MUMBAI: Over 2 lakh taxpayers found a glimmer of hope on Thursday after a high court struck down a retrospective change in law as unconstitutional, revoking the government’s justification for reopening old tax returns.
The bone of contention is whether reassessment notices sent in the old conventional way are valid after the state laid down that the process must be technology-driven and faceless with the cases allocated to officers through an automated system.
However, the law was amended retrospectively to uphold notices that were served even after the faceless procedure was mandatory in 2022.
Lakhs of individuals and companies across the country filed writ petitions challenging proceedings initiated directly by Jurisdictional Assessing Officers (JAOs) instead of faceless assessing officer (FAOs). The court feuds, coined ‘JAO vs. FAO’ in legal circles, are playing out since 2023.
The Punjab and Haryana HC has now pronounced that Section 147A, inserted in the Income tax (I-T) Act through Finance Act 2026 to retrospectively change amend the law, is ultra vires. This is the first HC ruling in the matter after the Supreme Court set aside earlier HC rulings for fresh consideration.
RACE AGAINST TIME
“The real issue is not merely whether a JAO can conduct reassessment proceedings, but whether Parliament, through Section 147A, has validly cured the manner in which jurisdiction is conferred on that officer. Taxpayers’ case has been that the amendment changes the identity of the officer, but does not necessarily displace the requirement of automated allocation. The ruling is therefore important because it goes to the efficacy of the legislative cure itself, and its reasoning could materially influence similar challenges pending before other High Courts,” said Priyanshi Chokshi, advocate Bombay HC.
Reassessment is done when the tax office suspects that an assessee’s past income has escaped tax. It can go back up to 4 years if escaped income is less than ₹50 lakh and 6 years if the amount is ₹0 lakh or more.
The tax department in all likelihood would move the Supreme Court to challenge the HC decision – more so, as many reassessment cases would get time-barred.
According to chartered accountant Asish Karundia, while the ruling is significant, its impact would depend on the judicial position prevailing in each state. “It will be particularly relevant in states where, under the law as it stood before Section 147A, courts had held that the JAO did not have jurisdiction to initiate reassessment proceedings. On the other hand, where HC had already held that the JAO and FAO had concurrent jurisdiction, as in Delhi, Thursday’s ruling may have little practical impact,” said Karundia. The dispute has seen multiple twists and turns in high courts (HCs) and SC. After different HCs gave contrary rulings, the revenue had moved the SC, and Section 147A was introduced while revenue’s appeals were pending before the apex court. In April 2026, while setting aside earlier HC rulings, SC left the validity and retrospectivity of Section 147A open for HCs to decide, requesting them to determine the remanded matters preferably by September 30, 2026.
“The Supreme Court,” said Ashish Mehta, partner at Khaitan & Co, “will now need to rule on the validity of this amendment. If it upholds the Punjab and Haryana HC’s view striking down the amendment, it will still have to decide whether notices issued by the jurisdictional assessing officer were valid, a question left open earlier. If the retrospective amendment is upheld instead, this controversy ends there,” he said.
