A retrospective amendment to the Income Tax Act, 1961, clarifying the role of the Jurisdictional Assessing Officer (JAO) vis-à-vis the Faceless Assessment Officer (FAO), has triggered fresh litigation across the country, with multiple High Courts set to hear petitions challenging the validity of the move.
Following directions from the Supreme Court, at least three such petitions have been filed this month in the Bombay, Karnataka and Punjab & Haryana High Courts, challenging the retrospective changes made through the Finance Act. The latest round of litigation follows the top court’s direction to petitioners to bring to the notice of their respective High Courts the legislative clarification with regards to disposed matters.
The controversy surrounding JAO and FAO centres around (a) who has the authority to issue income tax reassessment notices, and (b) the legal validity of such notices issued under the post-2021 faceless regime. While the Finance Act 2021 introduced Section 151 A to mandate “faceless” assessments to increase transparency, many notices were still being issued by jurisdictional (physical) officers rather than the centralised faceless unit.
Taxpayers challenged these notices, arguing that assessments by a JAO lacked legal authority under the new regime. High Courts have issued conflicting rulings on whether this is a “curable procedural lapse” or a “fundamental jurisdictional error” that renders the tax demand void – a tension that continues to trigger significant litigation across the country.
To clear the air
Under the Finance Act, the Assessing Officer, for the purposes of Section 148 and Section 148A (of the Income Tax Act, 1961), “shall mean and shall always be deemed to have meant Assessing Officer other than the National Faceless Assessment Centre or any of its assessment units.” A corresponding amendment has also been made in the Income-tax Act, 2025, so that correct interpretation is taken, litigation is minimised and certainty is achieved. The clarification in the Income-tax Act, 1961, has been made effective retrospectively from April 1, 2021, while the amendment in the Income-tax Act, 2025 has come into effect from April 1, 2026.
This was done “to achieve certainty and clarity and avoid litigation,” the explanatory memorandum for the Finance Bill, 2026 said. The clarification to the 1961 Act and the amendment to the 2025 Act were necessitated after divergent views were expressed by various High Courts, some in favour of the revenue and others in favour of assessees. The matter subsequently reached the Supreme Court, where the tax department filed special leave petitions against rulings of three High Courts – Punjab & Haryana, Bombay and Telangana.
This development is a legislative reset button designed to end the JAO-FAO controversy by siding entirely with the Tax Department’s past actions. By defining the Assessing Officer as someone “other than” the National Faceless Assessment Centre, the government is effectively legitimising the notices issued by local jurisdictional officers that were previously being struck down by courts.
‘Arbitrary approach’
Experts have termed the retrospective move as ‘arbitrariness’. “This is a classic case of the Legislature trying to ‘win’ a pending legal battle by changing the rules mid-game. The retrospective amendment to Section 147A goes beyond mere clarification; it has, in fact, deepened the uncertainty around the JAO–FAO controversy at a time when the issue was nearing resolution before the Supreme Court, raising serious concerns of arbitrariness and legislative overreach,” an tax expert said.
Another tax expert said the focus of the dispute has now clearly shifted. “While earlier litigation centred around the interpretation of jurisdictional provisions and procedural validity, the core issue going forward will be whether such retrospective legislative validation – especially in matters impacting jurisdiction – can withstand Constitutional scrutiny. Questions around legislative competence, arbitrariness, and potential violation of taxpayer rights are likely to come to the forefront,” he said.
Experts also said that reverting the matter to the High Courts is a logical step. “The Supreme Court’s order in the JAO–FAO case does not end the dispute, but shows how it should now be taken forward, especially in view of the retrospective change in the law. By sending the matter back to the High Courts, the Court has ensured that the issue is examined step by step in the right legal process, while allowing taxpayers to continue challenging the amendment and its impact,” said another tax expert.
However, there is also the possibility of a prolonged legal battle ahead. According to him, the controversy is expected to enter a more extended phase of litigation, with multiple High Courts likely to examine the validity of the amendment independently. “This could result in divergent judicial views, potentially bringing the matter back before the Supreme Court for final resolution,” he said.
