Supreme Court Stays High Court Ruling on Income Tax Reassessment Provision

The Supreme Court on Friday stayed a Punjab and Haryana High Court judgment that had struck down a provision of the Income-Tax Act concerning reassessment proceedings. A division bench of Justice JB Pardiwala and Justice K. Vinod Chandran, hearing the Centre's challenge to the 10 September ruling, directed that assessment and reassessment proceedings shall not move forward until the main matter is finally decided. The case will be taken up for final hearing on 3 December.

The dispute centres on whether regular jurisdictional assessing officers (JAOs) can issue reassessment notices, or whether such notices must be routed through the faceless assessment system. Under the faceless framework, cases are allocated electronically and taxpayers interact with tax authorities online rather than with a specific local officer — a system introduced to reduce direct contact between taxpayers and officials. The Central Board of Direct Taxes notified a scheme under Section 151A on 29 March 2022 to provide for automated allocation of cases.

Despite the scheme, regular JAOs continued to issue reassessment notices in several cases, prompting taxpayers to challenge them in various High Courts. The rulings that followed were inconsistent: some courts upheld the authority of JAOs to issue notices, while others held that the faceless system was mandatory.

The matter traces back to Chandigarh lawyer Jyoti Sareen, who filed her income-tax return for assessment year 2020-21 in September 2020. In March 2024, her jurisdictional tax officer issued a notice under Section 148 seeking to reopen her assessment. Sareen challenged the notice before the Punjab and Haryana High Court, arguing that her regular officer lacked the authority to issue it and that it should have gone through the faceless system. On 19 July 2024, the High Court quashed the notice, holding that the faceless scheme had not been followed. The decision prompted other taxpayers to file similar challenges, and the 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 merely because of the faceless assessment system.

Taxpayers challenged the provision, contending that the amendment did not resolve the legal defect identified by the courts. The High Court ultimately struck down Section 147A, holding that Parliament could not retrospectively validate an earlier legal position when constitutional courts had already found the procedure defective. The court held that the amendment effectively sought to bypass those judicial findings.

Earlier in the week, additional solicitor general N. Venkataraman told the Supreme Court that the High Court's ruling had created a "huge vacuum" in the tax department's reassessment process.