Supreme Court stays Punjab and Haryana HC judgment in JAO tax notice case

The Supreme Court on Friday stayed the Punjab and Haryana High Court’s judgment, which had struck down a retrospective change in the income tax law as unconstitutional, on the condition that the re-assessment proceedings shall also remain stayed till the disposal of the case.

A Bench comprising Justices JB Pardiwala and K Vinod Chandran passed the order on the Finance ministry's appeal challenging the HC's September 10 judgment which struck down Section 147A of the Income Tax Act concerning the jurisdiction of the assessing officer in reopened assessments.

“The impugned judgment and order passed by the High Court shall remain stayed, subject to the condition that the assessment and reassessment proceedings shall not proceed further until the final disposal of the main matter,” the apex court said, while posting the matter for further hearing on December 3.


Also read | Tamil Nadu to launch one-gram gold ring scheme for newborns on September 28, first batch of 1.28 lakh rings ready

The HC had held that the retrospective provision could not validate reassessment notices issued by JAOs when the faceless reassessment scheme was in effect, revoking the government’s justification for reopening old tax returns. It quashed a batch of reassessment tax notices issued to assessees, holding that these notices were not issued through the process of randomised allocation of assessing officers and in a faceless manner. It held that reassessment proceedings begun by JAOs in breach of the faceless procedure were invalid.

The section, introduced by the Finance Act, 2026 to retrospectively amend the law, clarified that from April 1, 2021, jurisdictional assessing officers (JAOs), not the faceless system, were the authority to issue reassessment notices. The matter concerns reassessment proceedings involving more than 200,000 taxpayers.

Stating that the HC order has opened up a "Pandora's box and caused a nationwide catastrophe and administrative chaos” and also interferesd with the day-to-day functions of the income tax authorities and restricted them severely, the government told the apex court that the HC judgment has far-reaching consequences on the resources of this nation.

Also read | MEA asserts it will protect national interests amid Bangladesh’s review of 101 bilateral pacts

About 8,82,146 notices under Section 148 were issued across the country for assessment years 2016-17 to 2025-26, being 0.1271% of the 69,40,62,325 returns filed. "Out of these, reassessment orders stand passed in 6,46,897 cases raising demand of Rs 17,40,038 crore. Around 1,46,544 cases remain pending, and the total revenue at stake is of the order of Rs 21,34,215 crore," the ministry said in its appeal, adding that "over 99.8% of assessees complied with their JAOs without demur."

The government represented by Additional Solicitor general N Venkataraman submitted that when 99.8% of the assessees had not objected to the JAOs issuing Section 148 notices, and the provisions as such are in place and in practice, a miniscule number of assessees constituting less than 0.2% are seeking to unsettle the law which the HC has permitted and facilitated.

Stating that the "unreasoned" order require interference by the apex court, the government said that the September judgment will not only affect the past notices but will also affect the notices to be issued in the future since the same framework is also carried forward under the Income Tax Act, 2025 which came into effect from April 1, therefore, unless the HC is stayed, it will create a complete hiatus and perpetuate a position of vacuum created earlier by conflicting HC judgments.

The issue before the court is whether reassessment notices sent in the old conventional way were valid after the government laid down that the process must be technology-driven and faceless, with the cases allocated to officers through an automated system. The faceless assessment regime was introduced in 2021. However, the law was amended retrospectively to uphold notices that were served even after the faceless procedure was mandatory in 2022.

Many individuals and companies had moved various high courts challenging proceedings initiated directly by JAOs. In April, the SC, while hearing a batch of appeals on the issue, sent them back to the respective high courts to consider the new retro provision, including its constitutional validity and retrospective effect.