The Andhra Pradesh High Court has struck down Section 147A of the Income Tax Act, 1961 as unconstitutional, holding that Parliament could not override judgments requiring faceless reassessment proceedings without removing the legal basis on which those judgments rested.

The bench of Justice Ninala Jayasurya and Justice T.C.D. Sekhar ruled that the proceedings initiated by Jurisdictional Assessing Officers (JAOs) under Sections 148A and 148 in the batch before it were without jurisdiction. It allowed the writ petitions and set aside the impugned proceedings and orders, holding that the process had to be undertaken in a faceless manner.

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Section 147A was inserted into the Income Tax Act, 1961 through the Finance Act, 2026, with retrospective effect from April 1, 2021.

The provision sought to clarify that, for the purposes of Sections 148 and 148A, an Assessing Officer meant an officer other than the National Faceless Assessment Centre (NFAC) or an assessment unit referred to in Section 144B(3).

It contained an overriding clause covering court judgments, Section 151A and schemes framed under that provision. Its effect was to support the Revenue’s position that the preliminary stages of reopening an assessment could be undertaken by jurisdictional officers, while the subsequent reassessment would proceed through the faceless system.

The taxpayers challenged both the constitutional validity of this retrospective amendment and the proceedings undertaken by jurisdictional officers.

The controversy concerned the division of authority between jurisdictional officers and the faceless assessment machinery.

The Revenue argued that the pre-assessment enquiry under Section 148A and issuance of a reopening notice under Section 148 were distinct from the reassessment itself. According to its interpretation, jurisdictional officers could undertake these preliminary steps, after which the case would move to the NFAC for faceless reassessment under Section 144B.

The taxpayers maintained that the scheme notified under Section 151A expressly covered issuance of notices under Section 148. They argued that the Department had to follow the scheme’s requirements of automated allocation and faceless proceedings.

The Bench accepted the taxpayers’ position, finding that the Revenue’s interpretation was inconsistent with the scheme’s language and purpose.

The court examined Clause 3 of the scheme dated March 29, 2022, which covers assessment, reassessment or recomputation under Section 147 and issuance of notices under Section 148.

The Bench held that the scheme required automated allocation in accordance with the Board’s risk management strategy for issuance of reopening notices. It rejected the Revenue’s argument that automated allocation was required only when the reassessment proceedings under Section 147 began.

A significant factual finding was that the cases before the court had been identified by the respective jurisdictional officers. The judgment records the Revenue’s admission that no arrangement had been made for the allocation contemplated at the stage of initiating proceedings under Sections 148A and 148.

The court held that identification of cases by jurisdictional officers in this manner ran contrary to the scheme.

The Revenue alternatively argued that Section 148A was not expressly included in the March 2022 scheme and that jurisdictional officers therefore retained authority to conduct the preliminary enquiry.

The court rejected this submission.

It explained that the Section 148A enquiry, the notice under Section 148 and the reassessment under Section 147 form a connected statutory process. The preliminary enquiry determines whether the case should proceed to reopening, while the reopening notice enables the reassessment.

The absence of an express reference to Section 148A in the scheme could not, in the court’s view, independently confer jurisdiction on JAOs to undertake that stage contrary to the faceless framework.

The Bench also relied on Section 151A, which expressly contemplates schemes covering enquiries, show-cause notices and orders under Section 148A, alongside notices under Section 148.

The Revenue relied on Notification No. 61 of 2022, dated June 10, 2022, to support its argument that jurisdictional officers and officers within the faceless system could exercise concurrent powers.

The Bench held that the notification could not justify proceedings contrary to Sections 130 and 151A and the scheme framed under them.

It emphasised that the faceless framework was intended to reduce the interface between taxpayers and tax authorities and improve efficiency and transparency. Allowing jurisdictional officers to exercise the disputed powers would defeat that objective.

The court expressly disagreed with the Gujarat High Court’s interpretation in Snehdham Trust v. Assistant Commissioner of Income Tax.

The central constitutional finding concerned the limits of retrospective legislation.

The Bench recognised Parliament’s power to enact retrospective laws and validate earlier actions. However, it explained that a validating law must remove the legal defect or alter the conditions on which the earlier judicial decision was based.

Here, the scheme framed under Section 151A continued to include notices under Section 148. Neither the scheme nor Section 151A had been appropriately amended to remove the foundation of judgments holding that jurisdictional officers lacked authority.

The court therefore held that introducing Section 147A as a clarification or validation did not cure the underlying problem.

In its assessment, the amendment attempted to override judicial decisions while leaving their statutory basis intact. The Bench held that this conflicted with the doctrine of separation of powers, which forms part of the Constitution’s basic structure.

It further observed that legislation unsettling court decisions without removing their basis could create uncertainty and chaos.

The court also accepted a separate challenge concerning the commencement of the Finance Act, 2026.

The Revenue argued that the Finance Act received Presidential assent on March 30, 2026, when the Income Tax Act, 1961 had not yet been repealed.

The Bench distinguished the date of assent from the date on which the relevant provisions came into force. It held that the Finance Act expressly provided April 1, 2026 as the commencement date for the provisions concerned.

By that date, the Income Tax Act, 1961 had been repealed and the Income Tax Act, 2025 had come into operation.

The court considered the repeal-and-savings provisions in Section 536 of the 2025 Act, including those preserving proceedings relating to earlier tax years and schemes intended to eliminate taxpayer interface. It nevertheless held that inserting Section 147A into the repealed enactment was legally unsustainable.

The Bench rejected reliance on Section 5 of the General Clauses Act to treat Presidential assent as the commencement date, explaining that this default rule does not apply where the legislation expressly specifies a different date.

The Revenue placed nationwide reassessment figures before the court and argued that an adverse ruling would have substantial consequences for public revenue.

Its affidavit referred to 8,82,146 notices under Section 148, 6,46,897 reassessment orders and income assessed on reassessment amounting to approximately ₹21.75 lakh crore.

The Bench held that these considerations did not change its legal conclusions. The fact that many taxpayers had participated in proceedings without questioning jurisdiction did not authorise the Department to depart from the statutory faceless framework.

The High Court declared Section 147A unconstitutional and struck it down. It consequently set aside the impugned proceedings and orders in the batch, holding that the JAOs’ actions under Sections 148A and 148 were without jurisdiction. No costs were awarded.

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