Punjab & Haryana High Court strikes down retrospective Section 147A of Income-tax Act, quashes jurisdictional-AO reassessment notices

The petitioners challenged notices issued under Section 148 of the Income-tax Act, 1961 (“the Act”) by their respective jurisdictional Assessing Officers (“JAOs”), principally contending that, under Section 151A read with the e-Assessment of Income Escaping Assessment Scheme, 2022 dated 29 March 2022, such notices could be issued only through automated allocation and in a faceless manner by a faceless Assessing Officer.

In the lead matter, Jyoti Sareen, an income-tax assessee, had filed her return for Assessment Year 2020–21. A notice dated 15 March 2024 under Section 148 was subsequently issued by her jurisdictional AO, purportedly on information relating to a search conducted under Section 132. She challenged the notice, including on the ground that no search had taken place at her premises and that the notice had not disclosed adequate reasons.

An earlier judgment of the High Court dated 19 July 2024 had quashed the notice on the ground that it was issued by the JAO in breach of Section 151A and the scheme framed thereunder. The Revenue challenged that decision before the Supreme Court. During the pendency of those proceedings, Parliament enacted Section 147A retrospectively with effect from 1 April 2021. The Supreme Court set aside the earlier judgments on the limited jurisdictional ground and remitted the matters to the High Courts, granting liberty to the assessees to challenge Section 147A.

Section 147A declared, notwithstanding any judgment, order or decree, and notwithstanding Section 151A or any scheme framed thereunder, that the “Assessing Officer” for Sections 148 and 148A would mean an Assessing Officer other than the National Faceless Assessment Centre or its assessment units. The petitioners amended their petitions to challenge the constitutional validity of Section 147A under Articles 14, 19(1)(g) and 265 of the Constitution, and alternatively sought quashing of the notices on the ground that they were not issued through the prescribed faceless and automated-allocation mechanism.

1. Whether Section 147A of the Income-tax Act, enacted retrospectively with effect from 1 April 2021, was constitutionally valid, or whether it impermissibly sought to override judgments of constitutional courts without removing the legal defect identified in those judgments?

2. Whether, notwithstanding Section 147A, Section 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022 required notices under Section 148, and the preceding proceedings under Section 148A, to be undertaken through automated allocation and in a faceless manner?

3. Whether notices under Section 148 issued by the petitioners’ jurisdictional Assessing Officers, without randomised automated allocation and faceless issuance, were legally sustainable?

The Court applied Sections 130, 144B, 147, 148, 148A and 151A of the Income-tax Act, together with the Faceless Jurisdiction of Income-tax Authorities Scheme, 2022 and the e-Assessment of Income Escaping Assessment Scheme, 2022. Section 151A authorises a scheme for assessment, reassessment, recomputation, issuance of notices under Section 148, and proceedings under Section 148A through mechanisms designed to eliminate personal interface, optimise resources and introduce dynamic, team-based jurisdiction.

Clause 3 of the 2022 e-Assessment Scheme expressly requires issuance of notices under Section 148 through automated allocation and in a faceless manner.

The Court relied on the validating-legislation principles in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, Indian Aluminium Co. v. State of Kerala, State of Tamil Nadu v. State of Kerala, State of Tamil Nadu v. Arooran Sugars Ltd., and NHPC Ltd. v. State of Himachal Pradesh, namely, that the legislature may retrospectively alter the legal basis of a judgment, but cannot merely declare a judgment ineffective; it must remove the defect identified by the court, subject to legislative competence and constitutional limitations.

The Court also applied the principle that where the statute prescribes a particular procedure, it must be followed in that manner and not otherwise, as recognised in Chandra Kishore Jha v. Mahavir Prasad, Cherukuri Mani v. Chief Secretary, Municipal Corporation of Greater Mumbai v. Abhilash Lal, and OPTO Circuit India Ltd. v. Axis Bank.

It further relied on the principle that an interpretation rendering a statutory provision otiose or a “dead letter” must be avoided.

The Court held that the earlier judgments invalidating JAO-issued notices were founded principally on Section 151A and the 29 March 2022 Scheme, which expressly required notices under Section 148 to be issued through automated allocation and in a faceless manner.

Section 147A did not amend or repeal Section 151A, did not alter the 2022 Scheme, and did not remove the requirement of randomised automated allocation. It merely declared that the Assessing Officer for Sections 148 and 148A would be an officer other than the National Faceless Assessment Centre or its assessment units. Consequently, the statutory defect identified by the constitutional courts remained unaddressed.

The Court reasoned that the legislature could not, by using a non-obstante clause or describing the amendment as a “clarification,” substitute its own view for the interpretation already rendered by constitutional courts. Since Section 151A and the 2022 Scheme continued to operate unchanged, Section 147A was directly inconsistent with them and amounted to an attempt to circumvent unfavourable judicial decisions rather than a valid curative or validating enactment.

The Court also noted that the stated legislative objectives of certainty and reduction of litigation had not been achieved; instead, the amendment generated further litigation and uncertainty.

On the alternative issue, the Court interpreted Clause 3(b) of the 2022 Scheme as independently covering the issuance of Section 148 notices. The phrase “to the extent provided in Section 144B” was held to qualify the faceless manner of the assessment or reassessment under Section 147, and not to exclude the mandatory automated and faceless procedure for issuing the Section 148 notice.

Accepting the Revenue’s interpretation would render Clause 3(b) substantially redundant because faceless assessment under Section 147 was already addressed by Section 144B. Accordingly, the JAOs lacked authority to issue the impugned notices unless the cases had been allocated through the prescribed automated and faceless mechanism.

It further held that notices under Section 148 were required to be issued through randomised automated allocation and in a faceless manner. Since the impugned notices had been issued by the respective jurisdictional AOs without compliance with that procedure, they were quashed and set aside.

The connected writ petitions were accordingly allowed in those terms.