Chandigarh Advocate's Tax Notice Fight Ends in Landmark Win: HC Strikes Down Income Tax Act's Section 147A as Unconstitutional

Section 147A Income Tax Act Unconstitutional: In a 97-page judgment spanning nearly 700 connected petitions, HC holds Parliament cannot retrospectively overrule constitutional courts without curing the defect they identified — quashing reassessment notices issued by local tax officers across the country

North Desk Correspondent

Chandigarh, September 12

A legal battle that began with a single tax notice to a Chandigarh advocate has ended with the Punjab and Haryana High Court striking down a provision of the Income Tax Act inserted by Parliament itself, in one of the most significant tax-law rulings to come out of this High Court in years.

Section 147A Income Tax Act Unconstitutional: A Division Bench of Justice Deepak Sibal and Justice Rupinderjit Chahal, in a judgment pronounced this week declared Section 147A of the Income-tax Act, 1961, unconstitutional and struck it down. The Bench simultaneously quashed reassessment notices issued to nearly 700 connected petitioners by their local, or “jurisdictional,” Assessing Officers — holding that these notices should have gone through India’s faceless tax assessment system instead.

The judgment was authored by Justice Sibal with 693 other writ petitions from across Punjab and Haryana tagged along with it.

Where it started: a notice to a lawyer

Section 147A Income Tax Act Unconstitutional: The story begins with Jyoti Sareen, an advocate practicing at the Punjab and Haryana High Court and an income tax assessee in her own right. On March 28, 2024, she received a message on her registered mobile number informing her that proceedings had been initiated against her by the Income Tax authorities.

Logging into the Income Tax Business Application Portal, she discovered a notice dated March 15, 2024, issued under Section 148 of the Act by her jurisdictional Assessing Officer (JAO) — the local tax officer with territorial charge over her case, as opposed to a faceless officer assigned electronically under the government’s post-2021 system. The notice claimed her jurisdictional AO had received information about a search conducted under Section 132 of the Act on March 14, 2022, either in her case or in the case of someone she was assessable for, and asked her to file a fresh return for Assessment Year 2020-21. Sareen said she was never given the reasons for the proceedings and had no idea whose search had triggered the notice against her.

She challenged the notice before the High Court. On July 19, 2024, a Division Bench of the same court allowed her petition, holding that the notice violated Section 151A of the Act — the provision requiring that after 2021, notices under Section 148 be issued only through randomised, automated, faceless allocation, not by a local officer acting on his own.

The Revenue’s counter-move: a new law from Parliament

Section 147A Income Tax Act Unconstitutional: The Income Tax Department challenged that 2024 verdict before the Supreme Court. But while that appeal — and a clutch of similar appeals from other High Courts — was still pending, Parliament stepped in. Through the Finance Bill, 2026, it inserted a brand-new provision, Section 147A, with retrospective effect from April 1, 2021 — reaching back five years to cover every notice issued since the faceless system began.

Section 147A opened with a “notwithstanding” clause overriding “anything contained in any judgment, order or decree of any court” and declared that, for the purposes of Sections 148 and 148A, the “Assessing Officer” would be deemed to always have meant an officer other than the National Faceless Assessment Centre — in effect, retroactively declaring that local jurisdictional officers had the power to issue these notices all along.

With this new law on the books, the Supreme Court set aside the various High Court judgments — including the one in Sareen’s favour — and sent all the matters back to the respective High Courts for fresh consideration, via its order dated April 10, 2026. The Court gave taxpayers four weeks to amend their petitions to challenge the new Section 147A itself, directed the Revenue to file its response within three further weeks, ordered an interim stay on further reassessment proceedings in the meantime, and asked the High Courts to decide the matters by September 30, 2026 — explicitly stating it had expressed no opinion on the merits of Section 147A’s validity.

Sareen amended her petition to challenge Section 147A directly. Hundreds of other taxpayers across Punjab and Haryana, represented by senior advocates including Dr. Sanjay Bansal, Radhika Suri, Manisha Gandhi, Pankaj Jain, Sandeep Goyal, Ved Jain and S.K. Mukhi, joined the fight, making common cause in what became a batch of nearly 700 writ petitions.

The government’s defence

Section 147A Income Tax Act Unconstitutional: Appearing for the Union of India, Additional Solicitor General N. Venkataraman argued that a harmonious reading of the Act’s various provisions showed jurisdictional AOs were always entitled to issue Section 148 notices, and that Section 147A was needed because Parliament could not have amended the relevant scheme after it was due to be repealed from April 1, 2026.

He also placed hard numbers before the court: the Revenue said more than 95% of assessees nationwide had already submitted to notices issued by their jurisdictional AOs, and that the financial stakes involved were around ₹17 lakh crore — arguing that an adverse ruling at this stage would have serious fiscal consequences for the exchequer. He further argued that since the Act is a central legislation, divergent rulings from different High Courts (some had sided with taxpayers, others with the Revenue) made uniformity through Section 147A necessary, and that Parliament, being sovereign, had the power to retrospectively validate laws and override judicial interpretations through a “notwithstanding” clause.

Why the Court rejected this

Section 147A Income Tax Act Unconstitutional: The Bench’s reasoning rested on a well-established but narrow constitutional principle governing what are called “validating laws” — legislation Parliament passes specifically to undo the effect of a court ruling.

Drawing on Supreme Court precedent, including the Constitution Bench ruling in cases like NHPC Ltd. v. State of Himachal Pradesh (2023), the Bench held that Parliament can retrospectively validate a law a court has struck down — but only if it actually removes the defect the court identified. Simply declaring, by legislative fiat, that a past judicial finding no longer applies — without fixing the underlying problem — amounts to Parliament overruling a court decision, which violates the separation of powers between the legislature and judiciary.

Section 147A Income Tax Act Unconstitutional: Applying this test, the Bench found that Section 147A did nothing to cure the actual defect earlier courts had identified. That defect was Section 151A of the Act, and the faceless-allocation scheme framed under it on March 29, 2022 — both of which required Section 148 notices to be issued through randomised, automated, faceless allocation. Section 147A left Section 151A and its scheme completely untouched on the statute book. “Through and even after the retrospective enactment of Section 147A,” the Court held, “Section 151A of the Act and the scheme framed thereunder continue to exist on the statute book and without any amendment” — meaning the very basis on which courts had ruled against the Revenue was never removed.

The Bench also rejected the government’s argument that Section 148 fell outside the faceless scheme’s scope, holding that reading it that way would render the entire scheme “a dead letter” — a result the law disfavours.

On this reasoning, the Court sided with the view already taken by the Bombay High Court (Hexaware Technologies and Kairos Properties), the Telangana High Court, the Gauhati High Court, and its own earlier rulings in Jatinder Singh Bhangu and Jasjit Singh — while expressly disagreeing with contrary views taken by the Delhi, Gujarat and Calcutta High Courts on the same question.

What the Court ordered

Section 147A Income Tax Act Unconstitutional: The Bench: (1) declared Section 147A of the Income-tax Act unconstitutional and struck it down; and (2) independently set aside the Section 148 notices issued to all the petitioners, holding that these notices were not issued through randomised, automated allocation as mandated under Section 151A and the 2022 scheme — meaning they would have failed even without the constitutional challenge to Section 147A.

Section 147A Income Tax Act Unconstitutional: Two things follow from this ruling. First, this is now a direct split among High Courts on the same national tax question, with the Supreme Court’s original order having asked all High Courts to rule by September 30, 2026 — making a further appeal to the Supreme Court, and a final, binding, nationwide resolution, all but inevitable. Second, and more immediately relevant for the region: any taxpayer in Punjab, Haryana or Himachal Pradesh who received a Section 148 reassessment notice from their local (rather than faceless) Assessing Officer since April 2021 may now have fresh grounds to challenge that notice before the same High Court, citing this ruling — though the outcome for each case will depend on its own facts and on whatever view the Supreme Court eventually takes.

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