Finance Bill, 2026 JAO vs. FAO A controversy put to indecent burial via Finance Bill, 2026?

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The Tax Publishers Income Tax--Finance Bill, 2026 JAO vs. FAO -- A controversy put to indecent burial via Finance Bill, 2026? Sameer Bhatia The learned author in his article has tried to evaluate the pros and cons of the proposal promulgated via Clause No. 8 of Part A of Chapter III of the Finance Bill, 2026 dealing with amendments made to the Income Tax Act, 1961 and Income Tax Act, 2025 principally dealing with the insertion of section 147A on a retrospective basis with effect from 01st April, 2021 in the 1961 Act and with effect from 01st April, 2026 in the 2025 Act. He strongly advocates that insertion of section 147A on a retrospective basis goes against the committed allegiance and astute assurance to not embrace any such transactions that can fasten liabilities on a retrospective basis. However on account of divergent views of various High Courts with respect to JAO vs. FAO controversy, the matter was put into the official domain of the Hon'ble Supreme Court which seized the matter and is pending for final decision making. With the insertion of section 147A in the statute from a retrospective effect, the decision making may get seriously influenced and may not yield appropriate results in light of the proposal enshrined by the Finance Bill, 2026. 1. Prologue The Finance Bill, 2026 (Bill No. 3 of 2026) was promulgated by the Hon'ble Finance Minister Smt. Nirmala Sitharaman in the lower house of bicameral parliament popularly called as the 'Lok-Sabha' which witnessed in aggregate about 144 changes by way of amendment(s), insertion(s), substitution(s) and/or omission(s) of the provisions already legislated in Direct as well as Indirect Taxes cadre. The Direct Taxes stream was divided into Chapter III (incorporating Part A and Part B) and Chapter IV dealing with The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026. Part A of Chapter III of the Direct Taxes stream that deals with amendments made to the Income Tax Act, 1961 incorporated by virtue of clause No.8, a new section i.e. section 147A that deals with the process of earmarking the designated officer for the purpose of section 148/148A of the Income Tax Act, 1961. It has been a harrowing tale both for the assessee as well as for the department to have proceeded on a solitary reasoning as to who would be the legitimate/apt officer designated for the purpose of issuance of a notice under section 148/148A of the Act in question. The corresponding section of the Income Tax Act, 2025 to take effect from 01st April, 2026 would be section 280 i.e. Issue of notice where income has escaped assessment, section 281 i.e. procedure before issuance of notice under section 280 and section 284 i.e. sanction for issuance of notice. However, falling in light with Finance Bill, 2026, can it be said that the controversy encompassing JAO vs. FAO has liberated the issue in dispute for which about more than 1,000 special leave petitions appear to be pending before the top court for adjudication purpose. 2. The controversial narrative surrounding JAO vs. FAO Clause No. 8 of Part A of Chapter III of the Finance Bill, 2026 deals with the insertion of section 147A in the Income Tax Act, 1961 in principle deals with the Assessing officer to be designated for issuing a notice under section 148A read with section 148 of the Income Tax Act, 1961. The Income Tax Act, 1961 (43 of 1961) stood repealed on account of provisions contained in section 536 of the Income Tax Act, 2025. It will be in the fitness of things to refer to clause (c) of sub-section (2) of section 536 of the 2025 Act which corresponds with section 297 of the 1961 Act to provide as under :-- 'the provisions of the repealed Income Tax Act shall continue to apply to any proceeding pending on the date of commencement of this Act and to any proceeding initiated on after or after 01st April, 2026 (including notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision, appeals) in respect of any tax year beginning before the 01 April, 2026 and such proceedings shall be carried out as per the procedure specified in the repealed Income Tax Act.' SUBSCRIBE FOR FULL CONTENT OR Try Reload the Page

The Tax Publishers

Income Tax--Finance Bill, 2026

JAO vs. FAO -- A controversy put to indecent burial via Finance Bill, 2026?

Sameer Bhatia

The learned author in his article has tried to evaluate the pros and cons of the proposal promulgated via Clause No. 8 of Part A of Chapter III of the Finance Bill, 2026 dealing with amendments made to the Income Tax Act, 1961 and Income Tax Act, 2025 principally dealing with the insertion of section 147A on a retrospective basis with effect from 01st April, 2021 in the 1961 Act and with effect from 01st April, 2026 in the 2025 Act. He strongly advocates that insertion of section 147A on a retrospective basis goes against the committed allegiance and astute assurance to not embrace any such transactions that can fasten liabilities on a retrospective basis. However on account of divergent views of various High Courts with respect to JAO vs. FAO controversy, the matter was put into the official domain of the Hon'ble Supreme Court which seized the matter and is pending for final decision making. With the insertion of section 147A in the statute from a retrospective effect, the decision making may get seriously influenced and may not yield appropriate results in light of the proposal enshrined by the Finance Bill, 2026.

1. Prologue

The Finance Bill, 2026 (Bill No. 3 of 2026) was promulgated by the Hon'ble Finance Minister Smt. Nirmala Sitharaman in the lower house of bicameral parliament popularly called as the 'Lok-Sabha' which witnessed in aggregate about 144 changes by way of amendment(s), insertion(s), substitution(s) and/or omission(s) of the provisions already legislated in Direct as well as Indirect Taxes cadre. The Direct Taxes stream was divided into Chapter III (incorporating Part A and Part B) and Chapter IV dealing with The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026. Part A of Chapter III of the Direct Taxes stream that deals with amendments made to the Income Tax Act, 1961 incorporated by virtue of clause No.8, a new section i.e. section 147A that deals with the process of earmarking the designated officer for the purpose of section 148/148A of the Income Tax Act, 1961. It has been a harrowing tale both for the assessee as well as for the department to have proceeded on a solitary reasoning as to who would be the legitimate/apt officer designated for the purpose of issuance of a notice under section 148/148A of the Act in question. The corresponding section of the Income Tax Act, 2025 to take effect from 01st April, 2026 would be section 280 i.e. Issue of notice where income has escaped assessment, section 281 i.e. procedure before issuance of notice under section 280 and section 284 i.e. sanction for issuance of notice. However, falling in light with Finance Bill, 2026, can it be said that the controversy encompassing JAO vs. FAO has liberated the issue in dispute for which about more than 1,000 special leave petitions appear to be pending before the top court for adjudication purpose.

2. The controversial narrative surrounding JAO vs. FAO

Clause No. 8 of Part A of Chapter III of the Finance Bill, 2026 deals with the insertion of section 147A in the Income Tax Act, 1961 in principle deals with the Assessing officer to be designated for issuing a notice under section 148A read with section 148 of the Income Tax Act, 1961. The Income Tax Act, 1961 (43 of 1961) stood repealed on account of provisions contained in section 536 of the Income Tax Act, 2025. It will be in the fitness of things to refer to clause (c) of sub-section (2) of section 536 of the 2025 Act which corresponds with section 297 of the 1961 Act to provide as under :--

'the provisions of the repealed Income Tax Act shall continue to apply to any proceeding pending on the date of commencement of this Act and to any proceeding initiated on after or after 01st April, 2026 (including notices, assessment, reassessment, recomputation, rectification, penalty, reference, revision, appeals) in respect of any tax year beginning before the 01 April, 2026 and such proceedings shall be carried out as per the procedure specified in the repealed Income Tax Act.'

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