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Supreme Court Stays the Punjab and Haryana High Court Judgment Striking Down Section 147A of the Income-tax Act

Writer: Kaustav Chowdhury
Kaustav Chowdhury
15 minutes ago
6 min read

Background and Facts

The Supreme Court has stayed a Punjab and Haryana High Court judgment that declared Section 147A of the Income-tax Act, 1961 unconstitutional, but has done so on terms that stop the Revenue from pressing ahead in the meantime. The order was passed on September 18, 2026 in Union of India and Others v. Bharat Industrial Enterprises Private Limited [Special Leave Petition (Civil) No. 33196 of 2026].

Section 147A was inserted into the Income-tax Act, 1961 by the Finance Act, 2026, with retrospective effect from April 1, 2021. Its purpose, as reported, was to validate reassessment notices issued by Jurisdictional Assessing Officers during the period after the faceless reassessment regime had come into operation. A large volume of notices had been issued by Jurisdictional Assessing Officers rather than through the faceless machinery, and High Courts had been quashing them for that reason.

On September 10, 2026, a Division Bench of the Punjab and Haryana High Court comprising Justice Deepak Sibal and Justice Rupinderjit Chahal declared the provision unconstitutional. The Union of India carried the matter to the Supreme Court. It should be noted that the detailed reasons of the High Court were not available when the stay was granted, so the constitutional reasoning is described here only at the level the reports support.

Key Legal Issue

The question is whether Parliament can retrospectively confer jurisdiction on an officer who, on the law as it had been judicially interpreted at the time, did not hold that jurisdiction. The reported basis of the High Court's conclusion is that the amendment did not cure the underlying defect, because Section 151A and the faceless scheme framed under it were left untouched, and that a non-obstante clause cannot displace a judicial determination without addressing what the determination rested on.

The Supreme Court's Order

A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran stayed the High Court judgment. The operative direction is conditional:

"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 matter has been listed for final hearing on December 3, 2026.

A Stay That Freezes Both Sides

The shape of the order deserves attention, because a stay of this kind is not a win for the Revenue in any practical sense. Two things follow from it at once.

  • The declaration of invalidity does not operate: Because the High Court judgment is stayed, Section 147A is not to be treated as struck down. An assessee cannot rely on the judgment as a subsisting declaration that the provision is void.

  • The Revenue cannot act on the provision either: The condition attached to the stay bars assessment and reassessment proceedings from proceeding further until the main matter is finally disposed of. The Revenue therefore gains no ground from the stay it obtained.

The net effect is a standstill. Proceedings that depend on the validity of Section 147A are held in suspension rather than resolved in either direction, and the resolution is deferred to the hearing in December.

Section 151A and the Defect the Amendment Had to Cure

Section 151A is headed

Faceless assessment of income escaping assessment. It empowers the Central Government, by notification, to make a scheme for the purposes of assessment, reassessment or re-computation under Section 147, so as to eliminate the interface between the taxpayer and the authority, optimise the use of resources, and introduce team-based assessment with dynamic jurisdiction. Sub-section (2) allows the Government to direct that provisions of the Act shall not apply, or shall apply with modifications, for the purpose of giving effect to the scheme, and sub-section (3) requires every such notification to be laid before each House of Parliament.

The significance for the present dispute is structural. Once a scheme under Section 151A allocates reassessment through a faceless and automated process, a notice issued outside that process is open to challenge on the ground that the issuing officer lacked jurisdiction. A retrospective validation that leaves Section 151A and the notified scheme as they stand does not obviously answer that objection, and that is the fault line the litigation now turns on.

The New Income-tax Act Does Not Make the Question Academic

The Income-tax Act, 2025 took effect on April 1, 2026 and replaces the Income-tax Act, 1961 going forward. It would be a mistake to treat the Section 147A dispute as spent for that reason. Section 536(2)(c) of the Income-tax Act, 2025 provides that the provisions of the repealed Income-tax Act continue to apply to any proceeding pending on the date of commencement of the new Act, and to any proceeding initiated on or after April 1, 2026 in respect of any tax year beginning before April 1, 2026.

The test is therefore the tax year to which the income belongs, not the date on which a notice or an order happens to issue. Reassessments for tax years up to and including 2025-26 remain governed by the 1961 Act however late the procedural steps are taken. The validity of Section 147A will continue to govern a large body of reassessment work for years to come.

Practice Notes

In practice, the standstill changes what should be done now rather than suspending the file:

  • For assessees holding a Section 147A notice: Do not treat the High Court judgment as a subsisting declaration of invalidity, and do not treat the stay as authority for the Revenue to proceed. Record the position on the file and diarise the December 3, 2026 hearing.

  • On limitation and the standstill: The condition halts the proceedings but does not decide them. Preserve every objection to the jurisdiction of the issuing officer now, in the reply and on the record, rather than reserving it for a later stage when the standstill lifts.

  • For assessees whose notices were already quashed: A notice quashed by a final and unchallenged order stands on a different footing from a notice whose fate depends on Section 147A. Separate the two categories before advising, because only the second is exposed to the outcome in December.

  • On the transition: Identify the tax year first. Section 536(2)(c) keeps the 1961 Act in play for earlier years, so the arrival of the 2025 Act is not an answer to a reassessment for an earlier period.

  • On the reasoning: Advice should not be built on the High Court's ratio until the detailed judgment is available. What is presently certain is the disposal and the condition, not the constitutional analysis.

Key Provisions Discussed

  • Section 147 of the Income-tax Act, 1961: Income escaping assessment, being the subject matter of the scheme contemplated by Section 151A.

  • Section 147A of the Income-tax Act, 1961: Inserted by the Finance Act, 2026 with retrospective effect from April 1, 2021, and declared unconstitutional by the Punjab and Haryana High Court in the judgment now stayed.

  • Section 151A of the Income-tax Act, 1961: Faceless assessment of income escaping assessment, empowering a notified scheme for team-based assessment with dynamic jurisdiction, with notifications to be laid before each House of Parliament.

  • Section 536(2)(c) of the Income-tax Act, 2025: The repealed Income-tax Act continues to apply to proceedings pending at commencement and to proceedings initiated on or after April 1, 2026 in respect of a tax year beginning before that date.

Case Details

  • Case: Union of India and Others v. Bharat Industrial Enterprises Private Limited

  • Case No: Special Leave Petition (Civil) No. 33196 of 2026

  • Court: Supreme Court of India

  • Date of Order: September 18, 2026

  • Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran

  • Order Below: Judgment of the Punjab and Haryana High Court dated September 10, 2026, by Justice Deepak Sibal and Justice Rupinderjit Chahal, declaring Section 147A unconstitutional

  • Outcome: High Court judgment stayed on the condition that assessment and reassessment proceedings shall not proceed further until final disposal. Listed for final hearing on December 3, 2026.

Sources and References


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.

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