The Punjab and Haryana High Court has struck down Section 147A of the Income Tax Act, 1961, a retrospectively introduced provision intended to clarify and validate the authority of Jurisdictional Assessing Officers to initiate reassessment proceedings under the post-2021 regime.

A division bench comprising Justice Deepak Sibal and Justice Rupinderjit Chahal has observed that Section 147A was inserted into the Income Tax Act with retrospective effect from April 1, 2021. For the purposes of Sections 148 and 148A, the provision stipulated that the expression “Assessing Officer” would mean an Assessing Officer other than the National Faceless Assessment Centre.

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The amendment was enacted against the backdrop of the prolonged controversy concerning the respective powers of Jurisdictional Assessing Officers and faceless authorities in reassessment proceedings—commonly referred to as the “JAO-FAO controversy.”

Dispute Over Faceless Reassessment Notices

The controversy emerged after the reassessment framework under the Income Tax Act was substantially revised with effect from April 1, 2021. Taxpayers challenged reassessment proceedings initiated by JAOs, arguing that notices and orders under Sections 148 and 148A were required to be issued in accordance with the faceless mechanism prescribed under the Act and the relevant Central Board of Direct Taxes notifications.

According to the taxpayers, the statutory scheme did not permit the JAO to independently pass an order under Section 148A(d) or issue a consequential reassessment notice under Section 148 when a faceless procedure had been notified.

The Income Tax Department, however, maintained that the jurisdictional officer continued to possess the authority to initiate reassessment proceedings and that the faceless framework did not eliminate or invalidate the JAO’s statutory powers.

This question produced conflicting decisions across different High Courts. Some High Courts invalidated reassessment proceedings initiated by JAOs, while others upheld their authority.

Earlier P&H High Court Ruling Against JAO Action

In Income Tax Officer, Ward 2(1), Chandigarh & Others v. Tej Partap Singh, the Punjab and Haryana High Court had quashed orders passed under Section 148A(d) and the consequential reassessment notices issued under Section 148.

The Court found that the impugned proceedings had been initiated by the jurisdictional officers instead of being undertaken through the prescribed faceless mechanism.

Similar rulings by other High Courts prompted the Income Tax Department to approach the Supreme Court. The Revenue’s appeals against the judgments invalidating JAO-issued notices remained pending when Parliament introduced Section 147A.

Parliament Introduced Retrospective Clarification

Section 147A was brought into the statute with retrospective operation from April 1, 2021—the date on which the revised reassessment framework became effective.

Through the amendment, Parliament sought to clarify that the “Assessing Officer” referred to in Sections 148 and 148A meant an officer other than the National Faceless Assessment Centre. The provision consequently sought to place JAO-issued reassessment notices on a statutory footing and neutralise the effect of judgments that had invalidated such proceedings.

Because the amendment operated retrospectively, it had potential implications for reassessment notices, orders and proceedings initiated by jurisdictional officers from April 1, 2021 onwards.

The constitutional validity of the amendment consequently became a central issue for taxpayers whose reassessment proceedings had earlier been set aside or remained under challenge.

Supreme Court Remitted Matters to High Courts

After Section 147A was introduced, the Supreme Court considered the pending batch of appeals arising from the conflicting High Court judgments.

Instead of deciding the validity of the newly inserted provision at the first instance, the Supreme Court remitted the matters to the respective High Courts for fresh consideration in light of the retrospective amendment.

The taxpayers were permitted to challenge the validity of the legislative change before the concerned High Courts. This brought the controversy back before the Punjab and Haryana High Court, which has now struck down Section 147A.

Detailed Reasons Awaited

The judgment is likely to have significant consequences for reassessment proceedings initiated by JAOs under Sections 148 and 148A from April 1, 2021.

However, the exact grounds on which the provision has been invalidated—including whether the Court found fault with its retrospective operation, its constitutional validity, or its effect on the faceless reassessment framework—will become clear only after the detailed order is released.

The operative directions concerning pending reassessment notices and concluded proceedings are also awaited. The decision may be challenged by the Income Tax Department before the Supreme Court, given the nationwide implications of the JAO-FAO dispute.

Judgement Awaited

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