The Supreme Court on Friday stayed a recent Punjab and Haryana High Court judgment that had declared Section 147A of the Income Tax Act unconstitutional. According to Business Standard, a Bench comprising Justices J B Pardiwala and K Vinod Chandran passed the interim order while hearing the Centre's challenge to the High Court judgment in Union of India and Others v Bharat Industrial Enterprises Private Limited. The stay will remain in force until the Supreme Court finally decides the matter, with the court directing that the assessment and reassessment proceedings covered by the dispute should not be taken forward until the Supreme Court decides the matter finally. The Bench directed that the High Court judgment would remain stayed, maintaining the legal status quo while the constitutional dispute is resolved.
The challenge concerns the statutory framework governing reassessment proceedings under Sections 148 and 148A of the Income Tax Act, particularly the respective roles of the jurisdictional assessing officer (JAO) and the National Faceless Assessment Centre (NFAC). As reported by Business Standard, the underlying dispute concerns the manner in which notices under Section 148 of the Income-tax Act can be issued, with the key question being whether such notices can be issued by the taxpayer's jurisdictional assessing officer (JAO) or have to be issued through the faceless assessment mechanism. The controversy stems from Section 151A of the Act and the e-Assessment of Income Escaping Assessment Scheme notified on March 29, 2022, which envisaged the use of automated allocation and a faceless mechanism for issuing notices seeking to reopen assessments. A number of taxpayers subsequently questioned reassessment notices issued directly by their respective jurisdictional assessing officers, leading to the current legal challenge.
Against this backdrop, Parliament introduced Section 147A through the Finance Act, 2026, with retrospective effect from April 1, 2021. According to Business Standard, the provision contained an overriding clause and specified that, for reassessment proceedings covered by it, the assessing officer would mean an officer other than the National Faceless Assessment Centre (NFAC) or its assessment units. The amendment effectively sought to preserve the jurisdiction of jurisdictional officers to undertake reassessment-related functions, notwithstanding the earlier judicial rulings concerning the faceless mechanism. The provision also stated that it would operate notwithstanding any judgment, order or decree of a court, Section 151A or any scheme framed under it. However, the Punjab and Haryana High Court subsequently examined the constitutional validity of Section 147A and struck it down on September 10, with the court holding that Parliament could alter the legal position arising from a judicial ruling only by addressing the legal basis underlying that decision, and not merely by declaring through legislation that the judicial position would not apply.
The High Court held that legislation could not retrospectively alter the legal position merely by declaring that a position contrary to earlier judicial findings was valid. As reported by Business Standard, the High Court also held that Section 151A and the 2022 scheme continued to mandate automated allocation and faceless issuance of reassessment notices, in its view, the subsequent insertion of Section 147A, despite its overriding language, did not remove the legal basis of the earlier judicial interpretation or resolve the inconsistency. The court consequently held the retrospective legislative intervention to be impermissible, creating the legal vacuum that the Centre now seeks to address through its Supreme Court challenge. The Supreme Court's Friday stay order is expected to be closely watched by the legal and business communities, as the outcome will shape the future of tax litigation in India and determine the fate of countless reassessment notices that have been initiated by JAOs across the country. The Centre's challenge before the Supreme Court is based on the argument that Parliament was competent to enact retrospective legislation and that Section 147A had changed the legal basis of earlier judgments by clarifying who could act as the Assessing Officer.
