SC stays high court order striking down provision on income tax reassessment process
SC stays high court order on income-tax reassessment
Theindiapostdaily.com – The Supreme Court has temporarily paused a Punjab and Haryana High Court ruling that struck down a provision linked to income-tax reassessment. While the SC stays high court order, it has also directed that the affected assessment and reassessment proceedings must not continue until the main case is finally decided.
A bench of Justice JB Pardiwala and Justice K. Vinod Chandran passed the interim order while hearing the Centre’s challenge to the High Court judgment. The Supreme Court scheduled the matter for final hearing on 3 December.
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.
What the interim order means
The High Court ruling will not operate for now, but tax authorities are equally unable to advance the assessments or reassessments covered by the dispute. The Supreme Court’s final decision will determine how reassessment notices issued under the relevant framework are treated.
The dispute concerns the faceless assessment system, under which cases are allocated electronically and taxpayers generally interact with the department online rather than through direct contact with local tax officials.
Dispute over reassessment notices
The main issue is whether jurisdictional assessing officers, or JAOs, can issue reassessment notices themselves or whether the notices must be issued through the faceless assessment mechanism.
On 29 March 2022, the Central Board of Direct Taxes notified a scheme under Section 151A for faceless assessment and reassessment, including automated allocation of cases. Taxpayers challenged notices issued by jurisdictional officers after the scheme came into force, arguing that the prescribed electronic route had to be followed.
High Courts reached differing conclusions on this question. Some upheld notices issued by jurisdictional officers, while others found that reassessment action had to proceed through the faceless system. The differing decisions created uncertainty for taxpayers and the tax department.
How the Punjab and Haryana case began
The dispute before the Punjab and Haryana High Court arose from a petition filed by Chandigarh lawyer Jyoti Sareen. She filed her income-tax return for assessment year 2020-21 in September 2020. In March 2024, her jurisdictional officer issued a notice under Section 148 to reopen her assessment.
Sareen challenged the notice on the ground that her local assessing officer lacked authority to initiate reassessment after the faceless scheme was introduced. On 19 July 2024, the High Court set aside her notice after finding that the prescribed faceless procedure had not been followed.
The ruling led to further challenges involving similar notices, with the court later considering more than 500 connected petitions. The SC stays high court order now leaves those matters subject to the Supreme Court’s eventual ruling.
Challenge to the retrospective amendment
During the litigation, Parliament introduced Section 147A through the Finance Act, 2026, with retrospective effect from 1 April 2021. The provision clarified that regular local assessing officers could conduct reassessment proceedings under Sections 148 and 148A instead of requiring every action to be handled through the automated faceless system.
Taxpayers opposed the retrospective change, arguing that it could not cure procedural defects identified under the earlier legal framework. The Punjab and Haryana High Court struck down Section 147A, prompting the Centre’s appeal to the Supreme Court.
Frequently asked questions for Indian taxpayers
Does the Supreme Court order cancel an income-tax reassessment notice? No. The order does not finally decide the validity of the notices. It pauses the High Court ruling and prevents the affected assessment and reassessment proceedings from moving forward until the main case is decided.
Can a taxpayer ignore a reassessment notice? Taxpayers should not ignore any notice from the Income Tax Department. They should review the notice, preserve relevant records, and seek professional advice where necessary, particularly if their case is connected to the issue before the Supreme Court.
Why does the faceless system matter? The faceless system is intended to allocate cases digitally and reduce direct interaction between taxpayers and tax officials. The final outcome will clarify whether jurisdictional officers may issue certain reassessment notices outside that process.