Madras High Court Issues Notice On Plea Challenging Retrospective Amendments To Income Tax Act, 1961

The Madras High Court on Monday issued notice on a plea challenging several retrospective amendments to the Income-tax Act, 1961 introduced through the Finance Act, 2026, which are alleged to be unconstitutional and to impermissibly overturn judicial interpretations of tax provisions.

A Division Bench of Chief Justice S.A. Dharmadhikari and Justice Arul Murugan issued notice on the petition and is likely to hear the matter next on July 21.

The plea was filed by the Revenue Bar Association, a Chennai-based body of tax law practitioners.

The association has sought a declaration that Sections 4, 8, 9, 12, 13, 32 and 33 of the Finance Act, 2026 are unconstitutional and unenforceable. It has contended that the provisions violate Articles 14, 19(1)(g), 245 and 265 of the Constitution, the doctrine of separation of powers, and the basic structure doctrine. The petition also seeks suspension of the operation of the impugned provisions pending disposal of the case.

According to the petition, the challenged amendments retrospectively alter provisions relating to transfer pricing assessments, dispute resolution panel timelines, faceless reassessment proceedings, document identification number (DIN) requirements and approvals for reassessment proceedings.

The association contends that the amendments were enacted after courts had interpreted these provisions and that they adversely affect certainty in tax administration.

One of the challenges concerns amendments relating to limitation periods in transfer pricing proceedings and assessments involving the Dispute Resolution Panel. The petition contends that the amendments retrospectively enlarge limitation periods and seek to preserve assessments that would otherwise be barred by limitation.

“That the impugned amendment constitute a substantive enlargement of limitation period and not merely a clarification, and it is unconstitutional and violative of Article 265. Sections 8, 12 and 13 of the Finance Act, 2026 insert sub-sections (4A), (4B), (13A) and (13B) into Section 144C of the Act with retrospective effect from 01.04.2009 and 01.10.2009. Parallel amendments to Sections 153 and 153B retrospectively deem the forwarding of a draft order to constitute an order made within the prescribed time, thereby artificially preserving assessments that would otherwise stand time-barred under the unamended statutory framework,” the petition states.

The association has also challenged the retrospective insertion of Section 147A with effect from April 1, 2021. The petition contends that the amendment retrospectively reallocates jurisdiction in reassessment proceedings and is contrary to the statutory framework governing reassessment proceedings.

“That the proceedings under section 148A are a condition precedent to the issuance of a notice under section 148 and to the reassessment that follows. The proceedings under sections 148 and 148A constitute one continuous, integrated process of reassessment. To artificially dissect this process, in order to justify the impugned amendments, by attributing jurisdiction over pre-reassessment communications to the Jurisdictional Assessing Officer (“JAO”) while reserving the post-notice stage for the Faceless Assessment Officer (“FAO”) — is to compartmentalize a single, unbroken process in a manner that is inconsistent with the statutory scheme and is wholly without legislative warrant.”, the plea states.

The petition further challenges amendments concerning DIN requirements. According to the association, courts had invalidated assessments in cases involving non-compliance with DIN requirements, whereas the retrospective amendment provides that assessments shall not be invalid merely because of mistakes, defects, or omissions relating to DINs.

The association has also challenged amendments concerning approvals for reassessment proceedings. It contends that courts have held that sanctioning authorities must independently apply their minds before granting approval and that the retrospective amendment seeks to validate approvals notwithstanding judicial decisions on the issue.

According to the petition, the retrospective amendments override settled judicial interpretations, undermine certainty and predictability in tax administration, and violate constitutional principles.

The petition seeks interim suspension of the operation of the impugned provisions and a declaration that the retrospective amendments are unconstitutional and unenforceable.