Introduction
The intersection of retrospective taxation, faceless assessment, and constitutional validity has once again come under judicial scrutiny in a batch of writ petitions disposed of by the High Court of Andhra Pradesh at Amaravati. The case, Bala Sreenivas Rao Somisetty v. Income Tax Officer, Ward 1, Eluru & Others (WP No. 28520 of 2023 and batch), represents a significant legal battle concerning the constitutional validity of Section 147A of the Income Tax Act, 1961, introduced by the Finance Act, 2026 with retrospective effect from 01.04.2021. The petitioners challenged this provision as ultra vires, violative of the basic structure of the Constitution, the Rule of Law, and the separation of powers. They also challenged the reassessment orders passed by Jurisdictional Assessing Officers (JAOs) under Sections 147, 144, and 144B, alleging they were illegal, arbitrary, and contrary to the faceless assessment regime mandated by Section 151A. This case commentary analyzes the legislative history, the procedural shift to faceless assessment, and the legal implications of the High Court’s decision to remit the matter for fresh consideration following Supreme Court intervention.
Facts of the Case
The petitioners, including Bala Sreenivas Rao Somisetty, filed a batch of writ petitions challenging the constitutional validity of Section 147A of the Income Tax Act, 1961. This section was introduced by the Finance Act, 2026 (Act No. 4 of 2026) with retrospective effect from 01.04.2021. The petitioners argued that the provision violated the basic structure of the Constitution, including the Rule of Law and separation of powers. Additionally, they challenged orders passed by Jurisdictional Assessing Officers (JAOs) under Section 147 read with Section 144 and Section 144B of the Act. These orders were challenged as illegal, arbitrary, void ab initio, and violative of Articles 14, 19(1)(g), and 265 of the Constitution of India, as well as being contrary to Section 151A of the Act.
The legislative backdrop is crucial. Through the Finance Act, 2018, the e-Assessment Scheme, 2019 was formulated and notified on 12.01.2019, initially applicable to assessments under Section 143(3). Subsequently, proceedings under Section 144 were included, and the scheme was modified into the “Faceless Assessment Scheme, 2019.” The Finance Act, 2021 introduced Section 144B, incorporating the Faceless Assessment Scheme directly into the Act with effect from 01.04.2021. Later, the Finance Act, 2022 amended this provision to include proceedings under Section 147 under the Faceless Assessment Scheme. Section 151A was introduced by Act 38 of 2020 with effect from 01.11.2020 for faceless assessment of income escaping assessment. In furtherance, 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,” which mandated automated allocation and faceless assessment for proceedings under Section 147 and issuance of notice under Section 148.
The petitioners argued that the JAO lacked jurisdiction to issue notices under Section 148, as the scheme mandated faceless assessment. The Revenue contended that the notification did not specify the issuing authority. The Supreme Court, in its order dated 10.04.2026, disposed of the Special Leave Petitions (SLPs), set aside the High Court judgments on the limited ground that the foundation of the view that JAOs lacked competence was altered by the amending legislation, and remitted the matters for fresh consideration, granting liberty to challenge Section 147A. The High Court, after remand, heard the parties on the amended prayers.
Reasoning and Legal Analysis
The High Court’s reasoning, as discerned from the common order, revolves around the legislative evolution of the faceless assessment regime and the impact of the Supreme Court’s remand order. The court meticulously traced the history of the faceless assessment scheme, starting from the e-Assessment Scheme, 2019, notified on 12.01.2019, which was initially applicable to assessments under Section 143(3). The scheme was later expanded to include Section 144 proceedings and was eventually modified into the “Faceless Assessment Scheme, 2019.” The Finance Act, 2021 introduced Section 144B, embedding the faceless assessment scheme directly into the Income Tax Act, 1961, with effect from 01.04.2021. This provision was further amended by the Finance Act, 2022 to include proceedings under Section 147, thereby bringing reassessment proceedings under the faceless regime.
The introduction of Section 151A by Act 38 of 2020, effective from 01.11.2020, was a pivotal development. This section empowered the Central Government to make a scheme by notification in the Official Gazette for faceless assessment, reassessment, or re-computation under Section 147, issuance of notice under Section 148, conducting enquiries, issuing show cause notices, or passing orders under Section 148A, and sanction for issue of such notice under Section 151. The objective was to impart greater efficiency, transparency, and accountability. Pursuant to this, the CBDT issued Notification No. 18/2022 dated 29.03.2022, formulating the “e-Assessment of Income Escaping Assessment Scheme, 2022.” This scheme mandated that assessment, reassessment, or re-computation under Section 147 and issuance of notice under Section 148 shall be through automated allocation, in accordance with risk management strategy formulated by the Board, and in a faceless manner, to the extent provided in Section 144B.
The petitioners’ core argument was that the JAO lacked jurisdiction to issue notices under Section 148, as the scheme mandated faceless assessment through automated allocation. They contended that the orders passed by the JAOs were contrary to Section 151A and the 2022 Scheme. The Revenue, on the other hand, contended that the notification did not specify the issuing authority, implying that the JAO could still issue notices. This jurisdictional conflict was at the heart of the matter.
However, the Supreme Court’s intervention on 10.04.2026 altered the legal landscape. The Supreme Court disposed of the SLPs, set aside the High Court judgments on the limited ground that the foundation of the view that JAOs lacked competence was altered by the amending legislation. The Supreme Court remitted the matters for fresh consideration, granting liberty to the petitioners to challenge Section 147A. This remand was significant because the introduction of Section 147A by the Finance Act, 2026 with retrospective effect from 01.04.2021 potentially validated the actions of the JAOs, thereby undermining the basis of the High Court’s earlier judgments.
The High Court, after remand, was tasked with considering the amended prayer and the contentions of the parties. The court discussed the legislative history and the procedural framework but did not deliver a final verdict on the constitutional validity of Section 147A or the validity of the notices. The excerpt indicates that the court heard the parties on the amended prayers, but the final decision is not included. This suggests that the High Court is now tasked with examining the constitutional validity of Section 147A, a provision that retrospectively alters the jurisdictional framework for reassessment proceedings.
The legal implications are profound. The retrospective introduction of Section 147A raises questions about the Rule of Law and the separation of powers. The petitioners argue that the provision violates the basic structure of the Constitution. The High Court’s reasoning will likely hinge on whether the retrospective amendment is a reasonable restriction or an arbitrary exercise of legislative power. The court will also need to consider whether the faceless assessment scheme, as mandated by Section 151A and the 2022 Notification, creates an exclusive jurisdiction for the National Faceless Assessment Centre, thereby ousting the jurisdiction of the JAO. The Revenue’s contention that the notification does not specify the issuing authority may be countered by the argument that the scheme’s mandatory language (“shall be through automated allocation”) implies exclusivity.
Furthermore, the Supreme Court’s remand order, which granted liberty to challenge Section 147A, indicates that the constitutional validity of the provision is an open question. The High Court will need to examine whether the retrospective effect from 01.04.2021 is constitutionally permissible, especially given that it alters the jurisdictional basis for notices issued under Section 148. The court will also need to consider the impact of the amended legislation on the pending notices and orders, and whether the petitioners are entitled to relief on the ground of violation of the faceless assessment scheme.
Conclusion
The case of Bala Sreenivas Rao Somisetty v. Income Tax Officer represents a critical juncture in the ongoing debate over faceless assessment and retrospective taxation. The High Court of Andhra Pradesh, after remand from the Supreme Court, is tasked with determining the constitutional validity of Section 147A, introduced with retrospective effect from 01.04.2021. The legislative history reveals a clear shift towards faceless assessment, culminating in the e-Assessment of Income Escaping Assessment Scheme, 2022, which mandates automated allocation and faceless assessment for proceedings under Section 147. The petitioners’ challenge to the jurisdiction of the JAO is grounded in this scheme. However, the Supreme Court’s remand order, which set aside the earlier High Court judgments on the ground that the foundation of the view that JAOs lacked competence was altered by the amending legislation, has shifted the focus to the constitutional validity of Section 147A. The High Court’s final decision, not included in the excerpt, will have significant implications for the assessment and reassessment procedures under the Income Tax Act, 1961. The case underscores the tension between legislative competence, retrospective operation of tax laws, and the constitutional guarantees of equality and the Rule of Law.