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Strikes Down Section 147A of Income Tax Act as
In a landmark ruling that reaffirms the primacy of the , the has struck down as . The Division Bench of Justice Deepak Sibal and Justice Rupinderjit Chahal held that the could not validate reassessment notices issued by jurisdictional assessing officers (JAOs) without curing the legal defect identified in earlier judicial decisions.
The Court also quashed the impugned notices under , ruling that such notices must be issued through the mandated under read with the scheme dated .
The Faceless Mandate
The government introduced Section 147A through the , with retrospective effect from , to "clarify" that the expression "Assessing Officer" for Sections 148 and 148A means an officer other than the or its assessment units. This was aimed at overcoming a series of High Court decisions that held that only faceless assessing officers could issue reassessment notices.
The Bombay, Telangana, Gauhati, Rajasthan, Madras, Karnataka, Andhra Pradesh, and earlier Punjab & Haryana High Courts had all ruled that and the scheme required notices under to be issued through in a faceless manner. The Revenue challenged these rulings before the , but during the pendency of those appeals, Parliament enacted Section 147A.
The then set aside the High Court judgments and remitted the matters for fresh consideration, granting assessees the liberty to challenge the of Section 147A.
Why Section 147A Failed the Test
The petitioners, led by , , and other senior counsel, argued that Section 147A was a clear case of . They contended that the legislature cannot nullify judicial decisions without removing the defect identified by the courts. and the scheme framed thereunder remained untouched, creating a direct conflict within the statute.
The Revenue, represented by , submitted that Parliament has the sovereign power to enact retrospective validating laws, and that Section 147A was necessary to bring certainty and avoid litigation, especially given the enormous financial stakes involved—approximately ₹17 lakh crores.
The Court, however, found that Section 147A did not meet the constitutional standards for a valid . Relying on a line of precedents, including , , , and , the Bench held that a validating legislation must remove the basis of the earlier judicial decision. Simply overriding the interpretation placed by courts without altering the underlying statutory framework is impermissible.
" Section 147A is also clearly found to be in direct conflict with , read with the scheme framed thereunder, all of which provisions simultaneously exist in the same statute. In the absence of any amendment to and/or the scheme framed thereunder, simply because Section 147A begins with a , would not make its retrospective enactment pass the test of a constitutionally enacted validation law, " the Court observed.
The Court further noted that the in Section 147A did not refer to or the scheme framed thereunder, which was also relied upon by the . This omission, the Court said, showed that the legislature had not fully addressed the defects pointed out by the constitutional courts.
A Step Backwards for Clarity
The Court also criticised the timing and purpose of the amendment. Instead of achieving certainty and avoiding litigation, Section 147A had
"become the
,"
with thousands of petitions pending across eight High Courts. The Court observed that it would have been more appropriate for the Revenue to seek an early opinion from the
when cross petitions were pending, rather than enacting a
that only added to the confusion.
" is not to be used as a device by the legislature to bypass an unfavourable judicial decision and that if the validating legislation is enacted solely with the intention to defy a judicial pronouncement, such legislation would be an example of legislature overreach and therefore, , " the Court held.
The Fate of Reassessment Notices
Having struck down Section 147A, the Court turned to the alternative submission of the petitioners: that even without the provision, the impugned notices were invalid because they were not issued through the . The Court agreed, holding that clause 3(b) of the scheme clearly applies to the issuance of notices under , requiring them to be sent through and in a faceless manner.
The Revenue's argument that existed under notifications issued under was rejected. The Court held that once the scheme provides for a particular manner of doing a thing, it must be done in that manner alone, citing the principle from and other cases.
The Court also dismissed the submission that the phrase
"to the extent provided in
"
in the scheme excludes pre-assessment proceedings, noting that such an interpretation would render the scheme redundant, as
already covers the assessment stage.
Decision and Implications
The Court declared Section 147A and directed that it be struck down. It further quashed the reassessment notices issued under by the jurisdictional assessing officers. The writ petitions were allowed in these terms.
This judgment is a significant reaffirmation of the faceless assessment framework and a stern check on legislative attempts to override judicial decisions without curing the underlying defects. It underscores the constitutional limits on Parliament's power to enact validating laws, particularly when such laws directly conflict with existing statutory provisions that remain unamended.
The decision is likely to have far-reaching implications for thousands of reassessment cases currently pending across the country, as it reaffirms that the under must be followed scrupulously.
