A Constitutional Speed Bump for the Taxman: AP High Court Nukes Section 147A’s Retroactive Rescue

The Hook

When Parliament tries to rewrite history to save the Income Tax Department from its own procedural mess, it usually gets away with it. Yesterday, the Andhra Pradesh High Court said enough.

In Bala Sreenivas Rao Somisetty vs The Income Tax Officer (decided 12 October 2026), a Division Bench of Justices Ninala Jayasurya and T.C.D. Sekhar didn’t just quash a few reassessment notices—they struck down Section 147A of the Income Tax Act, 1961 as unconstitutional. This isn’t merely a procedural slap on the wrist; it’s a full-throated defence of the basic structure doctrine against legislative overreach. With over 150 writ petitions clubbed together, this judgment effectively nullifies thousands of reassessment proceedings initiated by Jurisdictional Assessing Officers (JAOs) across the country.

If you’re a tax litigator, this is your new shield. If you’re a revenue officer, you’re staring at a jurisdictional black hole.

The Facts: A Tale of Two Statutes and a Midnight Repeal

The facts are deceptively simple but constitutionally explosive. Between 2023 and 2026, the JAOs issued notices under Section 148 (and orders under Section 148A) to the petitioners, alleging income had escaped assessment. The petitioners cried foul: since the introduction of Section 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022, all such proceedings must be conducted faceless through the National Faceless Assessment Centre (NFAC), not by territorial JAOs.

The Andhra Pradesh High Court agreed—initially. On 28.10.2025, a coordinate bench quashed the notices, holding that JAOs lacked jurisdiction post the 2022 Scheme. The Revenue rushed to the Supreme Court. While the SLPs were pending, Parliament dropped the bombshell: the Finance Act, 2026 (Act No.4 of 2026), which inserted Section 147A with retrospective effect from 01.04.2021. This new provision declared that the “Assessing Officer” for Sections 148 and 148A always meant someone other than the NFAC—essentially validating the JAOs’ actions retroactively.

Here’s the kicker: The Income Tax Act, 1961 was repealed on 31.03.2026, replaced by the Income Tax Act, 2025. The Finance Act, 2026, though assented to on 30.03.2026, expressly stated it would come into force on 01.04.2026—the very day the 1961 Act died.

The Supreme Court, in its order dated 10.04.2026, noted the legislative intervention and remanded the matters back to the High Courts to decide the constitutional validity of Section 147A. The stage was set for a showdown.

The Arguments: Separation of Powers vs. Legislative Competence

The Petitioners’ Arsenal: Led by a battery of senior counsel including Sri A.V.A. Siva Kartikeya, the petitioners argued that Section 147A was a classic case of legislative overreach. They contended:

The Legislature cannot sit in appeal over judicial decisions. By inserting Section 147A retrospectively without amending the underlying Scheme (which still mandated faceless proceedings), Parliament was attempting to nullify binding High Court judgments without removing their legal basis—a direct assault on the separation of powers.

They raised a clever technical point: the Finance Act, 2026 amended a repealed Act. Since the 1961 Act ceased to exist on 01.04.2026, and the Finance Act came into force the same day, Parliament was essentially performing surgery on a corpse. Section 536 of the new Income Tax Act, 2025 saved pending proceedings but didn’t authorize amendments to the repealed statute.

The Revenue’s Defence: The Additional Solicitor General, Sri N. Venkataraman, argued that Section 147A was a legitimate validating provision. He invoked the “twin test” for validating statutes: (1) removing the defect identified by courts, and (2) doing so retrospectively. The Revenue claimed that Sections 148 and 148A were never meant to be part of the faceless scheme; they were preliminary stages properly handled by JAOs, with only the actual assessment (Section 147) being faceless.

The Revenue also played the practical card: striking down Section 147A would disrupt 8,82,146 reassessment notices and ₹21.74 lakh crore in assessed income, creating administrative chaos.

The Judgment: A Masterclass in Constitutional Review

Justice T.C.D. Sekhar, writing for the Bench, delivered a judgment that will be cited in constitutional law classes for years. The Court systematically dismantled the Revenue’s arguments:

On the Scheme’s Mandate: The Court held that the 2022 Scheme unambiguously included Section 148 within the faceless mechanism. Clause 3 of the Scheme states that issuance of notice under Section 148 shall be “in a faceless manner.” The Revenue’s attempt to bifurcate the process (JAO for pre-assessment, NFAC for assessment) found no support in the statutory text. “Having included Section 148 into the scheme,” the Court observed, “it is incumbent for the authorities to issue notice under Section 148 in a faceless manner.”

On Legislative Overreach: The Court dropped the hammer on the separation of powers argument. Relying on Shri Prithvi Cotton Mills Ltd. vs Broach Borough Municipality (1969) 2 SCC 283 and State of Tamil Nadu vs M. Rayappaiah Gounder (1971) 3 SCC 1, the Bench held that while Parliament can validate laws retrospectively, it cannot nullify judicial decisions without removing their legal basis. Here, the basis was the Scheme itself—which remained unamended. Section 147A, therefore, was not a validation but an override, impermissibly encroaching on judicial power.

On the Repeal Issue: The Court accepted the petitioners’ technical argument with significant consequences. Since the Finance Act, 2026 expressly came into force on 01.04.2026 (per Section 2(a)), and the 1961 Act stood repealed from midnight of 31.03.2026, Parliament had attempted to amend a non-existent statute. Relying on Common Cause vs Union of India (2003) 8 SCC 250, the Court held that when an Act specifies its commencement date, that date controls—not the date of Presidential assent. Thus, Section 147A was stillborn.

The Critique: Bold, But Is It Vulnerable?

This judgment is constitutionally sound but strategically risky. Let me play devil’s advocate.

Where the Court Got It Right: The basic structure argument is impeccable. The Supreme Court has consistently held that the Legislature cannot directly overrule judicial decisions without altering the underlying legal framework (see Minerva Mills, I.R. Coelho). The AP High Court correctly identified that amending the definition of “Assessing Officer” while leaving the faceless scheme intact was legislative sleight of hand. You cannot remove the basis of a judgment while leaving the basis untouched.

The timing argument is also technically unassailable. If Parliament wanted to amend the 1961 Act, it should have done so before 31.03.2026 or made the Finance Act effective from 30.03.2026 (the assent date). Legislative drafting errors have consequences.

Where the Court Might Be Vulnerable: The Revenue’s strongest argument—practical consequences—was dismissed too summarily. The Court noted that 0.127% of assessees facing reassessment couldn’t justify unconstitutional action, which is true, but the sheer scale of disruption (₹21.74 lakh crore!) might tempt the Supreme Court to stay this judgment pending appeal. The Punjab & Haryana High Court’s similar ruling was already stayed by the SC on 18.09.2026.

Moreover, the Court’s interpretation of Section 536 of the 2025 Act is contestable. That provision states the repealed Act continues to apply to pending proceedings. One could argue that “continues to apply” includes the power to amend it for those pending matters. The Court rejected this, but it’s not a frivolous counter-argument.

The judgment also creates a strange anomaly: the same Revenue that was told to follow the faceless scheme now faces thousands of quashed notices, but the underlying tax liabilities remain. This might lead to a flood of fresh notices issued by the NFAC, causing more litigation, not less.

The Takeaway: What Practitioners Need to Know

For Tax Lawyers: If you have clients with reassessment notices issued by JAOs between 01.04.2021 and 31.03.2026, file writ petitions immediately. This judgment is a goldmine. Argue both the constitutional invalidity of Section 147A and the jurisdictional defect. The Revenue cannot rely on the retrospective amendment to save defective notices.

For Constitutional Lawyers: This case reinforces that the “validation” doctrine has teeth. Parliament cannot simply shout “clarification” to overturn judicial interpretations. The judgment strengthens the Prithvi Cotton Mills line of cases—validation requires removal of the defect, not just legislative disagreement with judicial reasoning.

The Realpolitik: Expect an immediate SLP. The Supreme Court stayed the Punjab & Haryana High Court’s similar order, and given the revenue implications (₹21.74 lakh crore is not pocket change), the AP judgment will likely face a stay too. However, the constitutional reasoning is robust enough that the SC might ultimately uphold it, forcing Parliament to either amend the Scheme properly or accept that faceless means faceless.

The Drafting Lesson: If the Government wants to override court judgments, it must do the hard work of amending the entire statutory scheme, not just inserting non-obstante clauses. Half-measures invite constitutional strikes.

This judgment is a reminder that in the tug-of-war between legislative power and judicial review, the Constitution—and careful statutory interpretation—still has the final word.