Chandigarh: The Punjab and Haryana High Court has struck down Section 147A of the Income Tax Act, 1961, declaring the newly inserted provision unconstitutional. The ruling could have significant implications for income tax reassessment proceedings and the powers of Jurisdictional Assessing Officers (JAOs) under the faceless tax assessment framework.
A Bench comprising Justice Deepak Sibal and Justice Rupinderjit Chahal delivered the ruling on Wednesday, September 9. A detailed order setting out the court’s reasoning is yet to be released.
Section 147A had been introduced retrospectively with effect from April 1, 2021, to clarify the role of JAOs in reassessment proceedings under Sections 148 and 148A of the Income Tax Act.
What Did the Court Rule on Section 147A?
Section 147A was inserted with retrospective effect from April 1, 2021. It provided that, for the purposes of Sections 148 and 148A, the expression “Assessing Officer” would mean an Assessing Officer other than the National Faceless Assessment Centre (NFAC).
The provision assumed significance amid a prolonged legal dispute over which authority had the jurisdiction to issue reassessment notices following the introduction of the faceless assessment system.
The Punjab and Haryana High Court has now struck down Section 147A as unconstitutional. The detailed judgment is expected to set out the legal reasoning behind the decision and clarify its implications for reassessment proceedings.
Why Was There a Dispute Over Jurisdictional Assessing Officers?
The dispute arose after the post-2021 faceless assessment framework came into force. Several taxpayers challenged reassessment proceedings initiated by their Jurisdictional Assessing Officers.
The key question was whether JAOs could independently initiate reassessment proceedings or whether such proceedings were required to be conducted through the prescribed faceless mechanism involving the National Faceless Assessment Centre.
The Punjab and Haryana High Court had previously ruled against the Revenue in cases involving this issue. In Income Tax Officer, Ward 2(1), Chandigarh & Ors. v. Tej Partap Singh, the court quashed orders passed under Section 148A(d) and subsequent notices issued under Section 148.
The court held in such cases that the proceedings should have followed the prescribed faceless mechanism.
However, the legal position was not uniform across the country. Several other High Courts took a different view and upheld the authority of JAOs to initiate reassessment proceedings.
The divergence in judicial interpretations eventually led the matter to the Supreme Court.
What Did the Retrospective Amendment Change?
Revenue authorities of the Income Tax Department challenged adverse High Court rulings before the Supreme Court. While those appeals were pending, Parliament introduced Section 147A with retrospective effect from April 1, 2021.
The amendment sought to clarify that JAOs could act as the Assessing Officer for proceedings under Sections 148 and 148A and that such authority was not restricted to the National Faceless Assessment Centre.
In effect, the amendment provided legislative backing for the position that JAOs could conduct reassessment proceedings.
The retrospective nature of the amendment was particularly significant because it sought to cover proceedings dating back to April 1, 2021, when the relevant faceless assessment framework came into force.
Supreme Court Sent JAO Cases Back to High Courts
The Supreme Court subsequently remanded the batch of cases concerning JAO and faceless assessment proceedings to the respective High Courts for fresh consideration in light of the retrospective insertion of Section 147A.
The top court also permitted the petitioners to challenge the constitutional validity of the retrospective legislative amendment before the respective High Courts.
The latest decision of the Punjab and Haryana High Court came in this context and has now declared Section 147A unconstitutional.
The detailed order will be crucial in determining the precise reasoning adopted by the court and the extent to which the ruling affects reassessment proceedings initiated by JAOs.
What Is Section 147A of the Income Tax Act?
Section 147A was introduced into the Income Tax Act with retrospective effect from April 1, 2021. Its purpose was to clarify who could function as the “Assessing Officer” for reassessment proceedings under Sections 148 and 148A.
In simple terms, the provision sought to establish that reassessment proceedings could be handled by the taxpayer’s Jurisdictional Assessing Officer rather than being restricted to the National Faceless Assessment Centre.
The provision was introduced against the backdrop of several judicial decisions questioning the authority of JAOs to issue reassessment notices under the post-2021 faceless assessment system.
By giving the provision retrospective effect, Parliament sought to cover reassessment proceedings dating back to April 1, 2021.
The Punjab and Haryana High Court’s decision has now invalidated the provision, adding a significant development to the continuing legal dispute over jurisdiction and reassessment under India’s faceless income tax framework.
Why the Ruling Matters for Taxpayers
The ruling is significant because reassessment notices can have a direct impact on taxpayers and their tax proceedings. At the heart of the dispute is the question of which authority can legally initiate and conduct reassessment proceedings under the framework introduced after April 2021.
With Section 147A now struck down by the Punjab and Haryana High Court, the detailed judgment will be closely scrutinised for its potential impact on past and ongoing reassessment proceedings, as well as the government’s position on the authority of JAOs.
The decision also highlights the continuing judicial scrutiny of retrospective tax legislation and raises important questions about the balance between legislative clarification and constitutional limitations.
