Budget 2026 has introduced certain retrospective amendments to nullify the impact of certain favourable rulings for taxpayers; Know more
Feb 1, 2026
Synopsis
The Finance Bill 2026 introduces retrospective amendments to the Income-tax Act, 1961, addressing key court rulings. These changes clarify time limits for transfer pricing assessments, validate the jurisdiction of Jurisdictional Assessing Officers for reassessment notices, and protect assessment orders from invalidity due to DIN quoting errors, effective from 2009 and 2021 respectively.
Based on the Finance Bill 2026 and the Memorandum Explaining the Provisions, the Hon’ble Finance Minister has introduced certain retrospective amendments to the Income-tax Act, 1961, to nullify the impact of various court rulings regarding the time limits for transfer pricing assessments (often associated with the Shelf Drilling case), the jurisdiction of Assessing Officers (JAO vs. FAO), and the Document Identification Number (DIN).
Here is the clarification and summary of these retrospective amendments.
1. Controversy regarding Time Limits for Final Assessment (Shelf Drilling Case Issue)
The Controversy: There has been prolonged litigation regarding the interplay between the general limitation period for assessments (under Sections 153 and 153B) and the specific time limits provided for Transfer Pricing cases eligible for the Dispute Resolution Panel (DRP) under Section 144C. Courts have issued differing interpretations, with some holding that the final assessment order must still be passed within the overall outer limit of Section 153, even if the DRP process is involved. The Memorandum notes that even the Apex Court has rendered a "split verdict" on this issue.
The Amendment: To clarify the legislative intent, the Finance Bill 2026 amends Sections 144C, 153, and 153B
It clarifies that the time limits in Sections 153 and 153B apply only to the passing of the draft order.
Once the draft order is forwarded under Section 144C(1), the time limit for completing the assessment is governed exclusively by Section 144C (i.e., within one month from the end of the month in which DRP directions are received or the acceptance is received)
Sub-section (13A) is inserted in Section 144C to state that notwithstanding any judgment/order, the time period to pass the assessment order shall be governed by Section 144C(13)
New sub-sections are added to Section 153 and 153B to clarify that the draft order must be made within the time limit of these sections, but the final order follows Section 144C.
Retrospective Effect: These amendments take effect retrospectively from 1st April 2009 (for Section 153) and 1st October 2009 (for Section 153B)
2. Controversy regarding JAO vs. FAO Jurisdiction (Section 148)
The Controversy: Following the introduction of the Faceless Assessment Scheme, several High Courts quashed reassessment notices issued under Section 148 by Jurisdictional Assessing Officers (JAO). The courts held that under Section 151A, such notices should have been issued by the Faceless Assessing Officer (FAO) through the National Faceless Assessment Centre (NaFAC).
The Amendment: The Government asserts that it was never the intention to mandate NaFAC to involve pre-assessment enquiry or issuance of Section 148 notices. To settle this, Section 147A is inserted into the Income-tax Act, 1961.
The new section clarifies that for the purposes of Section 148 (issuance of notice) and Section 148A (inquiry before notice), the "Assessing Officer" shall mean an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit.
This explicitly validates the jurisdiction of the JAO to issue these notices.
Retrospective Effect: This amendment takes effect retrospectively from 1st April, 2021.
3. Controversy regarding Document Identification Number (DIN)
The Controversy: CBDT Circular 19 of 2019 mandated quoting a computer-generated DIN on the body of communications. Various High Courts have held assessment orders invalid on technical grounds, such as the DIN not being quoted on the body of the order (even if generated), or not quoted on every page.
The Amendment: A new Section 292BA is inserted into the Income-tax Act, 1961.
It states that no assessment shall be invalid or deemed invalid merely on the ground of any mistake, defect, or omission in respect of quoting a computer-generated DIN.
This protection applies if the assessment order is referenced by such number in any manner.
Retrospective Effect: This amendment takes effect retrospectively from 1st October, 2019,.
[The Economic Times]
