PAN misuse: when a portal entry becomes a Rs 3.91 crore demand

In one line. Information on the portal is where a reassessment starts, and an officer who treats it as where the reassessment ends will be asked, sooner or later, what inquiry he made of his own.

A man who worked as a contractual security guard at Ashoka Hotel and as a cook at Vigyan Bhawan, through agencies to whom he had given copies of his permanent account number card, was assessed for assessment year 2017-18 on a turnover of Rs 49,48,64,985. He had taken the number in the first place, the Court records, “out of anxiety to secure an identity proof issued by government, though his income was never taxable”. Eight per cent of that turnover was treated as his income, a demand of Rs 3,91,06,511 followed, and four separate penalties were set in motion. The entire case against him was that his number appeared in the records of a packaging company he had never heard of. He filed a police complaint and a complaint with the cyber cell, produced both, asked for the material relied on and asked that the proceedings wait for the investigation. He got none of it.

The Delhi High Court quashed the assessment in Lalit v. Union of India, Ministry of Finance through its Secretary & Ors., W.P.(C) 9365/2025, decided on 6 October 2026 by Dinesh Mehta and Dr. Aditi Choudhary JJ. It is an oral judgment, marked reportable, and it is on the free databases. The assessment order it set aside is dated 17 March 2025.

Two features of the record should travel with the judgment wherever it is cited, because they limit it. The Revenue argued nothing on the merits: its case, recorded at paragraph 10, was that the petitioner had bypassed the statutory remedies and that the matter involved disputed questions of fact unsuitable for writ jurisdiction. And the Court did not merely decline to resolve the disputed fact; it resolved it, holding at paragraph 20 that the petitioner’s stand “is plausible, and there is every reason to accept that he had no nexus with the transactions mentioned in the assessment order”. A judgment on an undefended merits, in which the writ court decided the very fact the Revenue said it could not decide, is a useful judgment and a vulnerable one.

Key points

• Portal information is the trigger for a reassessment, not the proof of one. The Court held the order was founded solely on risk management strategy information and Form 26AS, after the Senior Standing Counsel, asked what else it rested on, “could not give any satisfactory reply on the basis of available record”.
• Section 133(6) was available throughout and never used. The Court said the least the officer ought to have done was issue a notice to the vendor and ask for details or record a statement. If you are defending one of these, ask for that inquiry in writing early, because the complaint is only available to you if you asked.
• Once the assessee denied the transactions and produced material consistent with the denial, the burden went back to the officer. That is Kishinchand Chellaram, and it is older and stronger than anything the Department will cite against it.
• The material behind the information was never supplied and the reply was never considered. That is the finding the judgment rests on, and it is the one that survives every change in the reassessment machinery, because it does not depend on section 148A at all.
• The Court found the officer had “proceeded absolutely arbitrarily and with closed or predetermined mind”. A finding of pre-determination is what makes a writ appropriate where an appeal would otherwise do.
• The two figures the officer added were one transaction, gross and net of a 1 per cent collection. The Court said so expressly as an illustration of “the manner in which an assessing officer can agonise an assessee”, not as a ground, so cite it for what it is.
• The notice was issued on 26 February 2024, so the old clause-structured section 148A applied, including the enquiry power in clause (a). That clause went on 1 September 2024, which moves the argument rather than ending it.
• The writ was entertained despite the appeal because a 20 per cent deposit of about Rs 78 lakh, and in any event a surety, put the appellate remedy out of this petitioner’s reach. The authority against that course is strong and is set out below.
• The Court quashed the order and expressly allowed fresh proceedings on cogent material, subject to limitation. For this petitioner that liberty is close to theoretical, because the limitation the first proviso to section 149 preserved expired on 31 March 2024.

What the information was, and what it was not

Strip the case to its evidential core and one fact is left. A permanent account number, AKGPL3356C, appeared against transactions in the records of Montage Enterprises Pvt. Ltd., a company dealing in plastic packaging goods. From that, two figures reached the Insight platform under the risk management strategy and from there the notice: a cash payment of Rs 24,86,63,500 said to have been made by the assessee to that company, and a cash sale of Rs 24,62,01,485.

What it was not is everything else. There was no statement of anybody at Montage. There was no bank trail, no delivery document, no goods, no godown, no transport, and nothing to suggest the assessee had ever carried on any business, let alone one in plastic packaging. When the Court asked, in terms, whether the assessment order referred to any other evidence apart from Form 26AS and the annual summary, or whether any independent inquiry had been made or any statement recorded from the owner of Montage, counsel for the Revenue could not answer.

That exchange is the case. An assessment can begin with a database entry. It cannot end with one, because a database entry records that somebody quoted a number, and the question in dispute was whether the person who quoted it was the person who owns it.

The statute itself draws the distinction. Section 148 speaks of “information which suggests that income chargeable to tax has escaped assessment”. Suggests. The word sets a threshold for starting and says nothing about what will carry an addition at the end.

One practical note on how the number escaped, because it is the commonest route. He was a contractual worker placed through agencies, Suraksha Security Agency and M/s. Mass Management Services Pvt. Ltd., and in that process, as his counsel put it, “the details might have been copied or stolen”. Know your customer copies handed to a placement agency are the leak. That is worth saying to any client who hands photocopies of the card to anybody.

The procedure that applied in February 2024

The show-cause notice was issued on 26 February 2024. That date decides which procedure governed, and getting it wrong is the quickest way to lose credibility in a submission on this subject.

Until 31 August 2024 section 148A was structured in clauses. It provided that the Assessing Officer shall, before issuing any notice under section 148, do four things:

“(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; (b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued … (c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b); (d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him”

Four features of that text matter and three are now gone. There was an express power of enquiry at clause (a). There was a floor and a ceiling on the time to reply, seven days and thirty. There was an outer limit of one month from the end of the month of the reply for the order at clause (d). And there was the duty at clause (c) to consider the reply, which is the duty that survived the amendment and the one this case is really about, though the Court attached its findings to the assessment rather than to any particular clause.

Section 44 of the Finance (No. 2) Act 2024, Act No. 15 of 2024, assented on 16 August 2024, substituted sections 148 and 148A “with effect from the 1st day of September, 2024”. The substituted section is in sub-sections. It requires the show-cause notice to be accompanied by the information, requires a reply within the period specified, and requires an order with prior approval. It has no enquiry clause, no seven to thirty day window and no outer limit for the order.

Two consequences, and one false consolation to avoid.

Use the right labels for the right year. For a notice before 1 September 2024, “148A(b) notice” and “148A(d) order” are correct. For a notice after that date they name provisions that no longer exist.

The enquiry point has moved, not disappeared. The criticism here was that nobody looked behind the data before concluding. Under the old clause (a) that criticism could attach to the pre-notice stage. It now has nowhere to attach at that stage, so it has to be made in the assessment, where section 133(6), section 142 and the best judgment discipline of section 144 still supply the duty. The first point at which anyone is obliged to look behind a portal entry has been pushed later, which is the opposite of what this case suggests is needed.

And do not say the amendment fixes this complaint. It is tempting to point out that the substituted section 148A(1) requires the show-cause notice to be “accompanied by the information which suggests that income chargeable to tax has escaped assessment”, and to treat that as answering the grievance here. It does not. The information was in this notice: paragraph 3 of the judgment records that the notice itself alleged the cash payment of Rs 24,86,63,500 and showed the cash sale of Rs 24,62,01,485. What the assessee asked for and never received, recorded at paragraph 5, was “various information relating to the transactions and copies/details of the transactions”, which is the material behind the information. Section 148A(1) compels disclosure of the information. It does not compel disclosure of the material. The complaint in this case survives the amendment intact, and anyone who claims otherwise will be shown paragraph 3.

Limitation, sanction, and the clock nobody mentions

Three jurisdictional checks belong at the front of any file of this kind, and only the first is obvious.

Section 149. Assessment year 2017-18 ended on 31 March 2018. The three year limit in section 149(1)(a) expired on 31 March 2021, so the notice had to find shelter in clause (b), which then ran to ten years where the officer had in his possession books of account or other documents or evidence revealing escaped income of fifty lakh rupees or more “represented in the form of” an asset, “expenditure in respect of a transaction or in relation to an event or occasion”, or an entry or entries in the books of account. The first proviso then bites, because the assessment year begins on or before 1 April 2021, and it preserves the pre-Finance Act 2021 outer limit of six years from the end of the assessment year, which is 31 March 2024. The notice of 26 February 2024 beat it by thirty-four days.

Two things are contestable, and the fifty lakh threshold is not one of them. The first is the words “represented in the form of”. Clause (b) is a jurisdictional condition, not a time rule, and recasting an alleged cash payment as the assessee’s turnover converts the thing relied on from expenditure into a receipt. Note that the second limb is wider than it is usually quoted: “expenditure in respect of a transaction or in relation to an event or occasion”, words the Finance Act 2022 added and which the Revenue will reach for. The second is that clause (b) requires material “which reveal” the escapement, and a portal entry reveals that a number was quoted, not who quoted it, which is the disputed fact itself.

Section 151. The notice is more than three years after the end of the assessment year, so the sanction had to come from the higher specified authority. The judgment says nothing about sanction because nothing was argued about it. On any file of this vintage, ask for the approval and check who gave it and when. A defective sanction is a cleaner ground than anything in this judgment, because it does not require the Court to look at the facts at all.

Section 151A and the faceless question. Whether the jurisdictional Assessing Officer could issue the notice at all, given the scheme notified under section 151A, has been a live and frequently successful challenge to notices of exactly this period. Again, nothing was argued here. Again, check it first.

And section 153, which explains the officer’s conduct. The assessment order is dated 17 March 2025. Work backwards and the pressure becomes visible: on a notice under section 148 issued in the financial year 2023-24, section 153 left the officer until 31 March 2025 to complete the assessment. That is an inference, because the judgment gives the date of the section 148A(b) notice and not of the section 148 notice, but it fits the dates and it explains paragraph 8. The assessee had asked that the proceedings be kept in abeyance until the police investigation was over. The officer refused. An officer two weeks from the wall is not going to wait for a police investigation, whatever the merits of the request.

Two practical conclusions follow. Make the abeyance request anyway, in writing, because the refusal is evidence of the predetermination the Court found here. And do not build your case on the expectation that it will be granted.

Information is not evidence

The doctrinal authorities need handling with care, because the best known of them do not say quite what they are cited for.

The classical statements come from the old regime. In Income Tax Officer v. Lakhmani Mewal Das, Civil Appeal No. 2526 of 1972, decided on 30 March 1976 by Khanna and Goswami JJ, the Supreme Court held that the powers to reopen “though wide are not plenary”, that “The words of the statute are ‘reason to believe’ and not ‘reason to suspect’”, and that there must be “a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief”. It added that “It is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief”. In Chhugamal Rajpal v. S.P. Chaliha, Civil Appeal No. 1311 of 1967, decided on 21 January 1971 and reported at (1971) 79 ITR 603, the Court found that the officer “appears to have had only a vague feeling that they may be bogus transactions” and that “his conclusion is that there is a case for investigating as to the truth of the alleged transactions”, which is not a belief that income has escaped.

The Delhi High Court built on that. In Principal CIT v. Meenakshi Overseas Pvt. Ltd., ITA 692/2016, decided on 26 May 2017 by Muralidhar and Chander Shekhar JJ, it held that “the crucial link between the information made available to the AO and the formation of belief is absent”, that reopening “certainly cannot be invoked casually or mechanically”, that “the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation”, and that what was before it was “a ‘borrowed satisfaction’”. Quoting its earlier decision in Rajiv Agarwal, it added that “even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material”. In Pr. CIT v. RMG Polyvinyl (I) Ltd., ITA 29/2017, decided on 7 July 2017, the same Court held that “the information received from the Investigation Wing cannot be said to be tangible material per se”.

Two cautions before either goes into a submission.

Neither is a Form 26AS case. Both are accommodation-entry matters built on Investigation Wing reports, and the expressions “annual information return” and “Form 26AS” appear in neither. Cite them for information-based reopening and borrowed satisfaction, which is what they decide.

All of them are pre-2021. Each was given when the jurisdictional trigger was the officer’s own “reason to believe”. The Finance Act 2021 replaced that with “information which suggests”, and a Departmental Representative will say, correctly, that authority addressed to a precondition Parliament has deleted cannot be transplanted whole.

The bridge is Divya Capital One Private Limited v. ACIT, W.P.(C) 7406/2022, decided by the Delhi High Court on 12 May 2022 by Manmohan and Dinesh Kumar Sharma JJ, holding that “the term ‘information’ in Explanation 1 to Section 148 cannot be lightly resorted to so as to re-open assessment”, that “This information cannot be a ground to give unbridled powers to the Revenue”, and that “Whether it is ‘information to suggest’ under amended law or ‘reason to believe’ under erstwhile law”, the benchmark of escapement “still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act”. The older cases survive as to the discipline, not as to the formula. Note that Divya Capital One quashed and remanded for a fresh reasoned order rather than ending the matter.

On additions resting solely on third-party or portal data there is a gap in the authority worth stating rather than papering over, and two of the citations most often pressed into service need correcting before use.

CIT v. Odeon Builders Pvt. Ltd. is a Supreme Court order of 21 August 2019 dismissing review petitions. Separate the voices in it, because the usual quotation splices two. The Court’s own words are that “on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs.19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny”. What follows, including the passage about information “not been independently subjected to further verification by the AO” and the denial of cross-examination, is the Commissioner (Appeals) order which the Court then set out. The order is worth citing. It is worth citing accurately, and as a refusal to reopen concurrent findings.

In Star Consortium v. ITO, ITA No. 04/Kol/2020, decided on 7 April 2021, the much quoted sentence that “Form 26AS alone cannot lead to addition of income” belongs to the Commissioner (Appeals) order reproduced in the decision, and it is habitually quoted without its second half, “if claims are made of wrong data entry/information and lack of corresponding services by the deductee to the deductor”. What the Tribunal itself said is narrower and still useful: that a mismatch between Form 26AS and the turnover shown “cannot be the sole basis on which the entire addition of the difference could have been brought to tax”.

There is High Court authority nearby, though not on a denial. In PCIT v. MBC Infra Space (P.) Ltd. the Gujarat High Court held that an addition could not be made merely on a Form 26AS differential without verifying the contract amounts and bills. The assessee there did not deny the receipts, so it is not quite this case, but anybody arguing that no High Court has touched the point will have it produced against them.

And the honest counterweight is Parveen Kumar v. CIT, I.T.A. No. 453 of 2017, decided by the Punjab and Haryana High Court on 16 March 2018, where the assessee denied a joint bank account, the authorities had annual information return data, and the addition was sustained, the Court holding that the Tribunal’s view was a possible view and that evidence cannot be reappreciated under section 260A. Denial alone does not win. What distinguishes this case is not that the assessee denied, but what he put alongside the denial.

The inquiry that was not made

Section 133(6) was available throughout and was never used. It empowers the officer to require any person, including a banking company, to furnish information in relation to such points or matters as will be “useful for, or relevant to, any enquiry or proceeding under this Act”. Where a proceeding is pending, as it was, no approval is needed; the second proviso’s approval requirement bites only on an inquiry where no proceeding is pending.

The Court put it in a sentence worth memorising: “The least the AO ought to have done was to issue a notice under section 133(6) of the Act of 1961 to said vendor Montage and ask for further details or record its statements.”

That is not a new idea and it has good company. In Kishinchand Chellaram v. CIT, Civil Appeal No. 2728 of 1972, decided on 16 September 1980 by Bhagwati and Venkataramiah JJ, the Supreme Court dealt with a bank manager’s letter used against an assessee. It held that the statements in it “were in the nature of hearsay evidence and could not be relied upon by the Revenue authorities”, that “The Revenue authorities could have very well called upon the manager of the Bank to produce the documents and papers”, and that “It was for the Revenue to rule out this possibility by bringing proper evidence on record”. Forty-six years later a Division Bench said the same thing about a packaging company.

The officer’s answer here, recorded at paragraph 8, was that it was not within his domain to carry out such an inquiry. The statute says otherwise, and it says so in a provision he could have used on any working day.

The burden, once the assessee denies

The officer’s position reduced to this: your number is in their records, so the receipts are yours, and if they are not, prove it. The Court held the opposite, and the reasoning turns on what the assessee had done rather than on what he had said.

He denied the transactions. He filed a police complaint on 7 March 2024 and a cyber cell complaint on 30 May 2024, and produced both. He produced his bank statements. He showed provident fund withdrawals between 2013 and 2018 made to meet needs of funds, an economically weaker section certificate, and an application for waiver of his children’s school fees. He pointed out that Montage dealt in plastic packaging and that nothing suggested he had ever been in business. His employment record was compiled and put in at pages 80 to 102 of the paper book, which is the practical lesson in a sentence: the material existed because somebody assembled it.

Of that the Court said: “This plea of the petitioner needed some empathy, if not sympathy and objective scrutiny of the matter and detailed examination.” And on burden: “Once the petitioner had denied the transactions and rebutted the presumption, the burden was upon the AO to establish that the petitioner had really entered into these transactions.”

Expect two answers.

The first is Sumati Dayal v. CIT, decided on 28 March 1995 and reported at (1995) 214 ITR 801, where the assessee lost. The apparent must be considered real until there is reason to think otherwise, the authorities may look into surrounding circumstances, and the matter is considered by applying the test of human probabilities. Here those probabilities run hard the other way, which is the point, but in a case with thinner material the same test cuts against the assessee.

The second is Parveen Kumar, which is the more dangerous because the denial there failed.

The rule to take away is not that a denial shifts the burden. It is that a denial plus contemporaneous, independently verifiable material inconsistent with the alleged transactions shifts the burden. Build the second half of that sentence before you need it.

Material used, never supplied

The assessee asked for the information and the details of the transactions and was never given them. The Court held that an assessment made “without disclosing the adverse material and without considering the assessee’s response is vitiated for breach of natural justice and, being founded on no independent inquiry, cannot be sustained”.

It went further, and this is the finding that makes a writ appropriate rather than an appeal: “A simple look at the reply of the assessee and assessment order reveals that the AO has proceeded absolutely arbitrarily and with closed or predetermined mind.”

On supply of material the guidance most directly in point is Sabh Infrastructure Ltd. v. ACIT, W.P.(C) 1357/2016, decided by the Delhi High Court on 25 September 2017, which laid down four directions. The third is the one to quote: “where the reasons make a reference to another document, such document and/ or relevant portions of such report should be enclosed along with the reasons”. The fourth is worth having too, that disposing of objections “is not a mechanical ritual. It is a quasi-judicial function.”

On cross-examination the authority is Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II, Civil Appeal No. 4228 of 2006, decided on 2 September 2015 by Sikri and Nariman JJ, holding that not allowing cross-examination of witnesses whose statements were made the basis of the order “is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice”. Describe it accurately when you cite it: it is a central excise case applied to income tax by analogy.

The arithmetic

This is the part of the order to read before any of the law, because it needs none.

The officer had two figures. A cash payment of Rs 24,86,63,500 said to have been made by the assessee. And, from Form 26AS, a cash sale of Rs 24,62,01,485, being an amount net of tax collected by Montage of Rs 24,62,015. He added them and arrived at a turnover of Rs 49,48,64,985.

Do the arithmetic yourself. Add Rs 24,62,015 to Rs 24,62,01,485 and you get Rs 24,86,63,500, the first figure, to the rupee. The two amounts are not two transactions. They are one transaction stated twice, once gross and once net of the collection. One caution if you are checking the percentage: Rs 24,62,015 is 1 per cent of the net figure, not of the sale consideration, so the collection appears to have been computed on the net rather than on the gross as section 206C(1D) required. That does not disturb the identity, and it is worth noticing before somebody else does.

The Court said so in terms: “This approach of the AO reveals that he has not even cared to understand the nature of transaction –either he did not understand the basics of accounting or he did not want to. It has resulted in demand against the petitioner being twofold.”

There is a second error inside the first, and it is the more fundamental. The provision under which 1 per cent was collected in financial year 2016-17 was section 206C(1D), which required that “Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery) or providing any service, shall, at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax”, where the consideration for goods other than bullion or jewellery exceeded two hundred thousand rupees. The words covering “any other goods” were inserted with effect from 1 June 2016, and the whole of sub-section (1D) was omitted by the Finance Act 2017 with effect from 1 April 2017.

Read the provision and the premise collapses. The collector is the seller. The person from whom collection is made is the buyer. On the Department’s own information the assessee was the buyer paying cash. The amount was therefore his alleged outgoing, not his receipt, and an outgoing is not turnover however many times it is added.

Three cautions on how far to take this.

It is illustration, not ratio. The Court said so: “Though the order in toto is wholly void and without jurisdiction inasmuch as the transactions did not relate to the petitioner, but we have analysed the same in order to show the manner in which an assessing officer can agonise an assessee.” Cite the arithmetic for what it is.

It disposes of half the turnover, not half the demand. Strip out the duplication and Rs 24.86 crore still stands as an allegation, to be answered on the merits rather than with a calculator.

And the coincidence has an answer. The Revenue could say the two entries are a genuine purchase and a genuine sale that happen to differ by about 1 per cent. What closes that off is the nature of the Form 26AS line itself: it records tax collected by Montage, which identifies the smaller figure as the net of the larger and not as an independent transaction.

Do not reach for section 206C(1H), which came in with effect from 1 October 2020, and do not describe the cash payment as offending section 269ST, which was inserted with effect from 1 April 2017 and has no application to a year ending 31 March 2017. There is a sharper point available on the cash itself, and it is not made often enough: on the Department’s own information it is Montage that accepted nearly Rs 25 crore in cash and collected tax on it. The Department has a documented counterparty with books, a registration and a collection statement, and an undocumented case against a cook.

The instruction is dull and it is the most valuable thing here. Reconcile every figure in the notice against every other figure before you write a word of law.

The 8 per cent

Having fixed a turnover, the officer applied 8 per cent and called the result income. The judgment records only that “8% of the same was determined as his income”; it does not say under what provision, and an article should not put a section into an officer’s mouth. So take it in the right order.

A best judgment must rest on material. Section 144 requires the officer, “after taking into account all relevant material which the Assessing Officer has gathered”, to make the assessment “to the best of his judgment”. Section 145(3) routes him there where he is not satisfied about the correctness or completeness of the accounts, and supplies no percentage. The estimate must be an estimate of something, derived from material actually held. Here the material was one database entry, and the Court’s finding was that the officer had gathered nothing else at all. That is the argument, and it does not depend on identifying where the rate came from.

If the rate came from section 44AD, there is a second answer. That section applies to “an eligible assessee engaged in an eligible business”, and for assessment year 2017-18 an eligible business was one “whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees”. On the Revenue’s own figure of about Rs 49 crore the section was unavailable by a factor of roughly twenty-five. It is also a computation concession, opening “Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee”, which operates on a declaration the assessee chooses to make and confers no power on anybody.

State the Revenue’s answer, because it is not frivolous. Best judgment has always been held to permit an element of guesswork, and a rate the legislature itself fixed is a conservative yardstick, kinder than treating the whole receipt as income. The reply is that a best judgment must bear a nexus to material gathered, and that a rate chosen for its convenience is not such a nexus.

One figure to keep straight, because it invites a misreading. Eight per cent of Rs 49,48,64,985 is Rs 3,95,89,199, which sits close to the demand of Rs 3,91,06,511. The demand is not the income. Tax on that income at the rates for assessment year 2017-18 is of the order of Rs 1.4 crore, and the rest of the demand is interest.

Four penalties, the circularity, and what happens to them now

The officer recorded satisfaction to initiate penalty for misreporting of income, for non-compliance with a statutory notice, for non-maintenance of books of account, and for failure to get the books audited. As a group they look formidable. One at a time they show how an estimate propagates.

Misreporting, under section 270A, carries 200 per cent of the tax payable on the under-reported income by sub-section (8). Sub-section (9) lists the cases of misreporting exhaustively, and on these facts only clause (a), misrepresentation or suppression of facts, and possibly clause (e), failure to record a receipt in books having a bearing on total income, could be in play. There is a textual answer and a textual answer to the answer: sub-section (6)(b) excludes from under-reported income an amount “determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer … but the method employed is such that the income cannot properly be deduced therefrom”, while sub-section (8) opens “Notwithstanding anything contained in sub-section (6) or sub-section (7)”. Argue the tension rather than assume it. The companion point about specifying the limb is the subject of a separate article.

Non-maintenance of books, under section 271A, is a flat Rs 25,000 for failure to keep the books required by section 44AA. Required of whom, in respect of what business? The penalty presupposes a business the assessee is found never to have carried on.

Failure to get accounts audited, under section 271B, is “one-half per cent of the total sales, turnover or gross receipts … or a sum of one hundred fifty thousand rupees, whichever is less”. Look at what the quantum is a function of. It is the turnover, which is the figure the officer constructed. The penalty for not auditing an invented turnover is computed on the invented turnover.

Non-compliance with a statutory notice, under section 272A(1)(d), is Rs 10,000 for each default. The clause in its present form, covering a failure to comply with a notice under section 142(1) or section 143(2) or a direction under section 142(2A), was inserted by the Finance Act 2016 with effect from 1 April 2017, so it applied from the first day of this assessment year.

And now the part the judgment does not deal with and the client will ask about. The quashing of the assessment does not dispose of the penalties. The Court set aside the assessment order of 17 March 2025 and said nothing about the four proceedings initiated alongside it. Each has to be separately pursued to a dropping order. Three of the four have no foundation once the turnover goes, because their quantum or their premise is the turnover itself. Write and ask for each to be dropped, and diarise it; silence is not a dropping order.

The general point is the one to carry away. An estimate does not stay an estimate. It becomes a turnover, the turnover becomes an income, the income becomes a tax, the tax becomes a 200 per cent penalty, and the turnover separately becomes the base of another penalty. One unverified database entry generates five consequences, and each has to be answered on its own once it exists.

Getting in the door: the writ, and the authority against it

Everything above assumes you are being heard. The Revenue’s only argument here was that the assessee should have appealed, and it is the argument you will meet first.

Put the case against the writ at its strongest, because it is strong. In CIT v. Chhabil Dass Agarwal, Civil Appeal No. 6704 of 2013, decided on 8 August 2013 by Dattu and Eqbal JJ, the Supreme Court set aside a High Court’s quashing of a reassessment and relegated the assessee to an appeal. Non-entertainment of a writ where an efficacious alternative remedy exists “is a rule of self-imposed limitation … essentially a rule of policy, convenience and discretion rather than a rule of law”, and “when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation”. That is a section 148 reassessment case decided against the writ, which makes it the most awkward authority in this area.

The exceptions are conveniently collected in Radha Krishan Industries v. State of Himachal Pradesh, Civil Appeal No. 1155 of 2021, decided on 20 April 2021 by Chandrachud and Shah JJ: cases where “(a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution; (b) there has been a violation of the principles of natural justice; (c) the order or proceedings are wholly without jurisdiction; or (d) the vires of a legislation is challenged”. Those descend from Whirlpool Corporation v. Registrar of Trade Marks, and the practical advice is to quote them from Radha Krishan, whose text is clean.

Two of the four were squarely available here. Natural justice was breached on the Court’s express finding, and a fundamental rights case was made out.

Now the difficulty, which no article should soften. Radha Krishan also says, in its own voice at paragraph 27(vi), that “In cases where there are disputed questions of fact, the High Court may decide to decline jurisdiction in a writ petition”. Whether these transactions were the assessee’s is a question of fact and it was the central question. Worse, the Court did not leave it alone: at paragraph 20 it held the petitioner’s stand “plausible” and found “every reason to accept that he had no nexus with the transactions”. A writ court resolving a contested fact, on affidavit, against a respondent who argued no merits, is the first thing an appeal would fasten on. The orthodox remedy for a breach of natural justice is to set aside and remit, which is what Tin Box did and what Divya Capital One did.

What answers it, on these facts, is that there was nothing on the other side of the fact to weigh. When the Court asked what else the order rested on, the Revenue could not say. A disputed question of fact presupposes material on both sides.

One correction while we are here, because it is a trap. Do not cite Magadh Sugar & Energy Ltd. v. State of Bihar, Civil Appeal No. 5728 of 2021, decided on 24 September 2021, as authority that disputed facts belong in the statutory forum. The assessee won that case: the Supreme Court set aside the Patna High Court’s refusal to entertain the writ and restored the petition. The factual-disputes proposition appears in it only as a quotation from an earlier decision, which the Court then distinguished. Cite it, if at all, for the proposition that a challenge going to want of authority and jurisdiction is “a pure question of law” and so is fit for the writ court.

The deposit, the surety, and why the appeal was illusory

The second limb of the Court’s reasoning on remedy is the practical one, and there are two steps in it, not one.

The first is the deposit. The standard condition for a stay of demand pending first appeal is 20 per cent, from an Office Memorandum of the Central Board of Direct Taxes bearing F. No. 404/72/93-ITCC dated 31 July 2017, which revised the 15 per cent set by an earlier memorandum of the same file number dated 29 February 2016, the Board taking the view that 15 per cent “is found to be on the lower side”. A third memorandum of the same number dated 25 August 2017 records that the revision is prospective. Twenty per cent of Rs 3,91,06,511 is Rs 78,21,302, and the Court observed that the petitioner “cannot arrange for a sum approaching ₹78 lakh merely to avail of interim protection”, with interest continuing to run meanwhile. Interest under section 220(2) accrues at 1 per cent for every month or part of a month, which is the statute’s rate rather than anything the Court said.

The second step is the one that gets missed, and it is the stronger of the two because it survives a full stay. Even if the entire demand were stayed, the Court said, “At the least he would be expected to furnish surety which we are sure, he would be unable to furnish”, and so “the remedy of appeal would, therefore, be illusory and inefficacious”. A deposit can be reduced. A surety requirement cannot be reduced to nothing, and a man with no means has nobody to offer.

Three things to know before relying on the first step.

The 20 per cent is not a floor. In Principal CIT v. LG Electronics India Pvt. Ltd., Civil Appeal No. 6850 of 2018, decided on 20 July 2018 by Nariman and Indu Malhotra JJ, the Supreme Court clarified “that in all cases like the present, it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal”. Read the words before quoting them: the order sanctions less than 20 per cent, not nil, and it is a short disposal order rather than a reasoned judgment. The principle in it is the one the Additional Solicitor General conceded, that an administrative circular cannot fetter a quasi-judicial authority.

A stay application must be decided, not processed. In Mrs. Kannammal v. ITO, W.P. No. 3849 of 2019, decided by the Madras High Court on 13 February 2019 by Dr. Anita Sumanth J, the Court held that the Board’s circulars are guidelines which do not displace prima facie case, financial stringency and balance of convenience, and that a speaking order is required even where the assessee has not expressly invoked them. The companion decision in Jayanthi Seeman v. PCIT set aside a direction to collect 20 per cent as mechanical.

Do not cite Flipkart for the 20 per cent. Flipkart India Pvt. Ltd. v. ACIT, decided by the Karnataka High Court on 23 February 2017, is good on high-pitched assessments and genuine hardship, but it predates the 2017 memorandum and deals with 15 per cent.

And remember where the discretion lives. Section 220(6) provides that where an assessee has presented an appeal the officer “may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default”. The memorandum structures that discretion; it does not replace it.

Articles 14 and 21, and how far that reasoning travels

This is the passage that made the judgment news, and the one to handle most carefully.

The reasoning runs in three steps. A fair hearing is part of the procedure established by law under Article 21 and of the guarantee against arbitrariness under Article 14, for which the Court cited Maneka Gandhi v. Union of India (1978) 1 SCC 248. The right to life is not confined to bare existence and includes the right to live with dignity, for which it cited Francis Coralie Mullin v. Administrator, Union Territory of Delhi (1981) 1 SCC 608. And mental health is an integral component of the right to life, for which it cited Sukdeb Saha v. State of Andhra Pradesh, 2025 INSC 893.

On that footing it held that “where the State’s conduct causes avoidable mental anguish to a person of no means, it impinges upon Article 21 of the Constitution of India, and the Court is justified in entertaining the writ and in treating the alternate remedy as illusory”, and that a demand of this size on this petitioner was “nothing short of threat to his mental and emotional health, which takes away mental peace of a person having no means”.

The two older authorities say what they are cited for. Maneka Gandhi holds that procedure under Article 21 “must answer the test of reasonableness in order to be in conformity with Article 14” and “must be right and just and fair and not arbitrary, fanciful or oppressive”; note, if you quote it, that the Court did not strike down the impounding order and that relief followed the Attorney-General’s statement. Francis Coralie Mullin holds that “the right to life includes the right to live with human dignity and all that goes along with it”, and that “Every act which offends against or impairs human dignity would constitute deprivation protanto of this right to live”.

Sukdeb Saha needs a health warning. It is a decision of 25 July 2025 arising from the death of a seventeen year old student at a coaching institute, in which the Supreme Court transferred the investigation to the Central Bureau of Investigation and issued interim guidelines for educational institutions and hostels pending a National Task Force report. The sentence relied on, that “Mental health is an integral component of the right to life under Article 21 of the Constitution of India”, is a premise for directions aimed at educational institutions. Applying it to a tax demand is an extension by analogy, not an application of its ratio, and a reader with the judgment in hand will see that.

So how far does it travel? Not far on its own, and that is not a criticism. The reasoning is tethered to a petitioner who was a contractual security guard and cook “with meagre means”, for whom “even a fraction of the above sum by way of a deposit or surety is beyond him”. As a proposition about unpayable demands and persons of no means it is real and useful. As a proposition that a large demand engages Article 21 it will not survive its first corporate petitioner, and should not be offered in that form. Use it as the Court used it, as “an additional reason, along with the breach of Article 14 and the inefficacy of the appellate remedy”. The load-bearing wall is that the material was never supplied and no inquiry was made.

Void, or voidable?

The Court said in one place that “the order in toto is wholly void and without jurisdiction inasmuch as the transactions did not relate to the petitioner”. It then held, at paragraph 26, that it was “open for the respondents to take up the proceedings afresh, in case they find any other cogent and incriminating evidence or material linking the petitioner with the aforesaid transaction … subject of course to limitation prescribed under law”.

For this petitioner, that liberty is close to theoretical, and that is the practical point to take first. The limitation the first proviso to section 149 preserved for assessment year 2017-18 expired on 31 March 2024. Any fresh notice would have to find a route past it.

On the general question the better reading is that this is an order set aside rather than proceedings that never existed, because liberty to proceed afresh subject to limitation is the language of the former. The authority is not comfortable for anyone wanting more. No income-tax decision could be traced holding in terms that an assessment is void from the outset because adverse material was used without being supplied. The strongest word available is “nullity” in Andaman Timber, an excise case. Against it stand two decisions assessees’ representatives tend not to quote: Sahara India (Firm) v. CIT, Civil Appeal No. 2783 of 2008, decided on 11 April 2008, where the Court held the orders “vitiated by the failure to observe the principle audi alteram partem” and in the same breath that “this Court should be loathe to quash the impugned orders”; and Tin Box Company v. CIT, decided on 27 February 2001 and reported at (2001) 249 ITR 216, which held that the appellate opportunity does not cure the defect because “it is the assessment order that counts”, and then remanded to the assessing authority.

Tell the client at the outset that the realistic prize is a fresh start within limitation, not immunity, and then tell him what limitation actually leaves.

A thin line of authority on PAN misuse

There is no body of law on misused permanent account numbers yet. There are two decisions worth knowing and both are from 2026.

Vyome Mehta v. Income-tax Officer, Writ Tax No. 3376 of 2026, decided by the Allahabad High Court on 6 August 2026 by Saumitra Dayal Singh and Arun Kumar JJ, is the nearest in time and in facts. A salaried employee faced a section 148A notice built on portal information about sales reported under a goods and services tax registration obtained using his permanent account number and Aadhaar, and he produced an email from the goods and services tax department confirming that the registration had been obtained on his credentials and later cancelled. The Court did not stop the reassessment. It held that the Revenue is not absolved of its responsibility to lead positive evidence, that once the assessee pleads a negative fact the onus may not shift unless primary evidence is led, and that the identity theft defence remained alive in the reassessment. The particulars and quotations here are taken from reproductions of the order rather than a primary text.

Prakash Palgota v. DCIT, ITA 2710/BANG/2025, decided by the Tribunal at Bangalore on 24 August 2026, deleted an addition where “the only material relied upon against the assessee is the mention of his Permanent Account Number” and “the addition appears to rest merely on conjecture”. It is authority on the evidentiary value of a number appearing in a third party’s ledger. It is not an identity theft case, and should not be offered as one.

So the position is this. Two months before the Delhi judgment, the Allahabad High Court on closely similar facts declined to quash and confined itself to fixing the burden. The Delhi High Court then quashed. Lalit appears to be the first decision in which a demand founded on a misused number was set aside outright, and it was not written on a blank slate. Be ready for Vyome Mehta to be cited back on relief, and use it yourself on burden.

A third decision circulates, a 2024 writ in which a High Court set aside a revision order and a reassessment where the same number had been allotted to two people. It is reported only in a digest which does not name the petitioner, and the case name, court, number and date could not be traced. It is mentioned here so that you know not to cite it.

The Department’s case, at its highest

The Revenue did not argue this case. What follows is the argument it did not make, assembled here because you should not prepare against the assessment order.

The information was statutory information within section 148, received under the risk management strategy formulated by the Board, and the officer was bound to act on it. The number appeared against the transactions, and the Act requires it to be quoted precisely so that transactions can be traced to a person. The answer was a denial, and Sumati Dayal holds that a denial is tested against surrounding circumstances and human probabilities; Parveen Kumar shows an addition on annual information return data surviving one. Police complaints prove that complaints were made, not that they were true, and they produced nothing. On remedy, Chhabil Dass Agarwal is a reassessment case in which the Supreme Court held precisely that the writ should not have been entertained; the central question was one of fact; and the orthodox course on a natural justice breach is to remit, not to decide the fact and quash. On quantum, best judgment permits guesswork.

That is a case. It fails here, and not out of sympathy. When the Court asked what else the order rested on, the answer was nothing. The two figures were one. The alleged receipt was a payment. And the one step that would have settled it, a notice to the vendor under section 133(6), was never taken.

What to do when a demand lands on a misused PAN

Roughly in this order, and the first four are not legal work at all.

Kill the entry at source, not just the assessment. Submit feedback on the item in the annual information statement on the e-filing portal, marking it as denied or as relating to another person. This is the only step that marks the entry where it lives. Skip it and the same data generates a notice for the next year, and the year after.

Go to the collector or deductor. Ask the party in whose statement the number appears to file a correction statement, in Form 27EQ for a collection, removing the line. A corrected statement is worth more than any submission about the line.

Check the goods and services tax portal. Search taxpayer by permanent account number and see whether a registration has been taken on it. That is the Vyome Mehta fact pattern, and if a registration exists you need its cancellation and the department’s written confirmation of how it was obtained.

Check every other year. The same entry will usually have produced flags for adjacent years. Pull the annual information statement and Form 26AS for the whole window and find out how many notices are coming.

Get the complaints on record, and dated. A police complaint and a cyber cell complaint filed before the assessment carry weight because they were not made for it. If the police do nothing, as happened here, do not leave it there: press for registration of a first information report, and on refusal escalate to the Superintendent of Police and then to the Magistrate under the Bharatiya Nagarik Suraksha Sanhita. A complaint that “bore no fruit” is weaker than a complaint you pursued.

Reply to the show-cause notice, and ask in that reply for the material. Ask for the information relied on, its source, and the documents behind it. For a notice issued from 1 September 2024 the information itself should have accompanied the notice under section 148A(1); the material behind it still has to be asked for.

Demand the inquiry by name. Ask the officer in writing to issue a notice under section 133(6) to the counterparty for its ledger, invoices, delivery documents and the statement of its principal officer. Ask also that the proceedings be kept in abeyance pending the police investigation, and expect that to be refused if the officer is near his section 153 limit. Both requests are worth making because the refusals go on the record.

Do the arithmetic before you do the law. Reconcile every figure against every other. Check whether a gross and a net of the same transaction have been added, what rate of deduction or collection explains the difference, and which provision imposed it in that year. Check whether the same amount is described as a payment in one place and a receipt in another.

Check jurisdiction before merits. Which clause of section 149, what the escaped income is said to be “represented in the form of”, who gave the sanction under section 151 and at what level, and whether the notice survives the scheme notified under section 151A. These are cleaner grounds than anything on the facts, because they do not require the court to weigh evidence.

Assemble the life, not just the defence. Employment records, agency letters, provident fund statements, bank statements for the whole period, economically weaker section or ration documents, school fee applications. Compile them into a paginated set, as was done here at pages 80 to 102 of the paper book. The object is not sympathy; it is to make the alleged transactions improbable on ordinary human experience, which is what answers Sumati Dayal.

Protect against recovery from day one. Interest runs under section 220(2), the officer can issue a garnishee notice under section 226(3) to a bank or an employer, and refunds can be adjusted under section 245. Apply under section 220(6), put prima facie case, financial stringency and balance of convenience in the application, cite Mrs. Kannammal for a speaking order and LG Electronics for a lesser amount, and if you go to the writ court ask for a stay of recovery when you file rather than after the first attachment.

Deal with each penalty separately, and chase them after you win. They do not fall with the assessment. Ask in writing for each to be dropped and diarise it.

Tell the client what winning looks like. It looks like the order set aside with liberty to the Department to start again on cogent material within limitation, and the penalties still to be closed out. It does not look like immunity, and it does not look quick: the notice here was February 2024, the order March 2025, and the judgment October 2026, which is about eighteen months of a live Rs 3.91 crore demand.

What the Income-tax Act 2025 does to this

The machinery is renumbered. Most of it is renumbering and nothing else, so only the rows that change something are set out here. Income escaping assessment becomes section 279, the notice section 280, limitation section 282, the power to call for information section 252(1)(a), best judgment section 271, the method of accounting provision section 276(3), interest and the stay discretion sections 411(3) and 411(12), misreporting sections 439(10) and (11) with the sub-section numbers moving by two, and the presumptive provision section 58, where sections 44AD, 44ADA and 44AE are merged into a single table.

Four changes matter.

Change	Where	What it does
No pre-notice enquiry	s.281	carries forward the procedure as substituted from 1 September 2024, so there is no enquiry clause, no seven to thirty day window and no outer limit for the order
The audit default stops being a penalty	s.428(c)	the section 271B penalty becomes a fee of Rs 75,000, or Rs 1,50,000 beyond a month, inserted by the amending Act of 2026
No successor to the collection provision	s.394	the table of collection entries has no counterpart to section 206C(1D), so the entry that generated the Form 26AS line here could not arise
A floor on the response time	s.280	not less than 30 days and not more than three months from the end of the month of the notice, also inserted by the amending Act of 2026

Two of those four are worth a sentence each. The enquiry clause does not come back, so under the new Act as under the old the duty to look behind the data lives entirely in the assessment, under section 252(1)(a) and section 271. And the conversion of the audit default from a penalty into a fee removes the reasonable cause defence from one of the four consequences, which in a case built on an invented turnover is a real loss.

Two searches came back empty and the result is worth stating. The 2025 Act contains no provision addressed to the use of another person’s permanent account number: section 262(8) bars holding a second number and section 467(2) penalises quoting a number “knowing or believing it to be false”, but neither reaches the person whose number is stolen. The 1961 Act is no better, section 272B being its equivalent. And section 510, the counterpart to section 285BB on the annual information statement, is a pure upload obligation which says nothing about evidentiary value, presumption or rebuttal. The gap this judgment fills by construction, Parliament has not filled by text.

A note for anyone working from the order

Three things could not be closed and are flagged where they arise.

The texts of the Office Memoranda of 29 February 2016, 31 July 2017 and 25 August 2017 could not be read on the Department’s own website, whose relevant index is not reachable, and are taken from independent reproductions and from a High Court judgment quoting them.

The particulars and quotations of Vyome Mehta are taken from reproductions of the order rather than from a primary text.

And the section 153 computation above is an inference. The judgment gives the date of the section 148A(b) notice and not of the section 148 notice, so the conclusion that the officer was working to 31 March 2025 rests on the dates fitting rather than on the record.

Two notes on the order itself. It is an oral judgment, which is occasionally made something of, and the record is internally inconsistent about the employment period: paragraph 2 gives 1 April 2015 to 31 March 2019 and paragraph 9 gives 2011 to 2019. Nothing turns on it, and it is recorded here only so that nobody quotes one and is shown the other.

A general warning about the Department’s website, which bears on every statutory quotation above. Its per-section pages are a stale snapshot shared across editions, and the unsuffixed pages are usually the oldest: at the time of writing /w/section-44ad is the Year 2009 edition, /w/section-144 is Year 2000, /w/section-145 is Year 2000 and /w/section-271b shows a superseded figure. Check the Act name, the Year field and the heading on every page before relying on it.

Where this leaves the subject

The doctrine is not new. An officer must apply his own mind, must put his material to the person it is used against, must inquire where inquiry is possible, and must carry the burden once a denial is supported by something. Those propositions are forty and fifty years old and were not seriously in doubt.

What is new is the setting, and the setting will keep producing these cases. Information now arrives at the officer’s desk pre-packaged, attributed and quantified, from a system that matches a number to a transaction and reports the match as a fact. The system is good at recording that a number was quoted. It cannot record who quoted it, and nothing in the statute makes its output evidence. As the annual information statement widens and more of the assessment is conducted on data the officer did not gather, the gap between information and proof is where these disputes will be decided.

Two features of the law are moving the wrong way for the person on the receiving end. The pre-notice enquiry clause has gone, so the first point at which anybody is obliged to look behind the data is later than it was. And the 2025 Act, which had the chance to say something about the weight of what the portal produces, says nothing at all.

Be careful, too, about how much weight this judgment will bear. The Revenue argued only maintainability. The Court decided the contested fact itself rather than remitting it. The arithmetic that makes the order memorable was expressly offered as illustration. And the constitutional passage is tied to a petitioner of no means. It is a good judgment and it will help, but cite it for the inquiry, the non-supply of material and the burden, which is where it is strongest and where it is unanswerable.

For the practitioner the instruction is unglamorous and it is what the case actually turned on. Before the constitutional argument, before the case law, reconcile the figures and ask in writing for the inquiry the officer has the power to make. Here the arithmetic disposed of half the alleged turnover and a single notice under section 133(6) would have disposed of the rest. The Court said as much, and then said something worth pinning above a desk: a tax enforcement officer “should strive to achieve high revenue target but he should keep his feet firmly grounded on the floor of reality. His eyes should be sharp to pierce through the fraud but they should not slip away from the facts.”

This note is general commentary on the law as at 18 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.