Section 147A of the Income Tax Act declared unconstitutional; Legislature cannot nullify High Court judgments by retrospective amendment without removing the statutory basis of those judgments: Andhra Pradesh High Court

The Division Bench held that by inserting Section 147A with retrospective effect to validate reassessment notices issued by Jurisdictional Assessing Officers, the Legislature attempted to directly override judicial decisions without amending the e-Assessment of Income Escaping Assessment Scheme, 2022 framed under Section 151A — leaving the very foundation of the judgments intact — and that such legislative overreach violates the Doctrine of Separation of Powers, a basic feature of the Constitution.

The High Court of Andhra Pradesh has struck down Section 147A of the Income Tax Act, 1961, introduced by the Finance Act, 2026 (Act No. 4 of 2026) with retrospective effect from 1 April 2021, as unconstitutional. Disposing of a massive batch of over 180 writ petitions, the Court held that all reassessment proceedings initiated by Jurisdictional Assessing Officers under Sections 148A and 148 are without jurisdiction and must be conducted in a faceless manner in accordance with the scheme framed under Section 151A of the Act [Bala Sreenivas Rao Somisetty v. Income Tax Officer, Ward 1, Eluru and batch].

The controversy originated from the e-Assessment of Income Escaping Assessment Scheme, 2022, notified on 29 March 2022 under Section 151A of the Income Tax Act, 1961. Under this scheme, the assessment, reassessment or re-computation under Section 147 as well as the issuance of notice under Section 148 were required to be undertaken through automated allocation in accordance with the risk management strategy formulated by the Board, and in a faceless manner to the extent provided in Section 144B. Despite this mandate, Jurisdictional Assessing Officers across the country continued to issue notices under Sections 148A and 148 in a non-faceless manner. When challenged, a coordinate bench of the Andhra Pradesh High Court, along with multiple other High Courts, held in October 2025 that the JAOs had no jurisdiction to issue such notices in view of Section 151A and the scheme. The Revenue carried the matter to the Supreme Court by way of Special Leave Petitions.

While the SLPs were pending, the Parliament enacted the Finance Act, 2026, which inserted Section 147A into the Income Tax Act, 1961 with deemed retrospective effect from 1 April 2021. The provision, framed as a non-obstante clause "for the removal of doubts," declared that the Assessing Officer for the purposes of Sections 148 and 148A "shall mean and shall always be deemed to have meant" an officer other than the National Faceless Assessment Centre or any assessment unit referred to in Section 144B(3). In light of this amendment, the Supreme Court set aside the High Court judgments on a limited ground and remitted the matters back to the respective High Courts for fresh consideration, granting liberty to the assessees to challenge the constitutional validity of Section 147A.

The Division Bench of Justice Ninala Jayasurya and Justice T.C.D. Sekhar, after an exhaustive hearing with the Additional Solicitor General of India representing the Revenue, upheld the challenge and struck down Section 147A on multiple independent grounds. The Court's key findings are summarised below.

First, on the central question of whether the Legislature can validate the JAO's jurisdiction without amending the scheme, the Court held that the e-Assessment of Income Escaping Assessment Scheme, 2022 expressly includes Section 148 within its scope. The word "shall" in clause 3(b) of the scheme, immediately after the reference to issuance of notice under Section 148, ousts the JAOs from exercising powers under that section. Having included Section 148 in the scheme, the Revenue cannot contend that the proceedings under that section were never intended to be conducted in a faceless manner. The Court observed that if Section 148 was not intended to be covered by the faceless procedure, the Legislature ought to have removed it from the scheme on or before 31 March 2022 — the statutory deadline under the proviso to Section 151A(2) — but chose not to do so. Crucially, even after the insertion of Section 147A, the scheme under Section 151A remained unamended. The Court held that without amending the scheme, any purported clarification or validation through Section 147A cannot be sustained, since the very basis on which the High Courts had held the JAO notices to be without jurisdiction — namely, the inclusion of Section 148 in the scheme — remains untouched.

Second, applying the settled principles laid down by the Supreme Court in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality [(1969) 2 SCC 283], State of Tamil Nadu v. M. Rayappa Gounder [(1971) 3 SCC 1], S.R. Bhagwat v. State of Mysore [(1995) 6 SCC 16], State of Karnataka v. Karnataka Pawn Brokers Association [(2018) 6 SCC 363], and Madras Bar Association v. Union of India [(2022) 12 SCC 455], the Court held that the validity of a validating law depends on whether the Legislature removes the defect which the Courts had found in the existing law. In the earlier round of litigation, no High Court found any defect in the scheme or in Section 151A itself. The Courts had simply held that, as per the scheme, the JAOs had no jurisdiction to issue Section 148 notices. Without amending the scheme, Section 147A cannot be treated as removing any defect — it directly seeks to nullify judicial decisions, which is impermissible under the Doctrine of Separation of Powers.

Third, the Court rejected the Revenue's contention that Section 147A was merely "clarificatory" in nature. Relying on the Supreme Court's ruling in Sedco Forex International Drill Inc. v. Commissioner of Income Tax [(2005) 12 SCC 717] and Sree Sankaracharya University of Sanskrit v. Dr. Manu [(2023) 19 SCC 30], the Court held that for a provision to be treated as clarificatory, the pre-amended law must have been vague or ambiguous. There was no ambiguity in Section 151A or in the scheme — both clearly included Section 148 within the faceless regime. Merely labelling a provision as "for the removal of doubts" does not make it clarificatory; the Court must independently analyse its nature. Section 147A introduced a substantive change by retrospectively excluding Sections 148 and 148A from the faceless regime — an exclusion the original legislative framework never contemplated.

Fourth, the Court upheld a separate and independent ground challenging the validity of Section 147A on the basis that it was an amendment to a repealed Act. The Income Tax Act, 1961 was repealed by the Income Tax Act, 2025, which came into force from 1 April 2026. The Finance Act, 2026, though it received Presidential assent on 30 March 2026, expressly provides under Section 2(a) that its provisions shall come into force on 1 April 2026. Applying Section 5 of the General Clauses Act and the Supreme Court's ruling in Common Cause v. Union of India [(2003) 8 SCC 250], the Court held that where an Act expressly provides its commencement date, it cannot be treated as having come into force on the date of Presidential assent. Since the Finance Act, 2026 came into force on 1 April 2026 — the same date on which the Income Tax Act, 1961 stood repealed — any insertion into the repealed Act is not sustainable and has no legal sanctity.

Fifth, the Court rejected the Revenue's contention that Section 127 (transfer of cases) was not required to be followed when transferring a case from JAO to NFAC after issuance of notice under Section 148, observing that the Revenue was "blowing hot and cold" — arguing on the one hand that JAOs have exclusive jurisdiction over Sections 148A and 148, while simultaneously contending that no formal transfer procedure is needed when the case moves to NFAC for faceless assessment under Section 147. The Court held that if the Revenue's two-officer model is accepted — JAO up to Section 148 and FAO thereafter for Section 147 — then the transfer from JAO to NFAC must follow the procedure under Section 127, which mandates a reasonable opportunity of hearing to the assessee. This procedure was admittedly never followed.

The Revenue had filed an additional affidavit highlighting that reassessment notices had been issued against 8,82,146 assessees (0.127% of total return filers), resulting in reassessed income of approximately ₹21.75 lakh crore, and that an adverse order would have far-reaching consequences for national interest. The Court rejected this submission, holding that merely because most assessees did not challenge the proceedings does not confer upon the Revenue the right to undertake assessments in a non-faceless manner contrary to statutory provisions. The Court also noted that the Punjab and Haryana High Court had earlier struck down Section 147A by judgment dated 10 September 2026, though the operation of that judgment was stayed by the Supreme Court on 18 September 2026. The Court stated that it had dealt with the matter independently and recorded its own reasons.

All impugned proceedings and orders were set aside. The decision establishes three propositions of immediate practical significance: first, that the e-Assessment of Income Escaping Assessment Scheme, 2022 mandates that proceedings under Section 148 must be conducted in a faceless manner through automated allocation, and the JAOs have no jurisdiction to issue notices under this section; second, that Section 147A of the Income Tax Act, 1961, inserted by the Finance Act, 2026 with retrospective effect from 1 April 2021, is unconstitutional as it violates the Doctrine of Separation of Powers by seeking to nullify judicial decisions without removing the statutory basis of those decisions; and third, that the insertion of Section 147A into the Income Tax Act, 1961 on 1 April 2026 — the date on which that Act stood repealed — is itself legally unsustainable. Assessees who have received reassessment notices from JAOs under Sections 148A and 148 may consider this judgment while evaluating their remedial options, bearing in mind that the Punjab and Haryana High Court's similar verdict is currently stayed by the Supreme Court and the matter is likely to be definitively settled at the apex level.

High Court of Andhra Pradesh at Amaravati  |  WP No. 28520 of 2023 and batch (180+ writ petitions)  |  Justice Ninala Jayasurya and Justice T.C.D. Sekhar  |  12.10.2026