The Andhra Pradesh High Court Strikes Back: Section 147A and the Limits of Legislative Override

The Hook: Parliament Cannot Rewrite History With a Retrospective Pen

The Andhra Pradesh High Court's decision in Bala Sreenivas Rao Somisetty vs ITO (WP No.28520 of 2023 and batch, decided on 12.10.2026) is not just another tax ruling. It is a constitutional confrontation between Parliament's power to legislate retrospectively and the judiciary's authority to have its judgments respected. When the legislature inserts a provision specifically designed to nullify dozens of High Court rulings — without actually fixing the underlying statutory defect — the courts are entitled to push back. And push back they did.

This case involved over 200 writ petitions challenging Section 147A of the Income Tax Act, 1961, introduced through the Finance Act, 2026 with retrospective effect from 01.04.2021. The provision was Parliament's answer to a string of High Court decisions that had quashed reassessment notices issued by Jurisdictional Assessing Officers (JAOs) on the ground that such notices had to be issued through the faceless mechanism under Section 151A and the scheme framed thereunder. The question was simple but profound: can Parliament simply declare, by retrospective amendment, that the JAO always had jurisdiction — even when its own scheme said otherwise?

The Division Bench of Justices Ninala Jayasurya and T.C.D. Sekhar answered with an emphatic no.

The Facts: A Legislative Chess Game

The factual matrix is straightforward but layered. Through the Finance Act, 2021, Parliament introduced Section 144B incorporating the Faceless Assessment Scheme directly into the Income Tax Act. Section 151A, introduced by Act 38 of 2020 with effect from 01.11.2020, empowered the Central Government to frame schemes for faceless assessment, reassessment, and recomputation under Section 147, including the issuance of notices under Section 148 and the conduct of proceedings under Section 148A. Pursuant to this, the CBDT issued Notification No.18/2022 dated 29.03.2022, formulating the e-Assessment of Income Escaping Assessment Scheme, 2022, which explicitly included the issuance of notice under Section 148 within its scope.

Despite this, JAOs across the country continued issuing notices under Sections 148A and 148 directly, bypassing the faceless mechanism. Multiple High Courts — including a co-ordinate bench of the Andhra Pradesh High Court by order dated 28.10.2025 — quashed these notices, holding that the JAO lacked jurisdiction in light of Section 151A and the 2022 scheme.

The Revenue filed SLPs before the Supreme Court. While those were pending, Parliament enacted the Finance Act, 2026 (Act No.4 of 2026), inserting Section 147A with retrospective effect from 01.04.2021. This new provision declared, through a non-obstante clause, that the "Assessing Officer" for purposes of Sections 148 and 148A shall mean and shall always be deemed to have meant an officer other than the NFAC or any assessment unit. The Supreme Court then disposed of the SLPs on 10.04.2026, setting aside the High Court judgments and remitting the matters back for fresh consideration, with liberty to challenge Section 147A itself.

There is one more critical fact: the Income Tax Act, 1961 was repealed on 31.03.2026, and the Income Tax Act, 2025 came into force from 01.04.2026. The Finance Act, 2026, by its own Section 2(a), was to come into force on 01.04.2026 — the same day the 1961 Act ceased to exist.

The Arguments: Two Visions of Legislative Power

The petitioners mounted a multi-pronged attack. Their core argument was that Section 147A was not a genuine clarificatory amendment but a legislative override designed to nullify judicial decisions without removing their basis. They contended that the scheme under Section 151A explicitly included Section 148, that the JAO had no jurisdiction to issue notices under that section, and that no retrospective amendment could confer jurisdiction that never existed. They also raised the doctrine of separation of powers, arguing that Parliament was effectively sitting in appeal over judicial decisions — something constitutionally impermissible.

Critically, the petitioners also argued that the Income Tax Act, 1961 stood repealed by the time the Finance Act, 2026 came into force, making any amendment to a repealed Act legally void.

The Revenue, represented by the Additional Solicitor General, relied on the well-established twin test for validating legislation: first, remove the cause of invalidity identified by the court; second, do so through retrospective enactment. They argued that Section 147A satisfied both limbs — it removed the defect (ambiguity about who is the "Assessing Officer") and did so retrospectively. They also invoked the presumption of constitutionality, the wider latitude enjoyed by the legislature in fiscal matters, and the practical reality that over 8.82 lakh reassessment notices involving Rs.21.74 lakh crore in assessed income were at stake.

The Judgment: A Carefully Constructed Takedown

The Bench's reasoning proceeded on two independent tracks, each sufficient to strike down Section 147A.

First, on the merits of the validating legislation: The Court held that while Parliament undoubtedly has plenary power to legislate retrospectively, that power is not unlimited. 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 Court held that a validating law must remove the defect identified by the courts. Here, the defect was not ambiguity about the meaning of "Assessing Officer" — it was the fact that the scheme under Section 151A included Section 148 within the faceless mechanism. That scheme remained unamended. Without amending the scheme, the insertion of Section 147A was a legislative shortcut that attempted to override judicial decisions without addressing their foundation.

"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 also rejected the Revenue's argument that Section 148A was not included in the scheme and therefore the JAO could act under it. The Bench reasoned that Section 148A proceedings are a necessary precursor to Section 148 notices, which in turn trigger Section 147 reassessment. The entire process was intended to be faceless. To carve out Section 148A for the JAO would defeat the legislative purpose of eliminating personal interface between the tax authorities and the assessee.

Second, on the repeal argument: The Court held that the Income Tax Act, 1961 stood repealed at midnight on 31.03.2026. The Finance Act, 2026, by its own terms, came into force on 01.04.2026 — after the 1961 Act had ceased to exist. Relying on Section 5 of the General Clauses Act and the Supreme Court's decision in Common Cause vs Union of India (2003) 8 SCC 250, the Bench held that where an Act expressly provides its commencement date, it comes into force on that date and not on the date of Presidential assent. Therefore, the insertion of Section 147A into a repealed Act was legally unsustainable.

The Court also noted that the Punjab and Haryana High Court had similarly struck down Section 147A on 10.09.2026, though the Supreme Court had stayed that decision on 18.09.2026. The Bench stated it had dealt with the matter independently.

The Critique: Right Result, but the Repeal Argument Is on Shaky Ground

I agree with the Court's primary holding on the validating legislation point. The reasoning is sound and well-supported by precedent. The twin test from Prithvi Cotton Mills is clear: you must remove the basis of the judicial decision. The basis here was the scheme framed under Section 151A, which included Section 148 within the faceless mechanism. Parliament left that scheme untouched. Instead, it attempted to override it through a non-obstante clause in Section 147A. That is not validation — it is legislative override masquerading as clarification.

The Court was also right to reject the Revenue's "two-stage" argument — that the JAO handles the pre-assessment stage under Sections 148A and 148, and the faceless mechanism kicks in only for Section 147. As the Bench pointed out, the Revenue was "blowing hot and cold" — on one hand claiming the JAO had no role in selecting cases (that was done through risk management), and on the other hand insisting the JAO had exclusive jurisdiction over the critical pre-assessment stage. If the entire purpose of the faceless scheme was to eliminate personal interface and impart transparency, allowing the JAO to control the gateway to reassessment would defeat that purpose entirely.

However, I have reservations about the repeal argument. The Court's reliance on Common Cause is technically correct — where an Act specifies its commencement date, Section 5 of the General Clauses Act does not apply. But the practical reality is that the Finance Act, 2026 received Presidential assent on 30.03.2026, when the 1961 Act was still in force. The question of whether Parliament can amend an Act that is about to be repealed, where the amendment is expressed to take retrospective effect from a date when the repealed Act was very much alive, is more nuanced than the Court's treatment suggests. Section 536 of the Income Tax Act, 2025 — the repeal and savings provision — explicitly preserves the operation of the repealed Act for pending proceedings and even for proceedings initiated after 01.04.2026 in respect of earlier tax years. If the repealed Act continues to govern these proceedings, an amendment to that Act arguably has legal effect within the saved domain.

The petitioners' counsel deserve credit for raising this argument, but I suspect it will not survive Supreme Court scrutiny. The stronger ground — and the one the Court rightly led with — is the validating legislation analysis.

One aspect the Court could have addressed more thoroughly is the Revenue's public interest argument. The additional affidavit disclosed that 8.82 lakh reassessment notices had been issued, 6.47 lakh reassessment orders had been passed, and Rs.21.74 lakh crore in income had been assessed. The Court dismissed this in a single paragraph, holding that the absence of challenge by most assessees does not validate proceedings contrary to the statute. While this is legally correct, the practical consequences of quashing proceedings on this scale deserved more engagement. A brief discussion of how the Revenue could regularise these proceedings going forward — perhaps by transferring them to the faceless mechanism — would have strengthened the judgment.

The Takeaway: What Practitioners Should Know

First, this judgment reinforces that the twin test for validating legislation is not a formality. Parliament cannot simply insert a non-obstante clause and declare victory. The underlying defect — in this case, the scheme under Section 151A — must be addressed. Tax practitioners should scrutinise any retrospective amendment to see whether the scheme or subordinate legislation that formed the basis of the judicial decision has also been amended.

Second, the faceless assessment framework is not optional. If the scheme includes a particular proceeding within its scope, the Revenue cannot bypass it through administrative convenience. Any notice issued by a JAO in violation of the faceless scheme is without jurisdiction and liable to be quashed.

Third, the repeal argument, while creatively advanced and accepted by this Court, is likely to face headwinds in the Supreme Court. Practitioners should not rely on it as their primary ground but should certainly plead it as an alternative.

Fourth, with the Punjab and Haryana High Court having reached the same conclusion (though stayed by the Supreme Court), this issue is headed for a definitive pronouncement by the apex court. The stakes — involving lakhs of reassessment proceedings and thousands of crores in revenue — guarantee that the Supreme Court will hear this expeditiously. Until then, the interim stay granted by the Supreme Court on 18.09.2026 in the Punjab and Haryana matter creates an uncertain landscape for assessees in other jurisdictions.

Finally, this judgment is a reminder that the separation of powers is not an abstract doctrine. When the legislature attempts to nullify judicial decisions without removing their basis, it crosses a constitutional line. The Andhra Pradesh High Court has drawn that line clearly. Whether the Supreme Court will hold it remains to be seen.