Finance Bill, 2026: Proposed Section 147A (Retrospective from 01.04.2021) — Clarification of “Assessing Officer” for Notices u/s 148 & 148A (JAO vs NaFAC/AU) and Alignment in Income-tax Act, 2025
The Union Budget 2026 / Finance Bill, 2026 is not limited to rate-related changes (such as revisions in TDS or STT). It also proposes substantive, litigation-facing amendments—primarily in the nature of clarificatory / validating provisions—to address controversies arising from divergent judicial views on certain procedural/limitation and jurisdictional issues.
In this backdrop, CBDT (Income Tax–Judicial) issued a communication dated 02.02.2026 (F. No. 279/Misc/M-13/2026-ITJ) advising departmental representatives/counsels to seek adjournments in pending matters involving the identified issues, so that such cases are not finally disposed of until the proposed “clarificatory” amendments are duly enacted and the statutory position is crystallised.
The issues/topics covered in the CBDT communication (and corresponding proposals in Finance Bill, 2026) include:
1. DRP limitation / time limits post-DRP (clarificatory amendments relating to section 144C, with allied deeming clarifications in sections 153 and 153B).
2. Time limit for passing TPO order (proposed clarification in section 92CA).
3. DIN-related validity issues (proposed insertion of section 292BA to cure certain DIN-quoting defects, subject to the conditions stated).
4. Reassessment notices—jurisdictional AO vs faceless units (proposed insertion of section 147A clarifying the “Assessing Officer” for purposes of sections 148 and 148A).
In the present article, we have confined the discussion to the specific issue of proposed section 147A (i.e., “who can issue notice u/s 148 / 148A”).
However, we have also published a separate article on the other related issue referred to herein. You may access the same by clicking the relevant article link provided at the end of this write-up.
If you face any difficulty in accessing the article, or if any clarification is required even after going through it, kindly contact us at the details mentioned at the end of the article.
New Section 147A (Finance Bill, 2026): Who can issue notices u/s 148 / 148A — the “Jurisdictional AO vs Faceless” controversy
1) Why this issue arose (what exactly was being litigated)
Under the post–Finance Act 2021 reassessment regime (effective 01.04.2021), reassessment has a two-step architecture:
1. Pre-notice stage: inquiry / show-cause and order u/s 148A, culminating in issuance of notice u/s 148; and
2. Post-notice stage: reassessment proceedings (assessment “in consequence of” 148), increasingly conducted through the faceless framework (section 144B).
A parallel layer was added by section 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022 (Notified 29.03.2022, Notification No. 18/2022), which (inter alia) stated that issuance of notice u/s 148 shall be through automated allocation, in a faceless manner, to the extent provided in section 144B.
This triggered conflicting litigation positions, including:
- “Exclusive faceless jurisdiction” view: once the 2022 Scheme applies, only faceless functionaries (FAO / National Faceless Assessment Centre ecosystem via automated allocation) can issue 148; JAO-issued 148 notices are without jurisdiction. Several High Courts took this line; Bombay High Court’s Hexaware is the lead authority.
- “Concurrent / JAO valid” view: JAO power is not ousted; faceless provisions are largely procedural; JAO-issued 148/148A actions remain valid. Delhi High Court is the lead authority through K.S. Builders and later follow-ups.
The Explanatory Memorandum to Finance Bill, 2026 openly acknowledges this divergence, and also records that the issue is pending before the Supreme Court of India.
2) What Finance Bill, 2026 proposes — the exact “clarification”
(A) In Income-tax Act, 1961: insertion of section 147A
Finance Bill, 2026 inserts section 147A to clarify (and “deem always”) that for sections 148 and 148A, “Assessing Officer” means an AO other than:
- the National Faceless Assessment Centre, and
- any “assessment unit” referred to in section 144B(3).
Key drafting features (as proposed):
- Retrospective deeming: section 147A is stated to be deemed inserted from 01.04.2021.
- Non-obstante override: it is drafted to operate notwithstanding any court judgment, section 151A, or any scheme framed under 151A.
(B) In Income-tax Act, 2025: alignment via section 279(3)
Finance Bill, 2026 also proposes section 279(3) in the Income-tax Act, 2025 to align the definition of AO (for the corresponding reassessment trigger provisions in that Act—sections 280/281) to similarly exclude NaFAC / assessment units (referred in section 273(3) of that Act).
3) Government’s stated intent (from the Explanatory Memorandum)
The Memorandum provides a direct narrative:
- The law contemplates pre-notice satisfaction by the AO (148A → 148), and thereafter faceless reassessment by NaFAC under section 144B.
- It states it was never the intention that NaFAC / its assessment units should be involved in pre-assessment enquiry for issuance of 148A or 148; facelessness for reassessment was “only to the extent” of section 144B; and the 151A scheme had the same objective.
- Because High Courts took divergent views, and litigation mushroomed, the amendment is positioned as a certainty / anti-litigation
4) Key judicial strands so far (illustrative, not exhaustive)
A) “Exclusive faceless jurisdiction” line — Hexaware (Bombay HC)
In Hexaware Technologies Ltd., the Bombay High Court treated the 151A scheme / automated allocation architecture as meaning that notice u/s 148 must be issued through the faceless authority, and quashed a notice issued by the JAO as without jurisdiction (fact-pattern specific).
Practical significance: This line became the basis of many writs where taxpayers succeeded purely on “wrong officer issued 148” (without reaching merits of 148A compliance, sanction, limitation, etc.).
B) “Concurrent / JAO valid” line — Delhi HC (K.S. Builders and later)
The Delhi High Court has repeatedly taken the view that JAO jurisdiction is not extinguished by the faceless architecture; Inder Dev Gupta records that T.K.S. Builders settled the law (in Delhi) in favour of concurrent jurisdiction and discusses the conflict with the Bombay view.
(Additional judicial reference appearing in ongoing tribunal/case discussions): Telangana line decisions such as Sri Venkataramana Reddy Patloola v. DCIT have been cited for the view that, in light of section 151A read with the 29.03.2022 Faceless Scheme, JAO-issued 148A(d)/148 could be invalid (context/facts matter).
5) What section 147A will do “in practice” if enacted in present form
(1) It fortifies Department’s defence where notices were attacked because the “wrong authority” issued them
If a notice/order u/s 148A/148 was attacked on the ground that the faceless authority alone could issue it (and JAO couldn’t), section 147A is designed to neutralise that line by statutorily declaring that for 148/148A, “AO” means non-NaFAC / non-assessment unit.
(2) It simultaneously provides ammunition to assessees in the reverse fact-pattern (where NaFAC/Unit issued 148/148A)
Where portal communications / orders are issued in the name of NaFAC / AU (or signed/owned by such unit), taxpayers will argue the issuance is void because section 147A excludes them from the definition of “AO” for 148/148A.
Practical litigation point: Expect disputes on facts—whether issuance is truly by NaFAC/AU, or merely routed through faceless systems while being legally issued by the jurisdictional AO.
(3) It is meant to reduce adjournment-heavy uncertainty in pending matters
A contemporaneous CBDT communication dated 02.02.2026 directs departmental counsel/DRs to seek adjournments in matters involving (among others) the reassessment-jurisdiction issue—consistent with the legislative “clarificatory” push.
6) Retrospectivity: will it be litigated, and can Parliament do this retrospectively?
Yes—expect constitutional and “validation law” challenges, especially from taxpayers who already have favourable interim/final outcomes based on the exclusive faceless line.
(A) Why challenges will arise
- Section 147A is expressly retrospective from 04.2021, and is intended to validate past actions and neutralise contrary judgments.
- Commentators have flagged that it could validate large volumes of notices quashed/stayed on jurisdictional grounds.
7) “Authors / experts” views (early public commentary)
- Frames the issue as a High Court split and states that retrospective 147A could validate many notices and may render pending Supreme Court matters largely infructuous.
- Describes the amendment as a retrospective move aimed at nullifying favourable rulings for taxpayers on (inter alia) the JAO vs FAO jurisdiction controversy (along with TP time-limit and DIN topics).
- Business press summaries also highlight that Budget 2026 explicitly re-anchors reopening powers away from faceless units (read with the parallel amendment in the Income-tax Act, 2025).
- 148A/148 are intended at the pre-notice stage to be done by AO, while facelessness is for the subsequent stage, and divergent HC views + SC pendency necessitated clarity.
Conclusion:
This article has examined the proposed section 147A, which stems from the post–Finance Act 2021 reassessment framework—pre-notice proceedings u/s 148A culminating in notice u/s 148, followed by reassessment increasingly conducted through the faceless mechanism u/s 144B—and the subsequent overlay of section 151A read with Notification No. 18/2022 dated 29.03.2022, which triggered divergent High Court rulings between an “exclusive faceless” approach (e.g., Hexaware) and a “concurrent / JAO valid” approach (e.g., T.K.S. Builders, Inder Dev Gupta, with Telangana decisions also cited in some fact patterns). To resolve this jurisdictional conflict—acknowledged in the Memorandum and stated to be pending before the Supreme Court—the Finance Bill, 2026 proposes a retrospective insertion of section 147A w.e.f. 01.04.2021, with a non-obstante override, deeming that for sections 148/148A the “Assessing Officer” shall mean an AO other than NaFAC and assessment units referred to in section 144B(3), while also providing corresponding alignment in the Income-tax Act, 2025 via section 279(3) for sections 280/281. In practical terms, the amendment is designed to neutralise “wrong authority” challenges to JAO-issued 148/148A actions, while simultaneously supporting assessees where 148/148A is demonstrably issued in the name of NaFAC/AU; nevertheless, given the retrospective validating architecture, renewed litigation on retrospectivity, finality, and constitutional limits is foreseeable, and therefore reassessment matters should continue to be pursued on independent grounds (limitation, sanction, and 148A procedural compliance) beyond this jurisdictional issue.
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