SC stays high court order striking down provision on income tax reassessment process

Mumbai: The Supreme Court on Friday stayed an order of the Punjab and Haryana High Court that had struck down a provision of the Income-Tax Act, involving reassessment proceedings.

Hearing the Centre's plea challenging the high court's 10 September judgment, an apex court division bench consisting of Justice JB Pardiwala and Justice K. Vinod Chandran said, “The impugned order shall remain stayed on the condition that assessment as well as reassessment proceedings shall not proceed further till final disposal of the main matter.” the court ordered.

The matter will be taken up for final hearing on 3 December.

On Wednesday, additional solicitor general N. Venkataraman had told the court that the high court ruling had created a “huge vacuum” in the reassessment process of the tax department.

The dispute was about whether regular jurisdictional assessing officers (JAOs) can issue reassessment notices or whether the notices must be issued through the faceless assessment system.

The issue arose after the tax department moved to a faceless system for several assessment and reassessment proceedings.

Under the faceless system, cases are allocated electronically, and taxpayers generally deal with tax authorities online rather than with a particular local tax officer. The government had introduced the system to reduce direct interaction between taxpayers and tax officers.

The Central Board of Direct Taxes (CBDT) notified a scheme under Section 151A on 29 March 2022 for faceless assessment and reassessment proceedings. The scheme provided for automated allocation of cases.

Despite this, these cases of regular JAOs continued to issue reassessment notices in several cases. Taxpayers challenged these notices in various High Courts, arguing that reassessment proceedings had to follow the faceless system.

Different high courts gave different rulings. Some allowed JAOs to issue the notices, while others said the notices had to go through the faceless system.

Section 147A of the Income Tax Act clarified that traditional, local tax officers, instead of the automated, centralised faceless system, have the legal authority to handle tax reassessment proceedings under sections 148 and 148A.

The debate started after Chandigarh lawyer Jyoti Sareen filed her income-tax return for assessment year 2020-21 in September 2020, and her jurisdictional tax officer issued a Section 148 notice seeking to reopen her assessment in March 2024.

Sareen challenged the notice in the Punjab and Haryana High Court, arguing that her regular tax officer could not issue the notice and that it should have gone through the faceless system.

On 19 July 2024, the high court quashed Sareen’s reassessment notice, holding that the process had not followed the faceless scheme.

The ruling led to more taxpayers challenging similar notices. The high court eventually dealt with a batch of more than 500 connected petitions.

While the dispute was pending, Parliament introduced Section 147A through the Finance Act, 2026, with retrospective effect from 1 April 2021.

The provision sought to clarify that regular assessing officers could handle reassessment proceedings and that notices issued by them could not be treated as invalid simply because of the faceless assessment system.

Taxpayers challenged the provision, arguing that the amendment did not remove the legal problem identified by the courts.

The Punjab and Haryana High Court ultimately struck down Section 147A. It held that Parliament could not retrospectively treat an earlier legal position as valid when constitutional courts had already found the procedure defective. The court held that the amendment effectively tried to bypass those earlier judicial findings.

About the Author

Yash Tiwari is a Mumbai-based journalist who reports on corporate and regulatory developments, with a focus on court-driven policy shifts and the intersection of law and public policy. He has been in the profession for two years. Before joining Mint, he worked at NDTV Profit as an assistant producer on the TV desk while also reporting, gaining experience across television and print journalism and combining reporting with production expertise.<br><br> Born in Kolkata, a city he remains deeply connected to, Yash has a keen interest in the technicalities of Indian law and aims to decode complex legal developments in a clear and accessible manner for readers. He is a graduate of the Asian College of Journalism, Chennai, where he completed his postgraduate diploma in journalism.<br><br> He closely follows politics and government policies, and has covered several state elections as a freelance journalist. His work is driven by the idea of making law less intimidating and more understandable for the general public.<br><br> When not at work, Yash can be found playing cricket, revisiting classic matches, or engaging in conversations about the evolving landscape of law and policy in India.

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