The High Court (HC) of Punjab and Haryana recently, in Jyoti Sareen v. Union of India & Ors.,¹, has held the retrospective insertion of Section 147A in the Income-tax Act, 1961 (the Act), to be unconstitutional and consequently quashed the notices issued under Section 148 by Jurisdictional Assessing Officers (JAOs).

The HC held that, the retrospective insertion did not cure the underlying statutory defect forming the basis of the earlier judicial decisions. Since Section 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022 (the Scheme), continued to operate without corresponding amendments, the jurisdictional inconsistency identified by the courts remained unaddressed. The insertion merely sought to override the effect of the judicial decisions on the issue, which was impermissible.

Independent of that, the HC held that the notices issued were unsustainable because the issuing officer had not been selected through randomized automated allocation as contemplated by Sections 130 and 151A read with their respective schemes.

Background 

• The faceless reassessment regime under Section 147 was introduced through the Scheme notified on March 29, 2022, framed under Section 151A, requiring, inter alia, automated randomized allocation of cases.
• However, in many cases, Section 148 notices were issued by JAOs, instead of National Faceless Assessment Centre (NFAC) or an Assessment Unit (AU) functioning under the faceless assessment framework (collectively referred to as the Faceless Assessing Officer or FAO). In various writ petitions filed on the issue (the JAO-FAO controversy), some HCs decided in favor of the taxpayers and others in favor of the Revenue. The matter was pending before the Supreme Court (SC).
• Meanwhile, Section 147A was inserted by the Finance Act, 2026, with retrospective effect from April 1, 2021. It provides that, notwithstanding Section 151A, the schemes framed thereunder, and any judicial decisions, the ‘Assessing Officer’ (AO) for purposes of Sections 148 and 148A would mean an AO other than FAO, purporting to validate the reassessment notices issued by JAOs.
• In view of the retrospective insertion of Section 147A, the SC had remitted all the appeals filed by Revenue back to the respective HCs for fresh adjudication of the writ petitions, with liberty to taxpayers to amend their petitions, including any challenge to the constitutional validity of Section 147A.

Key Issues Before the HC

• Against this background, the key issues considered by the Punjab and Haryana HC were:
  • The constitutional validity of section 147A.
  • The validity of the notices issued under Section 148 by JAOs.
  • Independent of the validity of Section 147A, the validity of notices issued under Section 148 by JAOs not selected through randomized automated allocation as contemplated by Section 151A read with the Scheme.

Key Findings of the HC 

The HC decided the matter in the taxpayers’ favor, observing as under:

• Section 147A Does Not Override Section 130 and Only Partly Overrides Section 151A and the Scheme

  While Section 147A begins with a non-obstante clause to inter alia wipe out the effect of Section 151A and Schemes framed thereunder, it does not override Section 130 (faceless jurisdiction of income tax authorities) and the scheme framed thereunder on March 28, 2022. Non-compliance with the scheme framed under Section 130 was one of the grounds on which some HCs had earlier invalidated the notices issued by JAO.

  Further, Section 147A does not override the continuing requirement of randomized automated allocation process for cases, even if the FAO was no longer the relevant AO.

• Primary Legal Basis for Earlier Decisions Not Removed

  Section 151A and the Scheme were not correspondingly amended. Therefore, the primary legal basis of the earlier decisions was not removed and the insertion of Section 147A merely sought to substitute the legislature’s opinion over the constitutional courts’, which was impermissible. 

• Mandatory Randomized Allocation for Issuing Section 148 Notices

  Section 151A and the Scheme applied also to pre-assessment/pre-reassessment proceedings under Sections 148 and 148A, as otherwise the Scheme would be rendered otiose, given that assessment/reassessment proceedings under Section 147 are already covered by the faceless regime under Section 144B.

• Other Ancillary Observations 

  As Section 148 notices were already covered by Section 151A and the Scheme, any exclusion from the faceless regime should have been affected through the prescribed mechanism before the statutory date of March 31, 2022, and not otherwise. 

  Administrative or executive instructions could not override the express provisions of Section 151A and the Scheme notified thereunder. 

  Rather than providing certainty and reducing litigation, Section 147A has attracted further disputes and uncertainty.

A&M's Key Takeaways

The ruling is the first decision on the validity of Section 147A in the long-running JAO-FAO controversy, with decisions from other HCs still awaited.

In the matters pending before the Karnataka HC, the Revenue is understood to have submitted that the aforesaid ruling is patently erroneous. Its position is that Section 151A contemplates a hybrid framework under which the JAO retains statutory authority to initiate reassessment proceedings, while specified subsequent stages may be conducted through the faceless mechanism. Also, that automated allocation is an administrative mechanism and does not determine the legal jurisdiction of the AO. It is further understood that Revenue has filed a Special Leave Petition (SLP) in the SC against the ruling. The SC, pending final hearing, has granted an interim stay on the condition that re-assessment proceedings shall also remain stayed. The controversy is, therefore, likely to continue and attain finality only upon adjudication by the SC. 

In the meantime, taxpayers, facing reassessment proceedings may consider the following:

• Taxpayers in the Jurisdiction of Punjab and Haryana HC 

  Taxpayers with reassessment matters pending within the jurisdiction of the Punjab and Haryana HC may review the status of their cases, ascertain and preserve the system trail relating to the allocation of the AO, and evaluate appropriate remedial options. Depending on the stage of proceedings, they may consider raising jurisdictional objections or pursuing other available remedies under appropriate guidance, including appeal, revision, rectification, or, where warranted, a writ petition, relying on the favorable findings of the jurisdictional HC.

• Taxpayers in Jurisdiction with Revenue-Favorable Rulings (Delhi, Gujarat, and Calcutta HCs)

  Taxpayers within the jurisdictions of the Delhi, Gujarat, and Calcutta High Courts should continue to safeguard their positions in pending matters, particularly as the legal position remains unsettled. Appeals against certain taxpayer-adverse rulings are understood to be pending before the SC, with no clear indication that all such decisions have been stayed or overturned or remitted back. Accordingly, taxpayers may consider taking appropriate procedural steps, where relevant, to preserve their rights in the event the SC ultimately decides the issue against the Revenue.

• Taxpayers in Remaining Jurisdictions 

  Given that a HC ruling striking down a provision of a Central Act would ordinarily have persuasive application across India, unless stayed or overturned by the SC, taxpayers in remaining jurisdictions should consider relying on the Punjab and Haryana HC ruling and evaluating appropriate steps to preserve their position depending on the stage of their litigation, and final outcome of the Revenue’s SLP.

In light of the above, taxpayers should closely monitor how other HCs address the constitutional validity of Section 147A and the final outcome of the Revenue's SLP before the SC. At the same time, as the ruling is confined to the validity of Section 147A and the jurisdictional and procedural framework governing reassessment notices, taxpayers should continue to pursue all available substantive, limitation-based, and procedural defences on their merits.

Notably, taxpayers, who have received reassessment notices issued by the FAO, should also reconsider their position, take any required remedial action, and closely monitor developments, as they may be affected depending on the ultimate outcome of the litigation.

The controversy also raises broader questions regarding the interaction between Sections 147A and 151A and the Scheme, and the corresponding provisions of the Income-tax Act, 2025. Whether these issues will be addressed through further legislative intervention remains to be seen. 

Given the far-reaching implications of the controversy, including the Revenue’s claimed financial impact of INR 17 trillion, the eventual verdict of the SC, coupled with any legislative response, is likely to determine the future architecture of the reassessment regime in India.

[1] Jyoti Sareen v. Union of India and others, CWP No. 15791-2024 (O&M) and connected cases (High Court of Punjab and Haryana at Chandigarh, decided September 10, 2026).

^{Disclaimer: This piece is based on publicly available information, market analysis, and the authors’ professional experience. For questions regarding the underlying sources or analytical methodologies, please reach out to the author directly. The analysis reflects market trends and observations and is intended for general informational purposes only. It does not constitute investment, legal, or financial advice.}