Andhra Pradesh High Court Strikes Down Section 147A: A Legislative Overreach That Couldn't Survive Constitutional Scrutiny

The Hook: When Parliament Tries to Turn Back Time

In what can only be described as a constitutional showdown between legislative power and judicial authority, the Andhra Pradesh High Court has delivered a stinging rebuke to Parliament's attempt to retrospectively validate thousands of reassessment notices that were issued in clear violation of the statutory scheme. By striking down Section 147A of the Income Tax Act, 1961 as unconstitutional, Justices Ninala Jayasurya and T.C.D. Sekhar have reaffirmed a fundamental principle: the Legislature cannot simply wish away adverse judicial findings through retrospective amendments without addressing the underlying legal defect.

This judgment matters because it goes to the heart of the separation of powers doctrine. When coordinate benches of High Courts across the country had already held that Jurisdictional Assessing Officers (JAOs) lacked jurisdiction to issue Section 148 notices under the faceless assessment regime, Parliament's response was not to amend the scheme that created the problem—but to simply declare, retrospectively, that JAOs always had jurisdiction. The Court saw through this legislative sleight of hand.

The Facts: A Chronology of Legislative Confusion

The factual matrix is straightforward but revealing. Following the introduction of Section 151A through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the Central Government notified the e-Assessment of Income Escaping Assessment Scheme, 2022 on 29.03.2022. This scheme explicitly included "issuance of notice under section 148" within its ambit, mandating that such notices be issued through automated allocation and in a faceless manner.

Despite this clear statutory mandate, JAOs across the country continued issuing Section 148A and 148 notices in the traditional, non-faceless manner. When challenged, coordinate benches of the Andhra Pradesh High Court (and several other High Courts) quashed these notices, holding that once Section 148 was brought within the faceless scheme, JAOs had no jurisdiction to act outside it.

Parliament's response came through the Finance Act, 2026, which inserted Section 147A with retrospective effect from 01.04.2021. This provision declared that "Assessing Officer" for Sections 148 and 148A shall "always be deemed to have meant" an officer other than the National Faceless Assessment Centre or any assessment unit. In essence, Parliament attempted to legislatively overrule the High Courts' interpretation.

The Arguments: Two Visions of Legislative Power

The Petitioners' Case: Counsel for the petitioners mounted a multi-pronged attack. Their primary contention was that Section 147A represented an unconstitutional legislative overreach. They argued that the amendment did not remove the basis of the judicial decisions—which was the unamended scheme under Section 151A that included Section 148 within the faceless regime. Without amending the scheme itself, Parliament could not simply declare that the scheme meant something different from what the courts had held.

The petitioners also raised a technically sound argument about legislative competence: by the time Section 147A came into force on 01.04.2026, the Income Tax Act, 1961 had already been repealed and replaced by the Income Tax Act, 2025. They contended that Parliament cannot amend a repealed Act.

The Revenue's Defense: The Additional Solicitor General argued that Section 147A was a valid clarificatory amendment that satisfied the twin test for validating legislation: (1) it removed the defect identified by courts, and (2) it did so retrospectively. The Revenue contended that the amendment merely clarified the legislative intent that JAOs were always meant to handle pre-assessment proceedings under Sections 148A and 148, while only the actual reassessment under Section 147 was to be faceless.

The Revenue also emphasized the practical consequences: reassessment proceedings against 8,82,146 assessees involving Rs.21.71 lakh crores were at stake. Most assessees had submitted to JAO jurisdiction without challenge, and disturbing this would cause administrative chaos.

The Judgment: A Masterclass in Constitutional Reasoning

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

On the Faceless Scheme: The Court held that once Section 148 was included in the 2022 Scheme, the Revenue was bound to follow the faceless procedure. The Court noted that the proviso to Section 151A(2) barred any modification of the scheme after 31.03.2022. Therefore, if the Government intended to exclude Section 148 from the faceless regime, it should have done so before that deadline. Having failed to do so, the scheme continued to mandate faceless issuance of Section 148 notices.

The Court was particularly scathing about the Revenue's attempt to rely on Notification No.61 of 2022 to argue for concurrent jurisdiction. The Bench held that this notification, issued after the 31.03.2022 deadline, could not override the statutory scheme. "The Revenue is blowing hot and cold in the matter, so as to suit its convenience," the Court observed.

On Legislative Overreach: This is where the judgment truly shines. The Court applied the settled principle from 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, that while the Legislature can remove the basis of a judicial decision through retrospective legislation, it must actually remove that basis—not merely declare the decision wrong.

"Without amending the scheme made under Section 151A of the Act, insertion of Section 147A into Income Tax Act, 1961 in the name of clarification or validation cannot be permitted."

The Court found that no High Court had identified any "defect" in the scheme itself. The defect was in the Revenue's failure to follow the scheme. Section 147A did not cure this defect; it simply attempted to nullify judicial findings without addressing the underlying statutory framework. This, the Court held, violated the doctrine of separation of powers.

On the Repeal Argument: The Court accepted the petitioners' technical argument about legislative competence. Relying on Section 5 of the General Clauses Act and the Supreme Court's decision in Common Cause v. Union of India, (2003) 8 SCC 250, the Bench held that since the Finance Act, 2026 expressly provided it would come into force on 01.04.2026, it could not be said to have come into force on 30.03.2026 (the date of Presidential assent). By 01.04.2026, the Income Tax Act, 1961 stood repealed, and Parliament cannot amend a repealed Act.

The Critique: Where the Judgment Gets It Right (And One Missed Opportunity)

This is, in my view, a correctly decided case that reaffirms fundamental constitutional principles. The Court's reasoning on the validation doctrine is impeccable. The distinction between removing the basis of a judgment and merely overruling it is crucial to maintaining the balance of power between the legislature and judiciary. If Parliament could simply declare judicial interpretations wrong without changing the underlying law, the separation of powers would become meaningless.

The Court's analysis of the faceless scheme is equally sound. The Revenue's position was indeed untenable—it wanted the benefits of the faceless scheme (efficiency, reduced corruption) without accepting its constraints (loss of JAO discretion at the notice stage). The Court correctly held that the Revenue cannot cherry-pick which parts of the statutory scheme to follow.

However, I believe the Court missed an opportunity to address the Revenue's practical concerns more directly. The argument about 8,82,146 assessees and Rs.21.71 lakh crores is not trivial. While the Court was right that administrative convenience cannot override constitutional principles, it could have provided more guidance on the way forward. Could the Revenue reissue notices through the faceless mechanism? What happens to assessments already completed? The judgment leaves these questions unanswered.

The repeal argument, while technically correct, feels somewhat like a constitutional technicality being used to avoid the merits. I would have preferred if the Court had rested its decision primarily on the separation of powers ground, treating the repeal argument as additional support rather than a coequal basis for the decision.

The Takeaway: What Practitioners Need to Know

1. Validation Legislation Must Actually Validate: This judgment reinforces that retrospective amendments must cure the actual legal defect identified by courts. Simply declaring that the law "always meant" something different, without changing the underlying statutory framework, will not survive constitutional scrutiny. When challenging validating legislation, focus on whether the amendment truly removes the basis of the earlier judicial decision.

2. Statutory Schemes Have Binding Force: The Revenue learned an expensive lesson here. Once a scheme is notified under a statutory provision like Section 151A, it binds the Government just as much as it binds assessees. Practitioners should carefully examine whether administrative actions comply with notified schemes, as deviations can be fatal.

3. The Faceless Regime Is Here to Stay: Despite this setback, the Revenue will likely reissue notices through the faceless mechanism. Assessees who received JAO notices should not assume their troubles are over. The underlying information suggesting escapement of income remains valid, and faceless authorities can issue fresh notices.

4. Timing Matters in Constitutional Challenges: The repeal argument succeeded because of precise timing—the Finance Act came into force one day after the old Act was repealed. This highlights the importance of carefully examining commencement provisions and repeal/savings clauses when challenging legislative amendments.

5. Expect Supreme Court Intervention: Given that the Punjab and Haryana High Court's similar ruling is already stayed by the Supreme Court, and given the massive revenue implications, this matter is almost certainly headed to the apex court. The interim stay of reassessment proceedings granted by the Supreme Court earlier remains in effect. Practitioners should advise clients that this litigation is far from over.

The Andhra Pradesh High Court has drawn a constitutional line in the sand: Parliament's power to legislate retrospectively is broad, but not unlimited. It cannot be used to simply overrule judicial decisions without addressing the legal framework on which those decisions were based. In an era where retrospective amendments have become increasingly common, this judgment serves as an important reminder that legislative power, however plenary, remains subject to constitutional constraints.