Section 147A — Miracle or Debacle

The introduction of section 147A was an attempt by the government to protect its revenue. Such an act is not something new for the age-old Income-tax Act, 1961. Even in the year 2012, as we all remember, the Vodafone case (Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613), such measures of retrospective amendments were made so that the revenue of the government would not be lost due to loopholes found in the Act. The amendment during the Vodafone case overrode the Mauritius-India bilateral tax treaties, making it clear that India can override such bilateral treaties — questioning the commitment of the government to such international agreements. This time it is a breach of the commitment of the Government of India to its citizens regarding the legitimate expectation of certainty in tax law. In fact, in the year 2018, the then Finance Minister Mr. Arun Jaitley, at the Economic Times Global Business Summit, said, “I always felt Vodafone tax decision was an erroneous decision… This govt will not be taking any retrospective decision.”

Despite past mistakes and multiple promises, here we are with another retrospective amendment. Even though the efforts of the government may be commendable with respect to simplifying tax laws, the approach has been lackadaisical and pro-department. The introduction of Section 147A has increased the confusion and chaos which was born with the decision of the Hon’ble Delhi High Court in T.K.S. Builders (P.) Ltd. v. ITO [2024] 167 taxmann.com 759 / 469 ITR 657 (Delhi HC). However, a majority of the High Courts (the Telangana High Court taking the lead in the Kankanala Ravindra Reddy case) had decided in favour of the assessees, whereas fewer High Courts had decided against the assessee. SLPs were preferred before the Hon’ble Supreme Court of India. Before a decision could be reached, the legislature introduced Section 147A by the Finance Act, 2026, stated to come into force from 01.04.2026, though the amendment was intended to retrospectively empower the JAO to issue notices under Section 148 of the Act.

To appreciate the constitutional gravity of Section 147A, it is necessary to understand the legislative architecture that preceded it.

The Finance Act, 2021 introduced Section 151A into the Income-tax Act, 1961, with effect from 1 April 2021, expressly empowering the Central Government to frame a scheme governing the issuance of notice under Section 148, the conduct of enquiries under Section 148A, and the completion of reassessment proceedings under Section 147 — all in a faceless manner. Pursuant to this statutory mandate, the e-Assessment of Income Escaping Assessment Scheme, 2022 was notified, providing that the issuance of notices under Section 148 would be undertaken through automated allocation based on a risk management strategy and in a faceless mode.

Parliamentary debates, the Finance Minister’s budget speeches, and the official explanatory materials consistently describe the faceless regime as a structural reform meant to remove human interface, curb discretion, and strengthen transparency and accountability in tax administration. The exclusion of the Jurisdictional Assessing Officer from the threshold stage of reassessment was not incidental to this reform — it was its central purpose, so that corruption could be eliminated.

The Finance Act, 2026 inserted Section 147A in the Income-tax Act, 1961, stated to come into force from 01.04.2026, which reads as under:

“Notwithstanding anything contained in any judgment, order or decree of any court or in section 151A or in any scheme framed thereunder, for the removal of doubts, it is hereby clarified that the Assessing Officer for the purposes of sections 148 and 148A shall mean and shall always be deemed to have meant to be an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit referred to in sub-section (3) of section 144B.”

The Memorandum Explaining the Provisions of the Finance Bill, 2026, and the Notes on Clauses accompanying it, are extracted to the extent relevant:

“It is proposed to insert section 147A after the said section 147 of the Income-tax Act, 1961 so as to remove doubts and to clarify that the Assessing Officer for the purposes of sections 148 and 148A shall mean and shall always be deemed to have meant to be an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit referred to in sub-section (3) of section 144B.”

It is thus clear, from a plain reading of Section 147A and the objects and reasons stated therefor, that Parliament has, by inserting Section 147A, sought to override and nullify a series of judicial decisions of the High Courts of this country — including Kankanala Ravindra Reddy — which had consistently held that notices under Section 148 issued by the JAO are ab initio void. This is a case of impermissible legislative abrogation, and Section 147A is constitutionally invalid on multiple grounds.

While inserting Section 147A, the legislature did not amend the provisions of Section 151A or Notification No. 18/2022; it merely used a non obstante clause stating that, notwithstanding the provisions of Section 151A and the scheme framed thereunder, the JAO has jurisdiction to initiate reassessment proceedings. At the same time, there is no change in the intention of the legislature — Section 151A was not omitted or deleted, and the plain language of that section and the scheme, as interpreted by various High Courts, clearly shows that a notice under Section 148 ought to have been issued by the FAO and not the JAO.

Section 151A, read with the e-Assessment of Income Escaping Assessment Scheme, 2022, projected a conscious and widely publicised legislative mandate of eliminating human interface at all stages of reassessment, including the issuance of notices under Sections 148A and 148. This was neither implicit nor ambiguous — it was explicit, structured, and repeatedly emphasised as a cornerstone of tax reform intended to eliminate corruption, harassment, or arbitrary reassessments. Section 147A of the Act therefore cures nothing retrospectively or prospectively; at best, it is a retrospective fiction for past cases without touching the legal foundation of the judicial decisions or curing the existing defects in the legislative drafting.

In this context, where the legislature sought to invalidate existing judicial pronouncements under the garb of ‘clarification’, without removing, repealing or amending Section 148/151A/the e-Assessment Scheme — in complete contrast to the legislative intent of eliminating human interface — it may be apposite to quote the Hon’ble Supreme Court in State of Karnataka v. Karnataka Pawn Brokers Assn. [2018] 255 Taxman 12 (SC) [15-03-2018]:

“25. Therefore, the State, in so far as it has made the amended provisions retrospective, has attempted to nullify the writ of mandamus issued by the Court in favour of the respondents. This mandamus could not have been set at naught by making the provisions retrospective. This would be a direct breach of the doctrine of separation of powers as laid down in State of Tamil Nadu (supra). We are clearly of the view that the State Legislature could not have nullified the judgment passed in Manakchand Motilal’s case (supra) by retrospectively amending the Acts. Therefore, the validating Acts in so far as they are retrospective, are held to be illegal.”

By retrospectively declaring that the Assessing Officer “shall always be deemed to have meant” an officer other than a faceless assessment unit, the Legislature is, in effect, pronouncing that the High Courts interpreted the statute incorrectly — and that the Revenue’s reading was correct all along. Such a pronouncement does not amend the law; it overturns judicial decisions through legislation. Authoritative interpretation of statute is a function the Constitution vests in the superior judiciary, and the Legislature cannot arrogate that function to itself merely by dressing a substantive change in the garb of clarification.

This is not a clarification of the law; it is adding a fresh definition of it. It does not cure a defect — it inverts what the legislature originally intended. The difference may appear technical, but its constitutional weight is substantial, and it is this difference that leaves Section 147A open to challenge.

It is a cardinal constitutional principle that the Legislature cannot, by a mere declaration, override a judgment or decision of a court of competent jurisdiction. The only permissible method by which the Legislature can overcome the effect of a judicial decision is to remove the basis of the decision by amending the underlying law with retrospective effect. A bare declaration that a judgment is wrong, or that proceedings — which were declared void — shall be deemed valid, is not a legislative act of changing the law; it is an exercise of judicial power, which is impermissible.

The Finance Act, Bill and Memorandum have been used to ‘validate the assessments completed by Jurisdictional Assessing Officers’ — i.e., to shield the executive from the consequences of its own failure to implement the mandatory faceless mechanism. This cannot constitute a constitutionally legitimate object of legislation.

The timing of Section 147A raises a further concern. Parliament enacted the retrospective validation while the JAO–FAO controversy stood pending before the Supreme Court itself — a development that raises real institutional concerns. Although the Legislature may amend the law so as to remove the foundation of a judgment, it cannot thereby declare judicial outcomes a nullity or extinguish rights that have already crystallised through adjudication. Where retrospective validation targets proceedings that are themselves the subject-matter of pending litigation, the question that arises is whether the amendment cures a defect at all, or is instead designed to dictate how that litigation must end.

High Court Judgments after s. 147A:

In the landmark ruling of Jyoti Sareen v. Union of India [2026] 190 taxmann.com 384 (Punjab & Haryana), the Hon’ble Court declared Section 147A unconstitutional under Article 14 of the Constitution of India. Among its key observations, the Court held that “abrogation by declaration” is impermissible — the legislature can remove the statutory basis of a judicial decision by amending the root law, but it cannot directly overrule, set aside, or declare a judgment of a Constitutional Court invalid. The Court further observed that the root flaw was left untouched: Parliament attempted to validate manual notices via Section 147A but left Section 151A and the e-Assessment Scheme, 2022 completely unamended on the statute books.

In the recent landmark ruling of Bala Sreenivas Rao Somisetty v. ITO, WP No. 28520 of 2023, dated 12-10-2026, the Hon’ble High Court of Andhra Pradesh also declared Section 147A unconstitutional. An additional point was dealt with: the department argued that Section 147A was valid because it received Presidential assent on 30 March 2026, before the repeal of the Income-tax Act, 1961 on 31 March 2026. The Hon’ble Court, relying on Section 5 of the General Clauses Act, 1897 and the Supreme Court precedent in Common Cause v. Union of India, held that when an Act explicitly names a future commencement date (1 April 2026, as the Finance Act, 2026 did), it cannot be legally operational on the date of Presidential assent. The amendment was therefore legally dead on arrival, as it tried to attach itself to a law that no longer existed on 1 April.

Soon after the Punjab and Haryana High Court decision was delivered, the department preferred an SLP and a stay was obtained. As of today, another judgment by a different High Court has come into existence, and the same sequence of events may follow. In the author’s view, the lower authorities must grant relief based on the Andhra Pradesh High Court’s judgment until the grant of a fresh stay by the Hon’ble Supreme Court.

At this juncture, it is apposite to quote the Hon’ble Bombay High Court in CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bombay) [27-09-1977]:

“That section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question…”

There is no contrary judgment as on today. Hence, all lower authorities must follow the letter of the law.

In fact, cases are coming up wherein the lower authorities offer a counter explanation that, since an amendment has been made, there is no requirement to follow the earlier judgments. Further, despite the stay granted by the Supreme Court, they also refuse to keep the proceedings in abeyance. It may be pertinent to reproduce what the Hon’ble Supreme Court observed while granting the stay in Jyoti Sareen:

“The impugned judgment and order passed by the High Court shall remain stayed from its operation on the condition that the assessment and reassessment proceedings shall not proceed further till the final disposal of the main matter.”

It clearly mentions that the assessment and reassessment proceedings shall not proceed further till the final disposal of the main matter. However, most of the lower authorities are not refraining from either continuing the assessment/reassessment proceedings or the recovery proceedings.

This approach of erring in favour of Revenue must take a back step, and an appropriate notification or circular may be released to protect the affected parties.