Supreme Court to Hear Centre's Plea on Reassessment Notices After Section 147A Struck Down

The Supreme Court has agreed to urgently hear the Centre's challenge to a Punjab and Haryana High Court ruling that struck down a provision of the Income-Tax Act, a dispute that could affect reassessment proceedings involving numerous taxpayers.

Additional solicitor general N. Venkataraman told a bench led by Chief Justice of India Surya Kant that the High Court's ruling had created a "huge vacuum" in the reassessment process. The bench agreed to list the Centre's plea on Friday.

The case concerns whether regular jurisdictional assessing officers (JAOs) can issue reassessment notices, or whether such notices must be routed through the faceless assessment system. This is the second time the matter has reached the Supreme Court this year. In April, the apex court considered a large batch of appeals on the same issue but did not decide the dispute on merits after Parliament introduced Section 147A through the Finance Act, 2026. The court sent the cases back to the respective high courts to consider the new provision, including its constitutional validity and retrospective effect.

The Punjab and Haryana High Court later struck down Section 147A on 10 September, declaring it unconstitutional.

In a reassessment, the tax department can reopen a taxpayer's past assessment if it believes some income may have escaped taxation. Before reopening an assessment, the department can ask the taxpayer for an explanation. If it decides to proceed, it can issue a notice under Section 148.

The government introduced the faceless assessment system to reduce direct interaction between taxpayers and tax officers. Under the system, cases are allocated electronically and taxpayers generally communicate with the department online. The CBDT notified a scheme under Section 151A on 29 March 2022 for faceless assessment and reassessment proceedings, providing for automated allocation of cases.

Despite this, 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.

The debate began 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, and 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.

As the government has now moved the Supreme Court, it will have to consider whether Section 147A can protect reassessment proceedings initiated by regular tax officers and whether Parliament could give the provision retrospective effect.