New Delhi: The Supreme Court on Friday stayed the operation of a Punjab and Haryana High Court judgment that had declared Section 147A of the Income Tax Act, 1961 unconstitutional and set aside reassessment notices issued by jurisdictional Assessing Officers.
A bench of Justices J.B. Pardiwala and K. Vinod Chandran passed the interim order while hearing a Special Leave Petition (SLP) filed by the Union of India and other Income Tax authorities challenging the High Court judgment pronounced on September 10.
The Supreme Court directed that, in the interim, the assessment proceedings shall not proceed further until the final disposal of the main matter. The case has been listed for final hearing on December 3.
“The impugned judgment and order passed by the High Court shall remain stayed on the condition that the assessment proceedings shall not proceed further till the final disposal of the main matter,” the Bench led by Justice Pardiwala ordered.
Case Concerns Retrospective Introduction of Section 147A
The proceedings stemmed from a batch of petitions before the Punjab and Haryana High Court challenging the constitutional validity of Section 147A of the Income Tax Act. The provision was introduced retrospectively with effect from April 1, 2021, through the Finance Bill, 2026.
The petitioners had sought a declaration that Section 147A was ultra vires Articles 14, 19(1)(g) and 265 of the Constitution.
They also challenged notices issued under Section 148 of the Income Tax Act, contending that the notices had not been issued through the automated allocation mechanism prescribed under Section 151A of the Act and the scheme framed under it.
Punjab and Haryana HC Had Declared Section 147A Unconstitutional
In its September 10 judgment, the Punjab and Haryana High Court had held that the retrospective introduction of Section 147A could not override the existing statutory framework requiring randomised allocation and faceless proceedings.
A Division Bench of Justices Deepak Sibal and Rupinderjit Chahal observed that Section 147A sought to clarify that an Assessing Officer for the purposes of Sections 148 and 148A would mean an officer other than the National Faceless Assessment Centre or an assessment unit referred to under Section 144B.
The High Court also recorded that the Supreme Court, in an earlier order passed on April 10, had set aside earlier judgments in the matter on the limited ground that the legislative position had subsequently been altered and remitted the cases to the respective High Courts for fresh consideration.
The Supreme Court had then left open all questions concerning the validity, scope, effect, retrospectivity and applicability of the amended provision, while granting an interim stay on further assessment or reassessment proceedings pursuant to the impugned notices.
After examining the challenge afresh, the Punjab and Haryana High Court said it had “no hesitation to declare Section 147A of the Act to be unconstitutional”.
HC Set Aside Reassessment Notices Issued by Assessing Officers
The High Court further held that, even independently of Section 147A, the notices issued under Section 148 by the jurisdictional Assessing Officers were not sustainable because they had not been issued through the process of randomised allocation and in a faceless manner, as mandated under Section 151A of the Act read with the scheme dated March 29, 2022.
It accordingly directed that the notices issued under Section 148 to the petitioners be set aside and allowed the batch of writ petitions.
The Union government, the Central Board of Direct Taxes (CBDT), Deputy Commissioner of Income Tax and the National Faceless Assessment Centre (NFAC) subsequently approached the Supreme Court against the High Court judgment.
The Supreme Court has now stayed the operation of the High Court judgment, with the condition that the assessment proceedings shall not proceed further until the final disposal of the main matter.