In a landmark ruling, the Punjab & Haryana High Court has held that the retrospective “clarification” introduced via Finance Bill 2026 fails to cure the defects identified by constitutional courts and amounts to legislative overreach breaching the doctrine of separation of powers. Accordingly, Section 147A of the Income-tax Act, introduced retrospectively through the Finance Bill 2026 with effect from April 01, 2021, has been declared unconstitutional and struck down.
The Court held that Section 147A does not cure the defects identified by constitutional courts because Section 151A and the scheme dated March 29, 2022, framed thereunder continue to exist on the statute book without any amendment, and the requirement of randomized automated allocation of Assessing Officers remains untouched. The Court also clarified that non-obstante clause in Section 147A conspicuously omits reference to Section 130 of the Act and the scheme dated March 28, 2022, both of which were relied upon by constitutional courts to hold that only a faceless Assessing Officer could issue notices under Section 148.
The Court reaffirmed the settled principle that the legislature cannot directly overrule or annul a judgment of a constitutional court; it can only render a judicial decision ineffective by removing the basis on which the decision was rendered, which Section 147A fails to do. Accordingly, all notices issued under Section 148 by the assessees’ jurisdictional Assessing Officers have been quashed because they were not issued through randomized automated allocation and in a faceless manner as mandated under Section 151A read with the scheme dated March 29, 2022.
The Division Bench comprising Justice Deepak Sibal and Justice Rupinderjit Chahal traced the legislative history of the faceless assessment regime, noting that prior to the Finance Act 2018, the entire procedure of assessment or reassessment was conducted in a physical manner involving personal interface between the assessee and the assessing officer, which led to undesirable practices and revenue loss.
The Government of India then launched schemes for faceless assessment in a phased manner, with the intent clearly reflected in the Finance Minister’s speeches dated July 05, 2019, Feb 01, 2020, and Feb 01, 2021, which emphasized eliminating human interface, random allocation of cases through automated systems, and issuance of notices electronically by a Central Cell without disclosing the name, designation or location of the Assessing Officer. To give effect to this intent, the legislature enacted Sections 130, 135A, 144B and 151A of the Act, with Sections 130, 135A and 151A coming into effect from Nov 01, 2020, and Section 144B from April 01, 2021.
The Court observed that the non-obstante clause with which Section 147A 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, but conspicuously omits any reference to Section 130 of the Act or the scheme framed thereunder dated March 28, 2022, which was also relied upon by the constitutional courts. Section 147A is also noticeably silent on the categorical findings of the constitutional courts that allocation of Assessing Officers under the scheme dated 29.03.2022 is required to be done randomly and through automated allocation.
The Court further observed that Section 151A of the Act and the scheme framed thereunder dated March 29, 2022, continue to exist on the statute book simultaneously with Section 147A, without any amendment, and the primary basis on which the constitutional courts had held that notices under Section 148 could not be issued by the assessees’ jurisdictional AOs has not been removed through the retrospective enactment of Section 147A.
Briefly, the petitioner, Jyoti Sareen, an Advocate practicing in the Punjab and Haryana High Court, filed her ITR which was processed. Later, she received a message on her registered mobile number informing her that proceedings had been initiated against her by the Income Tax Authorities. Upon checking the Income Tax Business Application Portal, she discovered that a notice dated March 15, 2024, under Section 148 had been issued by her jurisdictional Assessing Officer, claiming that a search under Section 132 had been conducted on March 14, 2022, in her case or in the case of a person in respect of whom she was assessable. The notice did not disclose the reasons for initiating proceedings or the identity of the person whose premises were searched.
The petitioner challenged the notice which was allowed by a Division Bench of the Punjab and Haryana High Court through judgment dated July 19, 2024, primarily on the ground that the impugned notice violated Section 151A of the Act read with the scheme framed thereunder dated March 29, 2022, which mandated that notices under Section 148 could only be issued by a Faceless Assessment Officer chosen through automated random allocation. The respondents challenged this judgment before the Supreme Court.
While the matter was pending, the Finance Bill, 2026 introduced Section 147A of the Act with retrospective effect from April 01, 2021, beginning with a non-obstante clause stating that notwithstanding anything contained in any judgment, order or decree of any court or in Section 151A or in any scheme framed thereunder, the Assessing Officer for the purposes of Sections 148 and 148A shall mean and shall always be deemed to have meant an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit referred to in sub-section (3) of Section 144B.
In light of the introduction of Section 147A, the Supreme Court set aside the judgments impugned before it and remitted the matters to the respective jurisdictional High Courts for fresh consideration, granting liberty to the assessees to amend their writ petitions within four weeks to challenge Section 147A. The Supreme Court clarified that it had not expressed any opinion on the merits of the controversy, including the validity, scope, effect, retrospectivity or applicability of the amended provision, and requested the High Courts to decide the matters preferably by 30.09.2026, with an interim stay on further assessment/reassessment proceedings during the pendency of the writ petitions.
