JAO/FAO Story takes a new turn... P&H HC Strikes Down Section 147A: Revenue's counter in KAR HC terms P&H HC's JAO-FAO judgment as 'patently erroneous'[Section 147A of ITA'61 & Section 279(3) of ITA'25]

In a landmark ruling with far-reaching implications for reassessment proceedings, the Punjab & Haryana High Court [Jyoti Sareen Versus Union of India and others. - 2026 (9) TMI 816 - PUNJAB AND HARYANA HIGH COURT] has declared Section 147A of the Income-tax Act, 1961 unconstitutional. The provision, retrospectively inserted by the Finance Act, 2026 to validate reassessment notices issued by Jurisdictional Assessing Officers (JAOs), was struck down for being in direct conflict with Section 151A and the Faceless Assessment Scheme. The Court held that Parliament's attempt to retrospectively annul judicial pronouncements through a "clarificatory" amendment violated the doctrine of separation of powers. The judgment re-establishes that reassessment notices under Section 148 must be issued only through randomized automated allocation by Faceless Assessing Officers (FAOs), and any deviation renders such notices invalid. The following are the contours of the JAO/FAO story till date -

1. Judicial Position Before Finance Act 2026

• Telangana High Court - Kankanala Ravindra Reddy Versus The Income Tax Officer and 2 others - 2023 (9) TMI 951 - TELANGANA HIGH COURT: Held reassessment notices under Section 148 must be issued through randomized automated allocation under Section 151A.
• Bombay High Court - Hexaware Technologies Limited Versus Assistant Commissioner of Income Tax, Circle 15 (1) (2), Mumbai, Principal Commissioner of Income Tax, Mumbai – 6, Principal Chief Commissioner of Income Tax, Mumbai, Central Board of Direct Taxes, Union of India. - 2024 (5) TMI 302 - BOMBAY HIGH COURT: Quashed jurisdictional AO notices, reiterating faceless allocation was mandatory.
• Gauhati High Court - Ram Narayan Sah Versus The Union Of India, The Principal Commissioner Of Income Tax Meghalaya, The Income Tax Officer Ward-1, Assam - 2024 (6) TMI 219 - GAUHATI HIGH COURT: Confirmed deviation from faceless reassessment violated Section 151A
• Punjab & Haryana High Court Jatinder Singh Bhangu and Jyoti Sareen Versus Union of India and others - 2024 (7) TMI 1191 - PUNJAB AND HARYANA HIGH COURT, notices issued by jurisdictional AOs were invalidated for non-compliance with Section 151A.

These judgments firmly established that faceless reassessment was the only permissible mode.

2. Finance Act 2026 - Section 147A

• Retrospective insertion effective 01.04.2021.
• Non-obstante clause overriding Section 151A and judicial pronouncements.
• "Clarified" that for Sections 148/148A, Assessing Officer means jurisdictional AO, not the National Faceless Assessment Centre.
• Reason per Memorandum: To address litigation chaos and divergent judicial views, and to validate reassessment notices already issued by jurisdictional AOs. The memorandum described it as a "clarificatory/validating provision" intended to protect revenue and crystallize statutory position.

3. Legal Issues Raised Petitioners (Assessees)

• Separation of Powers: Legislature cannot retrospectively nullify judicial pronouncements without altering factual foundation.
• Conflict with Section 151A: Section 147A contradicted faceless regime.
• Arbitrariness under Article 14: Retrospective validation created unequal treatment.
• Violation of Article 265: Tax reassessment without lawful procedure amounted to taxation without authority of law.

Respondents (Revenue)

• Non-obstante clause: Legislature clarified AO meaning to remove doubts.
• Administrative necessity: Faceless allocation impractical in reassessment contexts.
• Retrospective validation: Parliament has power to retrospectively amend laws to protect revenue.

4. Court's Findings (Punjab & Haryana High Court, 2026)

• 147A Unconstitutional: Violated separation of powers; impermissible legislative override.
• Direct Conflict: Section 147A conflicted with Section 151A, which remained operative.
• Faceless Mandate Binding: Notices under Section 148 must be issued only through randomized automated allocation.
• Retrospective Clarification Invalid: Legislature cannot retrospectively "clarify" to nullify judgments without amending substantive provisions.
• Impugned Notices Quashed: Notices issued by jurisdictional AOs without faceless allocation were set aside.

5. Key Takeaways

• Faceless reassessment is mandatory under Section 151A.
• Retrospective clarifications cannot override judicial pronouncements unless substantive law is amended.
• Section 147A struck down as unconstitutional; reinforces judicial supremacy.
• Principle reaffirmed: "If a statute prescribes a thing to be done in a particular manner, it must be done in that manner and no other."

With around Rs.17 Lakh Crores at stake, as is expected Revenue has countered this judgement in similar matter in Karnataka HC by Arguing that procedures are 'handmaids' of law, it is inconceivable in law to reverse the situation by using the tool of automated allocation to make the regime faceless; Revenue buttressed this point further by submitting that any purported random re- allocation of the assessee's case from the original JAO to another JAO would be 'coram non judice'; Revenue further highlights that Punjab & Haryana HC fell in 'patent error' in holding that the notifications issued under Section 120 by the CBDT would be overridden by Section 151A of the Act.