High Court Quashes Income Tax Demand Against Contractual Worker Over Misuse of PAN:

The petitioner is Lalit who was employed as a contractual security guard and cook at Hotel Ashoka and Vigyan Bhawan through different agencies during the relevant period. He claimed that he had obtained a PAN merely to secure government-issued identity proof and that his income was not taxable. On 26 February 2024, the petitioner received a notice under Section 148A(b) of the Income Tax Act, 1961, alleging that he had made cash payments of Rs 24,86,63,500 to Montage Enterprises Pvt. Ltd. and that cash sales of Rs 24,62,01,485 were recorded against his PAN.

The petitioner denied having any connection with the transactions and alleged that his PAN credentials had been misused. He lodged complaints with the police and the Cyber Cell and requested the AO to provide details of the alleged transactions. However, the requested information was not supplied. The AO subsequently passed an assessment order dated 17 March 2025, treating Rs 49,48,64,985 as the petitioner's turnover and estimating 8% of that amount as income for Assessment Year 2017-18. A tax demand of approximately Rs 3,91,06,511 was raised, along with the initiation of penalty proceedings.

The Court noted that the petitioner had responded to the notice, produced complaints lodged with the police and Cyber Cell, and requested the material relied upon by the Department. Nevertheless, the AO neither furnished the requested information nor adequately considered the petitioner's defence. An assessment made without disclosing adverse material and considering the assessee's response, particularly in the absence of an independent inquiry, could not be sustained.

The Court found that the assessment order relied solely on information available through the risk-management strategy and Form 26AS. The Revenue could not identify any independent inquiry, supporting evidence, or statement of the owner of Montage Enterprises Pvt. Ltd. establishing that the petitioner had entered into the alleged transactions.

Considering the petitioner's limited means, the enormous demand, the risk of coercive recovery and the absence of supporting evidence, the Court held that entertaining the writ petition was justified to protect the petitioner's fundamental rights under Articles 14 and 21.The Delhi High Court quashed and set aside the assessment order dated 17 March 2025. It allowed the writ petition, holding that the impugned assessment was arbitrary, unsupported by cogent evidence and unsustainable in law.