC 192, another Constitution Bench of the Supreme Court held that when the legislature sets out to validate a tax declared by a Court to have been illegally collected under an ineffective or invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to have taken place effectively. It would not be sufficient for the legislature to declare merely that the decision of the Court shall not bind, as that would tantamount to reversing a judicial decision, which power the legislature does not possess. It was held that a Court’s decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances.
4.4. The non-obstante clause with which Section 147A of the Act begins seeks to wipe out the effect of any judgment, order or decree of any Court or whatever is contained in Section 151A or in the scheme framed thereunder. However, in the non-obstante clause, reference to Section 130 of the Act or the scheme framed thereunder dated 28.03.2022 is conspicuously found missing.
4.5. Section 147A is noticeably silent with regard to the categoric findings returned by the constitutional courts that, as per the scheme dated 29.03.2022 framed under Section 151A, allocation of AOs is required to be done randomly and through automated allocation.
4.6. All the aforesaid submissions raised on behalf of the respondents have been aptly considered and rejected by the Bombay High Court in Hexaware Technologies Ltd.’s case through observations quoted in the order.
4.7. When clauses 2 and 3 of the scheme are harmoniously read with the purpose behind framing of the scheme, the only conclusion that can be arrived at is that, as per the scheme framed under Section 151A, notices under Section 148 are required to be issued through randomized automated allocation and in a faceless manner.
4.8. Once the scheme provides for randomised automated allocation of AOs, there is no question of conferment of concurrent jurisdiction on faceless AOs and jurisdictional AOs.
4.9. In light of the conflict between the aforesaid notifications issued under Section 120 of the Act by the CBDT and Section 151A of the Act read with the scheme framed thereunder, the provisions of the Act read with the scheme framed thereunder shall prevail, especially when such scheme has also been accorded approval by both the Houses of Parliament.
Decision
The Punjab & Haryana High Court allowed the writ petitions and struck down Section 147A as unconstitutional, holding that it could not retrospectively override the judicial interpretation of Section 151A without curing the underlying legal defect. The Court further held that Section 148 notices issued by the JAO, without the prescribed automated allocation and faceless mechanism under Section 151A read with the 2022 Scheme, were invalid and unsustainable. Accordingly, the impugned reassessment notices were quashed and set aside.
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