In a major ruling, the Andhra Pradesh High Court declared Section 147A of the Income Tax Act, 1961 as unconstitutional, thereby ruling that an amendment made to a repealed Act is not legally sustainable.
The writ petition challenged the constitutional validity of Section 147A of the Income Tax Act, 1961, inserted by the Finance Act, 2026 with retrospective effect from 01.04.2021, as ultra vires and violative of the basic structure of the Constitution.
The petitioner, Bala Sreenivas Rao Somisetty, also challenged the orders of the Jurisdictional Assessing Officers (JAOs) under Section 147 read with Sections 144 and 144B as void ab initio, violative of Articles 14, 19(1)(g) and 265, and contrary to Section 151A.
Section 144B of the Income Tax Act incorporated the Faceless Assessment Scheme into the Act, and Section 151A (effective 01.11.2020) enabled a faceless scheme for income escaping assessment. The Central Board of Direct Taxes (CBDT) issued Notification No. 18/2022 dated 29.03.2022, framing the e-Assessment of Income Escaping Assessment Scheme, 2022.
The JAOs issued notices under Section 148A to the petitioners alleging escaped assessment. The petitioners contended that, under the 2022 Scheme, proceedings under Sections 147 and 148 must be faceless, so the JAOs’ notices were without jurisdiction. The Revenue argued that the notification does not specify who issues the notice, deals only with Section 148 procedure, and that assessment is faceless under Section 144B of the Income Tax Act.
A co-ordinate Bench of the Andhra Pradesh High Court set aside similar notices and orders under Sections 148A(b), 148A(d) and 148 as violative of Section 151A read with the Notification. The Revenue approached the Supreme Court by way of special leave petitions (SLPs).
While the SLPs were pending, the Parliament enacted the Finance Act, 2026, inserting Section 147A of the Income Tax Act and defined “Assessing Officer” as an officer other than the NFAC or any assessment unit, with retrospective effect from 01.04.2021. The present petitions challenged this provision and the consequential JAO orders.
The petitioners contended that the reassessment proceedings initiated by Jurisdictional Assessing Officers (JAOs) violated Section 151A and the faceless assessment scheme, which required automated allocation of cases and technology-driven proceedings and that the retrospective insertion of Section 147A was unconstitutional as it sought to nullify judicial decisions, encroached upon judicial powers, violated the separation of powers, and deprived taxpayers of their right to faceless assessment.
It was further contended that Section 147A was not merely clarificatory but contradicted the existing statutory scheme and was invalidly introduced after the repeal of the Income Tax Act, 1961, without authority under the Income Tax Act, 2025.
The Revenue contended that Section 147A was constitutionally valid and had been introduced to clarify the authority empowered to initiate reassessment proceedings and that conflicting court decisions had created uncertainty over whether the JAOs could issue notices under Sections 148A and 148 or whether such proceedings had to follow the faceless assessment scheme. Therefore, Parliament introduced Section 147A retrospectively from 1 April 2021 to clarify that JAOs had the authority to issue such notices and to reduce unnecessary litigation.
The Court observed that Clause 3 of the e-Assessment of Income Escaping Assessment Scheme, 2022, mandated that notices under Section 148 of the Income Tax Act be issued through an automated allocation system in accordance with the risk management strategy formulated by the CBDT.
However, the bench noted that in the present case, the JAOs had independently identified the cases for initiating proceedings under Sections 148A and 148. The Revenue also admitted that no automated allocation mechanism had been adopted for identifying these cases. Accordingly, the Court held that the initiation of reassessment proceedings by the JAOs was contrary to the prescribed scheme under Section 151A of the Income Tax Act.
Justice Ninala Jayasurya and Justice T.C.D. Sekhar observed that “Any amendment/insertion made to the Repealed Act is not sustainable under law and it has no legal sanctity, accordingly the same is liable to be struck down from the date of its inception or nativity.”
The division bench hence concluded that Section 147A of the Income Tax Act, was unconstitutional and the proceedings initiated by the Jurisdictional Assessing Officers under Sections 148A and 148 were held to be without jurisdiction
