Major Relief: Punjab and Haryana High Court Strikes Down Section 147A Income Tax Retrospective Notices As Unconstitutional

The Punjab and Haryana High Court struck down Section 147A of the Income Tax Act, 1961 as unconstitutional, delivering a massive blow to the tax department and offering relief to thousands of taxpayers across the country.

Section 147A is a retrospective tax provision introduced by the Finance Act, 2026 to legally validate reassessment notices issued by traditional local officers rather than faceless centers. 

A division bench comprising Justice Deepak Sibal and Justice Rupinderjit Chahal declared the provision invalid, bringing a sharp turn to the long-standing legal battle over faceless tax assessments. Parliament introduced Section 147A with retrospective effect from 1 April 2021 to redefine the term "Assessing Officer" for reassessment proceedings under Sections 148 and 148A. The amendment effectively allowed local Jurisdictional Assessing Officers (JAOs) to issue reassessment notices instead of the National Faceless Assessment Centre (NFAC).

The Origin of the JAO Versus FAO Conflict

The row began when the Central Board of Direct Taxes (CBDT) rolled out the faceless assessment regime to reduce physical interaction between tax officials and assessee, curb corruption, and ensure uniform procedure. Under this scheme, reassessment notices were supposed to originate from the faceless portal.

Local Jurisdictional Assessing Officers, however, continued to issue reassessment notices independently. Taxpayers challenged these actions in several High Courts, arguing that notices issued outside the faceless mechanism breached statutory rules. In Income Tax Officer v. Tej Partap Singh, the Punjab and Haryana High Court quashed orders passed under Section 148A(d) and subsequent notices issued under Section 148, ruling that local officers lacked jurisdiction once the faceless scheme came into force.

How Retrospective Legislation Triggered Fresh Challenges

As the Income Tax Department moved the Supreme Court against these adverse rulings, Parliament intervened by enacting Section 147A. The clause sought to validate all past actions taken by local assessing officers with retrospective effect, attempting to neutralize the judicial decisions that had set aside those notices.

Recognizing the constitutional questions raised by this legislative move, the Supreme Court sent the entire batch of matters back to the respective High Courts. The apex court instructed petitioners to directly challenge the constitutional validity of Section 147A before their regional High Courts, leading to the latest judgment.

Relief for Taxpayers Facing Reassessment Action

By striking down Section 147A, the High Court reaffirmed that retrospective legislation cannot be used simply to override judicial findings without removing the foundational defects identified by the courts.

Taxpayers who received reassessment notices from local assessing officers rather than through the faceless assessment portal after 1 April 2021 now gain strong legal ground. The ruling effectively strips away the retrospective protection Parliament granted to those proceedings in the state's jurisdiction.

The decision also sets a critical benchmark for similar litigations pending across High Courts in Delhi, Bombay, Gujarat, and Allahabad, where thousands of reassessment orders remain tied up in jurisdiction disputes.