Supreme Court remits faceless reassessment disputes to High Courts post Finance Act 2026 amendments

Background of the controversy

A very large cluster of appeals, including ITO Vs Tej Partap Singh, came before the Supreme Court arising out of reassessment proceedings under the Income-tax Act, 1961. The common thread in all these matters was a jurisdictional challenge: which authority was legally competent to:

  • pass orders under Section 148A(d); and
  • issue notices under Section 148

after the introduction of the faceless reassessment framework.

Several High Courts had struck down reassessment orders and notices on the reasoning that Jurisdictional Assessing Officers (JAOs) had no authority to act once the faceless regime was notified, and that such actions ought to have been taken only by Faceless Assessment Officers (FAOs) or through the national faceless system. Conversely, other High Courts upheld the role and jurisdiction of JAOs even after the faceless scheme came into force. This created a direct conflict of judicial opinion across the country.

Statutory changes setting the stage

Finance Act, 2021: Overhaul of reassessment provisions

The controversy traces back to the amendments carried out by the Finance Act, 2021, which:

  • was enacted on 28.03.2021; and
  • came into force from 01.04.2021.

This legislation substantially modified the reassessment code under Sections 147 to 151 of the Income-tax Act, 1961. In particular, changes were made to:

  • Section 147
  • Section 148
  • Section 149
  • Section 151

These changes were presented as being intended to safeguard the interests and procedural rights of the assessee during reassessment.

Under this post-2021 framework:

  1. The ‘Assessing Officer’ (AO) – understood in practice as the JAO – was to initiate reassessment wherever information suggested that income chargeable to tax had escaped assessment.
  2. Before issuing a notice under Section 148, the AO had to conduct a pre-notice enquiry under Section 148A, providing the assessee an opportunity of being heard.
  3. After considering the material and the reply of the assessee, the AO was required to pass an order under Section 148A(d) deciding whether or not to issue a notice under Section 148.

Thus, initially, the statutory scheme clearly contemplated the JAO as the central decision-maker in reassessment initiation.

Notification No. 18/2022 and the ‘e-Assessment of Income Escaping Assessment Scheme, 2022’

Subsequently, acting under Section 151A, the Central Government introduced the ‘e-Assessment of Income Escaping Assessment Scheme, 2022’ through Notification No. 18/2022 dated 29.03.2022.

The Scheme was brought into force from the date of its publication in the Official Gazette and provided that:

  • all assessment, reassessment or recomputation under Section 147; and
  • all issuance of notices under Section 148

would be conducted:

  • through automated allocation, and
  • in a faceless manner to the extent referred to in Section 144B.

The Scheme defined:

  • ‘automated allocation’ as an algorithm-based randomised allocation using technological tools, including artificial intelligence and machine learning.

The Scheme further clarified that these functions would operate in a faceless mode consistent with the faceless assessment framework under Section 144B.

Emergence of friction between the Act and the Scheme

Once the Scheme came into operation, a tension arose between:

  • the statutory structure under the Income-tax Act, 1961, which still envisaged the JAO as ‘Assessing Officer’ under Sections 147, 148 and 148A; and
  • the Scheme under Section 151A, which vested operational functions in faceless units and the National Faceless Assessment Centre (NFAC).

A central question emerged:

After introduction of the Scheme, does the JAO still possess authority to pass orders under Section 148A(d) and issue notices under Section 148, or are these powers exclusively vested in the NFAC/faceless units?

Divergent rulings by High Courts

Conflicting approaches across jurisdictions

In response to reassessment notices and orders issued post-Scheme, a large number of writ petitions were filed by assessees before different High Courts.