JAO vs FAO in Section 148 Notices: Section 147A Struck Down in Jyoti Sareen & Supreme Court Stay Analyzed

The constitutional confrontation between the Income Tax Department and the judiciary over the Jurisdictional Assessing Officer (JAO) vs. Faceless Assessing Officer (FAO) controversy reached a dramatic climax in September 2026. On September 10, 2026, a Division Bench of the Punjab and Haryana High Court in Jyoti Sareen Versus Union of India and others (CWP No. 15791-2024, 2026:PHHC:128067-DB) delivered a historic judgment declaring Section 147A of the Income-tax Act, 1961 unconstitutional. The High Court held that the retrospective enactment of Section 147A by the Finance Act, 2026—attempting to validate JAO-issued reassessment notices involving over ₹17 Lakh Crore in disputed revenue—constituted impermissible legislative overreach that violated the doctrine of separation of powers.

"In the light of the considered and categoric findings returned by the constitutional courts after carefully analyzing Section 151A of the Act and the scheme framed thereunder that only a faceless AO can issue a notice under Section 148 of the Act, the 'clarification' which is in clear defiance of and contrary to the afore findings, made by the legislature through the retrospective enactment of Section 147A of the Act would be of no help to the respondents... we have no hesitation to declare Section 147A of the Act to be unconstitutional."
— Punjab & Haryana High Court in Jyoti Sareen (Paras 60 & 63)

Just eight days later, on September 18, 2026, the Supreme Court of India intervened, granting an interim stay on the High Court's judgment while simultaneously ordering that all assessment and reassessment proceedings pursuant to the impugned notices shall remain completely stayed until final hearing on December 3, 2026.

┌────────────────────────────────────────────────────────────────────────────┐
│                    THE JAO vs. FAO LEGAL LIFECYCLE                         │
├────────────────────────────────────────────────────────────────────────────┤
│ 1. 2022-2025: 9 High Courts (Bombay, Telangana, P&H, etc.) quash JAO       │
│    notices under Sec 151A for lack of randomized faceless allocation.      │
│ 2. Budget 2026: Parliament retrospectively inserts Section 147A            │
│    w.e.f. 01.04.2021 to validate JAO notices over ₹17 Lakh Crore.          │
│ 3. 10.09.2026: P&H High Court strikes down Section 147A as unconstitutional│
│    in Jyoti Sareen, quashing all JAO notices again.                        │
│ 4. 18.09.2026: Supreme Court stays High Court ruling, BUT orders full stay │
│    on all reassessment proceedings until final hearing on 03.12.2026.      │
└────────────────────────────────────────────────────────────────────────────┘

This guide provides a comprehensive breakdown of the statutory conflict, the High Court's constitutional reasoning, the exact Supreme Court case docket, and the immediate procedural steps for taxpayers holding active Section 148 notices.

The Facts

The controversy in Jyoti Sareen traces a multi-year litigation journey that has impacted hundreds of thousands of taxpayers across India:

1. The Original Notice and First High Court Ruling (July 2024)

The petitioner, an advocate practicing in the Punjab and Haryana High Court, filed her return of income for Assessment Year 2020-21 on 30.09.2020. Nearly four years later, on 15.03.2024, her local Jurisdictional Assessing Officer (JAO) issued a notice under Section 148 of the Income-tax Act, alleging that a search under Section 132 conducted on 14.03.2022 on third parties had yielded information suggesting escaped income.

The petitioner challenged the notice in CWP-15791-2024, contending that under Section 151A read with the e-Assessment of Income Escaping Assessment Scheme, 2022 (Notification dated 29.03.2022), the notice could only be issued through automated allocation in a faceless manner by the National Faceless Assessment Centre (NaFAC), and not by the local JAO.

On 19.07.2024, a Division Bench of the High Court allowed the writ petition and quashed the notice, agreeing with landmark rulings of the Bombay High Court in Hexaware Technologies and Telangana High Court in Kankanala Ravindra Reddy.

2. The Legislative Overrule: Retrospective Section 147A

The Revenue challenged the 19.07.2024 judgment before the Supreme Court through Special Leave Petition (C) No. 000950-2025. While this SLP and thousands of connected petitions were pending, the Central Government promulgated the Finance Bill, 2026 (enacted as Act No. 4 of 2026), introducing Section 147A with retrospective effect from April 1, 2021.

Section 147A sought to wipe out judicial declarations by stating that "for the removal of doubts," the Assessing Officer for Sections 148 and 148A shall always be deemed to mean an officer other than the National Faceless Assessment Centre.

3. Supreme Court Remand Order (10.04.2026)

On 10.04.2026, the Supreme Court noted that the legislative landscape had altered due to Section 147A. Without expressing any opinion on the constitutional validity or retrospectivity of Section 147A, the Supreme Court set aside the High Court judgments on that limited ground and remitted the matters back to the respective High Courts to decide the constitutional validity of Section 147A, requesting disposal by 30.09.2026 with interim stay in the interim.

Pursuant to this liberty, the petitioner amended her writ petition to challenge the constitutional vires of Section 147A.

The Law

The adjudication in Jyoti Sareen turned on the interplay between faceless statutory schemes, legislative validation rules, and constitutional doctrines:

• Section 151A (Faceless Assessment of Escaped Income): Introduced w.e.f. 01.11.2020, empowering the Central Government to frame schemes for issuing notices under Section 148, conducting Section 148A enquiries, and passing orders so as to eliminate human interface and introduce automated allocation with dynamic jurisdiction.
• e-Assessment of Income Escaping Assessment Scheme, 2022 (Notification S.O. 1466(E) dt. 29.03.2022): Clause 3(b) expressly provides that issuance of notice under Section 148 shall be through automated allocation in a faceless manner.
• Section 147A (The Retrospective Insertion): Begins with a sweeping non-obstante clause seeking to exclude NaFAC from Sections 148/148A w.e.f. 01.04.2021.
• Constitutional Separation of Powers & Validation Doctrines: Governed by Constitution Bench precedents in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality (1969), Janapada Sabha Chhindwara v. Central Provinces Syndicate (1970), and State of Tamil Nadu v. State of Kerala (2014).

Arguments

Submissions of the Petitioners

A distinguished battery of Senior Advocates (Dr. Sanjay Bansal, Mrs. Radhika Suri, Mrs. Manisha Gandhi, Mr. Pankaj Jain, Mr. Sandeep Goyal, Mr. Ved Jain) contended that:

1. Breach of Separation of Powers: The legislature cannot directly overrule or annul judicial pronouncements by a mere declaration. Under Prithvi Cotton Mills, a validating statute is valid only if it removes the underlying defect in the law.
2. Section 151A Remains Unamended: While Section 147A was inserted, Section 151A and the 29.03.2022 Scheme remain unamended on the statute book. Section 151A mandates automated faceless allocation. Inserting Section 147A creates an unresolvable contradiction in the same statute.
3. Sunset Clause Expired: Under the first proviso to Section 151A(2), any notification modifying or excluding provisions of the Act had to be issued before 31.03.2022. The government failed to issue an exclusion notification before that date, and cannot circumvent its own statutory sunset clause via retrospective amendment.
4. Defeating the Faceless Mandate: Bifurcating reassessment into a manual pre-notice stage by JAOs and a faceless post-notice stage defeats the Parliament's declared policy of eliminating human interface, corruption, and harassment.

Submissions of the Revenue (Union of India)

Appearing for the Union of India, the learned Additional Solicitor General (ASG) Mr. N. Venkataraman argued:

1. ₹17 Lakh Crore National Impact: Over 95% of taxpayers had submitted to JAO notices. Invalidating JAO notices would wipe out ₹17 Lakh Crore in legitimate tax revenue, causing severe fiscal trauma to the Union.
2. Plenary Retrospective Sovereignty: Parliament has sovereign power under Articles 245 and 246 to make retrospective taxing laws and alter the basis of judicial decisions.
3. Concurrent Jurisdiction: Notifications issued under Section 120 conferred concurrent jurisdiction on both JAOs and faceless units. Section 144B only governs assessment under Section 147, leaving pre-assessment Section 148A and Section 148 squarely with JAOs.
4. Harmonious Two-Stage Reassessment: The Risk Management Strategy (RMS) pushes local information to the JAO, who alone has territorial knowledge to evaluate whether income escaped assessment before transferring the file to NaFAC.

The Ruling & Court's Reasoning

In its 97-page judgment, the Division Bench of Justice Deepak Sibal and Justice Rupinderjit Chahal delivered a thorough constitutional verdict:

1. Section 147A Fails the Constitutional Test of Validation

The Court meticulously analyzed Supreme Court jurisprudence on validating legislation (Janapada Sabha, Prithvi Cotton Mills, Indian Aluminium Co., S.R. Bhagwat):

The Court held that the legislature cannot simply declare that a court's interpretation shall be deemed ineffective. To pass constitutional muster, the validating law must cure the defect that formed the foundation of the court's judgment.

"Without amending Section 151A of the Act or the scheme framed thereunder, the 'clarification' made by the legislature through the retrospective enactment of Section 147A... is in defiance of and in conflict with the law laid down by the constitutional courts. Through such 'clarification', the legislature visibly seeks to substitute its opinion over and above the findings returned by the constitutional courts which is legally impermissible... Section 147A of the Act is declared to be unconstitutional."
— Paras 60 & 63

2. Failure to Amend Section 151A & The 2022 Scheme

The Bench observed that Section 151A and the Scheme dated 29.03.2022 were approved by both Houses of Parliament and explicitly cover notice issuance under Section 148. Because the Central Government never amended Section 151A before the statutory sunset date of 31.03.2022, introducing Section 147A without modifying Section 151A resulted in irreconcilable legislative conflict.

3. Rule of Law and Strict Adherence to Prescribed Mode

Relying on the Privy Council dictum in Nazir Ahmad and the Supreme Court in Chandra Kishore Jha and Cherukuri Mani, the High Court reiterated:

"Where the law provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner."

Because Clause 3(b) of the 2022 Scheme mandates issuance of Section 148 notices through automated allocation in a faceless manner, issuance by a local JAO is completely without jurisdiction.

4. Quashing of Section 148 Notices

Consequently, the High Court struck down Section 147A and quashed all impugned Section 148 notices issued by JAOs across the batch of writ petitions.

Supreme Court Stay Order: Case Docket & Current Status

Following the High Court's pronouncement on September 10, 2026, the Union of India filed an emergency appeal before the Supreme Court of India.

┌────────────────────────────────────────────────────────────────────────────┐
│                  SUPREME COURT STAY DOCKET (18.09.2026)                    │
├────────────────────────────────────────────────────────────────────────────┤
│ • Appeal Forum:     Supreme Court of India                                 │
│ • Case Details:     Union of India & Ors. v. Jyoti Sareen & Connected Pet. │
│ • Diary / SLP No.:  Diary No. 51222/2024 / SLP (C) No. 000950-2025        │
│ • Stay Order Date:  September 18, 2026                                     │
│ • Hon'ble Bench:    Hon'ble Justice J.B. Pardiwala                         │
│                     Hon'ble Justice K. Vinod Chandran                      │
│ • Next Date:        December 3, 2026 (Scheduled for Final Hearing)         │
└────────────────────────────────────────────────────────────────────────────┘

The Two-Way Effect of the Supreme Court Stay

The Supreme Court's order dated September 18, 2026 creates a balanced interim regime:

1. Stay on Declaration of Unconstitutionality: The operation of the High Court judgment striking down Section 147A is stayed. This prevents the immediate country-wide annulment of all ongoing JAO proceedings.
2. Absolute Stay on Assessment & Reassessment Proceedings:
   • Crucially, the Supreme Court protected taxpayers by ordering that the Revenue shall not proceed further with assessment or reassessment proceedings pursuant to the impugned Section 148 notices until the final disposal of the appeals.
   • JAOs cannot pass final reassessment orders, raise tax demands, or initiate coercive recovery against assessees whose notices are under challenge.
3. Final Adjudication Scheduled: The Supreme Court has fixed the matter for final hearing on December 3, 2026, where a larger constitutional bench is expected to deliver a definitive verdict on the validity of Section 147A.

Practical Action Plan for Taxpayers and CAs

If you or your client have received a Section 148 notice issued by a Jurisdictional Assessing Officer (JAO), follow this strategic roadmap:

Legal Reference

Relevant Law & Precedents:

• Punjab & Haryana High Court Judgment dated 10.09.2026 in CWP No. 15791-2024: Jyoti Sareen Versus Union of India and others (2026:PHHC:128067-DB).
• Supreme Court Interim Stay Order dated 18.09.2026: Union of India v. Jyoti Sareen (Diary No. 51222/2024).
• Section 147A of the Income-tax Act, 1961: Retrospective clarification introduced by Finance Act, 2026.
• Section 151A of the Income-tax Act, 1961: Faceless assessment of income escaping assessment.
• Scheme S.O. 1466(E) dated 29.03.2022: e-Assessment of Income Escaping Assessment Scheme, 2022.
• Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality (1969) 2 SCC 283: Core principles of validating legislation.

Related Resources

Conclusion

The confrontation over Section 147A represents one of the most consequential tax battles in modern Indian jurisprudence. By striking down Section 147A in Jyoti Sareen, the Punjab & Haryana High Court reaffirmed that legislative validation cannot be used as a blunt instrument to circumvent constitutional guarantees of fair, faceless procedure.

While the Supreme Court's interim order of September 18, 2026 provides temporary reprieve to the exchequer by staying the High Court's order, its simultaneous freeze on all assessment proceedings ensures that taxpayers are shielded from coercive reassessments. All eyes now turn to the Supreme Court on December 3, 2026, which will write the final chapter in the JAO vs. FAO constitutional debate.