Amending a Repealed Act: Andhra Pradesh High Court's Bold Strike Against Section 147A Exposes Parliament's Constitutional Overreach

The Hook: When Parliament Tries to Amend a Dead Law

In a judgment that will reverberate through tax litigation for years, the Andhra Pradesh High Court has done something remarkable: it has struck down Section 147A of the Income Tax Act, 1961, not merely because it was substantively unconstitutional, but because Parliament attempted to amend an Act that had already ceased to exist. This is not just another tax case. It is a constitutional moment that exposes the dangerous casualness with which the legislature treats judicial pronouncements and statutory frameworks when revenue interests are at stake.

Justices Ninala Jayasurya and T.C.D. Sekhar, in a meticulously reasoned common order disposing of over 200 writ petitions, have held that Section 147A—introduced through the Finance Act, 2026 with retrospective effect from 01.04.2021—is unconstitutional on two independent grounds: first, it violates the doctrine of separation of powers by attempting to nullify judicial decisions without removing their legal basis; and second, it seeks to amend the Income Tax Act, 1961 after that Act was repealed and replaced by the Income Tax Act, 2025. The second ground is particularly striking because it reveals a fundamental legislative blunder that should never have survived parliamentary scrutiny.

The Facts: A Battle Over Who Can Issue Reassessment Notices

The controversy centers on a deceptively simple question: after the introduction of the faceless assessment regime, who has jurisdiction to issue notices under Sections 148 and 148A of the Income Tax Act, 1961—the Jurisdictional Assessing Officer (JAO) or the Faceless Assessment Officer (FAO)?

The legislative journey is convoluted. The Finance Act, 2018 introduced the e-Assessment Scheme, which evolved into the Faceless Assessment Scheme, 2019. The Finance Act, 2021 inserted Section 144B into the Act, incorporating the faceless scheme directly into the statute with effect from 01.04.2021. Critically, Section 151A was introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from 01.11.2020, empowering the Central Government to frame schemes for faceless assessment, reassessment, and recomputation under Section 147, including the issuance of notices under Section 148.

Pursuant to Section 151A, the Central Board of Direct Taxes issued Notification No. 18/2022 dated 29.03.2022, formulating the "e-Assessment of Income Escaping Assessment Scheme, 2022." Clause 3 of this scheme explicitly stated that assessment, reassessment, or recomputation under Section 147 and issuance of notice under Section 148 shall be through automated allocation in accordance with risk management strategy and in a faceless manner to the extent provided in Section 144B.

Despite this clear statutory mandate, JAOs across the country continued issuing notices under Sections 148A and 148, bypassing the faceless mechanism entirely. When challenged, multiple High Courts—including the Andhra Pradesh High Court in its earlier round of litigation—held that such notices were without jurisdiction because they violated the mandatory faceless procedure prescribed under Section 151A and the 2022 scheme.

Aggrieved, the Revenue approached the Supreme Court. While the SLPs were pending, Parliament enacted the Finance Act, 2026, which received Presidential assent on 30.03.2026 but was expressed to come into force on 01.04.2026. Section 9 of this Act inserted Section 147A into the Income Tax Act, 1961, declaring that "notwithstanding anything contained in any judgment, order or decree of any Court or in Section 151A or in any scheme framed thereunder," the Assessing Officer for purposes of Sections 148 and 148A "shall mean and shall always be deemed to have meant to be an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit." This amendment was given retrospective effect from 01.04.2021.

Here's the critical twist: the Income Tax Act, 2025 came into force on 01.04.2026, repealing the Income Tax Act, 1961. Section 536(2)(c) of the 2025 Act provided that the repealed Act would continue to apply to pending proceedings and proceedings initiated on or after 01.04.2026 in respect of tax years beginning before that date.

The Supreme Court, by order dated 10.04.2026, disposed of the SLPs by setting aside the High Court judgments and remitting the matters to the respective High Courts for fresh consideration in light of Section 147A, expressly leaving open all questions regarding the validity, scope, and retrospectivity of the amendment.

The Arguments: A Fundamental Clash Over Constitutional Boundaries

The petitioners mounted a multi-pronged attack on Section 147A. Their primary contention was that the amendment was a naked attempt to nullify judicial decisions without removing their legal foundation—a violation of the doctrine of separation of powers. They argued that various High Courts had held JAOs lacked jurisdiction because Section 148 was included in the faceless scheme under Section 151A. Instead of amending the scheme or Section 151A itself, Parliament simply inserted Section 147A with a non-obstante clause, attempting to overrule judicial findings through legislative fiat.

The petitioners emphasized that Section 151A and the 2022 scheme remained unamended even after the insertion of Section 147A. Therefore, the statutory basis on which the High Courts had quashed the notices—namely, that Section 148 must be conducted in a faceless manner—continued to exist. The amendment, they argued, was not truly clarificatory but was designed to defeat the legislative intent behind Section 151A: to eliminate personal interface between tax authorities and assessees through dynamic, technology-driven jurisdiction.

The petitioners also raised a technical but potentially fatal argument: the Income Tax Act, 1961 was repealed on the midnight of 31.03.2026 when the Income Tax Act, 2025 came into force on 01.04.2026. The Finance Act, 2026, though assented to on 30.03.2026, was expressed to come into force on 01.04.2026. Therefore, when Section 147A was inserted into the Income Tax Act, 1961 on 01.04.2026, that Act had already ceased to exist. Parliament, they contended, cannot amend a repealed statute.

The Revenue, represented by the Additional Solicitor General, defended Section 147A on the ground that Parliament possesses plenary power to enact validating legislation with retrospective effect. The Revenue argued that the amendment satisfied the twin test for validating Acts laid down by the Supreme Court: (1) it removed the cause of invalidity by curing the defect pointed out by the courts, and (2) it did so through subsequent enactment with retrospective effect.

The Revenue contended that the reassessment process comprised two distinct stages: the pre-assessment stage governed by Sections 148A and 148, where the JAO examines whether income has escaped assessment, and the assessment stage under Section 147, which is conducted in a faceless manner. The 2022 scheme, according to the Revenue, applied only to the second stage. The Revenue also argued that Section 147A was merely clarificatory, intended to remove doubts created by divergent judicial opinions, and did not nullify any judgment but simply restored the correct legal position.

On the repeal issue, the Revenue argued that the Finance Act, 2026 received Presidential assent on 30.03.2026, when the Income Tax Act, 1961 was still in force. Therefore, the amendment was validly made to an existing Act. The Revenue relied on Section 536 of the Income Tax Act, 2025, which provides for continuity of proceedings under the repealed Act.

The Judgment: A Masterclass in Constitutional Reasoning

The Division Bench systematically dismantled the Revenue's arguments through meticulous statutory interpretation and application of constitutional principles.

On the jurisdictional question, the Court reaffirmed its earlier view that Section 148 was explicitly included in the 2022 scheme framed under Section 151A. The Court rejected the Revenue's attempt to bifurcate the reassessment process into pre-assessment and assessment stages, holding that the scheme unambiguously covered issuance of notice under Section 148. The Court noted that if the Central Government intended to exclude Section 148 from the faceless requirement, it could have done so by issuing a direction under Section 151A(2) before 31.03.2022, as required by the proviso to that provision. Having failed to do so, the Revenue could not now contend that Section 148 was outside the scheme.

The Court was particularly scathing in its rejection of the Revenue's reliance on Notification No. 61/2022 dated 10.06.2022, which purported to confer concurrent jurisdiction on JAOs. The Court held that this notification was contrary to Sections 130 and 151A and could not override the statutory scheme. The Court observed: "By allowing the JAOs to exercise power under section 148, the very purpose of bringing the scheme would be defeated inasmuch as the intent of the Legislature is to undertake the entire proceedings in faceless manner."

On the constitutional validity of Section 147A, the Court applied the principles laid down by the Supreme Court in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283, and State of Tamil Nadu v. M. Rayappaiah Gounder, (1971) 3 SCC 1. The Court acknowledged that the Legislature has the power to enact validating legislation retrospectively, but emphasized that this power is subject to a critical limitation: the Legislature must remove the defect or basis on which the court's decision was rendered.

The Court found that Section 147A failed this test. The High Courts had not found any defect in the scheme or the Act; they had simply held that JAOs lacked jurisdiction because Section 148 was included in the faceless scheme. Section 147A did not amend Section 151A or the 2022 scheme. Instead, it attempted to nullify the judicial decisions through a non-obstante clause while leaving intact the statutory provisions on which those decisions were based. This, the Court held, was constitutionally impermissible:

"Without amending the said scheme, any clarification or validation through amendment cannot be permitted especially when the basis is not removed. Therefore, by introducing Section 147A of the Act, the Legislature is trying to over reach the judgments rendered by various High Courts in this regard, in direct conflict with Doctrine of separation of powers, which is the basic structure of the Constitution."

The Court's most striking finding, however, related to the repeal issue. After a careful analysis of the commencement provisions of the Finance Act, 2026 and the Income Tax Act, 2025, the Court concluded that the Income Tax Act, 1961 stood repealed on the midnight of 31.03.2026. The Finance Act, 2026, though assented to on 30.03.2026, was expressed to come into force on 01.04.2026. Therefore, when Section 147A was inserted on 01.04.2026, the Income Tax Act, 1961 had already ceased to exist.

The Court rejected the Revenue's reliance on Section 5 of the General Clauses Act, 1897, which provides that an Act comes into operation on the day it receives Presidential assent unless a contrary intention appears. The Court relied on Common Cause v. Union of India, (2003) 8 SCC 250, where the Supreme Court held that Section 5 applies only when the Act does not express a date for coming into force. When the Legislature itself provides a specific commencement date, Section 5 has no application.

The Court concluded:

"In that view of the matter, any amendment/insertion made to the Repealed Act is not sustainable under law and it has no legal sanctity, accordingly the same is liable to be struck down from the date of its inception or nativity."

The Critique: A Correct Decision, But With Some Unanswered Questions

This is a courageous and largely well-reasoned judgment that deserves praise for its fidelity to constitutional principles. The Court has correctly identified the fundamental problem with Section 147A: it is a legislative shortcut that attempts to achieve through a non-obstante clause what should have been done through proper amendment of the underlying statutory scheme.

The Court's analysis of the separation of powers issue is particularly strong. The judgment correctly applies the settled principle that while the Legislature can remove the basis of a judicial decision by altering the legal landscape retrospectively, it cannot simply declare that a judicial decision is wrong without changing the law on which that decision was based. This is the difference between legitimate validation and impermissible legislative overruling. By leaving Section 151A and the 2022 scheme untouched, Parliament attempted to have it both ways: it wanted to preserve the faceless assessment framework in principle while nullifying its application to Sections 148 and 148A in practice. The Court was right to call this out as constitutional overreach.

The repeal argument, while technically sound, raises some practical concerns. The Court's interpretation of the commencement provisions is textually defensible, but it leads to a somewhat absurd result: Parliament, which clearly intended to amend the Income Tax Act, 1961 and had the power to do so before 01.04.2026, is thwarted by what appears to be a drafting error or oversight in coordinating the commencement dates of the Finance Act, 2026 and the Income Tax Act, 2025. One wonders whether the Court could have adopted a more purposive interpretation, perhaps by reading the Finance Act, 2026 as coming into force immediately upon Presidential assent for the limited purpose of amending the Income Tax Act, 1961 before its repeal.

However, on balance, the Court's strict interpretation is justified. The Revenue's argument that the Finance Act, 2026 came into force on 30.03.2026 despite Section 2(a) expressly stating otherwise would require the Court to ignore clear statutory language. As the Court correctly observed, when the Legislature provides a specific commencement date, that date must be given effect. The doctrine of separation of powers cuts both ways: just as Parliament cannot nullify judicial decisions without removing their basis, courts cannot rewrite legislation to save it from drafting errors.

What the advocates for the petitioners could have emphasized more strongly is the practical absurdity of the Revenue's position. The Revenue argued that the 2022 scheme applied only to the assessment stage under Section 147, not to the pre-assessment stage under Sections 148A and 148. But this bifurcation makes no sense in the context of faceless assessment. The entire purpose of the faceless scheme is to eliminate personal interface between the assessee and the tax authorities. If the JAO conducts the initial inquiry under Section 148A, issues a show cause notice, considers the assessee's reply, and then issues a notice under Section 148, the assessee has already had extensive interface with the JAO. The subsequent transfer to the faceless mechanism for the actual assessment under Section 147 would be a hollow formality. The petitioners' counsel could have driven this point home more forcefully with concrete examples of how the Revenue's interpretation would defeat the transparency and accountability objectives of the faceless scheme.

The Revenue's reliance on statistical data showing that reassessment proceedings were initiated against only 0.127% of assessees and that most assessees did not challenge the jurisdiction was particularly weak. The Court rightly dismissed this argument, observing that "merely because there was no challenge to the proceedings initiated under Section 148 by most of the assessees, that by itself, will not give any right to the Revenue to undertake assessment in non-faceless manner, contrary to the statutory provisions." This is an important reminder that constitutional validity cannot be determined by compliance rates or administrative convenience.

The Takeaway: Lessons for Practitioners and Parliament

This judgment offers several critical lessons for tax practitioners and constitutional lawyers:

First, always check the commencement provisions. The repeal argument succeeded because the petitioners' counsel carefully examined the commencement clauses of the Finance Act, 2026 and the Income Tax Act, 2025 and identified the temporal gap. In tax litigation, where amendments are frequent and often retrospective, practitioners must develop the habit of scrutinizing not just the substantive provisions but also the transitional and commencement provisions. A technically sound argument based on statutory interpretation can sometimes succeed where broader constitutional arguments might fail.

Second, challenge validating legislation on the "removal of basis" test. When Parliament enacts retrospective legislation to overcome an adverse judicial decision, the key question is whether the legislation removes the legal basis on which the decision was rendered. If the underlying statutory provisions remain unchanged, the validating legislation is vulnerable to constitutional challenge. Practitioners should carefully compare the pre-amendment and post-amendment statutory frameworks to identify whether the defect identified by the court has actually been cured.

Third, non-obstante clauses are not magic words. Parliament often uses non-obstante clauses ("notwithstanding anything contained in any judgment, order or decree of any Court") as a shortcut to override judicial decisions. This judgment confirms that such clauses cannot substitute for proper legislative amendment. If the statutory scheme continues to support the judicial interpretation, a non-obstante clause alone will not save the validating legislation.

Fourth, the faceless assessment scheme has teeth. This judgment reaffirms that the faceless assessment provisions are not merely directory but mandatory. Tax authorities cannot bypass the faceless mechanism simply because it is administratively inconvenient or because they believe certain functions are better performed by jurisdictional officers. Practitioners should continue to challenge any reassessment proceedings initiated by JAOs in violation of the faceless scheme.

Fifth, legislative competence has temporal limits. Parliament cannot amend a statute that has been repealed. While this may seem obvious, the judgment illustrates how easy it is for this principle to be overlooked in the rush to enact validating legislation. Practitioners should always verify that the statute being amended was in force on the date the amendment came into effect.

For Parliament and the Revenue, this judgment should serve as a wake-up call. If the legislative intent is to exclude Sections 148A and 148 from the faceless assessment scheme, the proper course is to amend Section 151A and the 2022 scheme prospectively, not to insert a retrospective non-obstante clause that leaves the underlying statutory framework intact. Constitutional shortcuts may save time in the short run, but they create legal uncertainty and ultimately fail judicial scrutiny.

The Supreme Court has already stayed the operation of a similar judgment by the Punjab and Haryana High Court. It remains to be seen whether the Andhra Pradesh High Court's decision will meet the same fate. But regardless of what happens on appeal, this judgment has performed a valuable service by exposing the constitutional infirmities in Section 147A and reaffirming that even in tax matters, where the Legislature enjoys wide latitude, there are constitutional boundaries that cannot be crossed.