Case at a Glance
A contractual cook who had worked at Vigyan Bhawan found an income tax assessment for 2017-18 treating him as having done business of about ₹49.48 crore with a packaging company in cash, and raising a demand of about ₹3.91 crore. He denied any link, filed police complaints and asked for the material relied on, which was not supplied. The Delhi High Court held that the order rested solely on risk-management data and Form 26AS without any independent enquiry, that an appeal requiring a 20% deposit would be illusory for him, and quashed the assessment, leaving the Revenue free to reopen only on cogent material.
The petitioner says he worked between 2015 and 2019 as a contractual security guard and cook, first at Hotel Ashoka through a security agency and later at Vigyan Bhawan through a manpower firm. He says he obtained a PAN only as identity proof and that his income was never taxable. He had withdrawn his provident fund, obtained an EWS certificate and sought a school fee waiver for his children.
On 26 February 2024, acting on the CBDT’s risk management data, the Assessing Officer issued a notice under Section 148A(b) for assessment year 2017-18, alleging a cash payment of ₹24,86,63,500 to Montage Enterprises Pvt. Ltd. and a cash sale of ₹24,62,01,485 under his PAN. He denied the transactions, asked for the underlying material, and lodged complaints with the police and the cyber cell; the material was not supplied. By order dated 17 March 2025 the AO added the two figures as turnover of ₹49,48,64,985, estimated income at 8%, raised a demand of about ₹3.91 crore and initiated penalty proceedings.
The Key Question Before the Court
Can an assessment that treats a person of no means as having huge cash turnover be sustained when it rests only on portal and Form 26AS data, without disclosure of material or any independent enquiry, and must he first file an appeal?
Data Is a Lead, Not Proof
The Revenue argued that the petitioner should have filed a statutory appeal and that disputed facts cannot be decided in a writ. The Court held that, since a stay of demand ordinarily requires a 20% deposit under the CBDT office memorandum of 31 July 2017, “the remedy of appeal would, therefore, be illusory and inefficacious” for a person in his position. Failing to supply the adverse material and to consider his reply breached natural justice, and the Court referred to Articles 14 and 21, relying on Maneka Gandhi v. Union of India, (1978) 01 SC CK 0026 and Francis Coralie Mullin v. Administrator, Union Territory of Delhi, (1981) 01 SC CK 0001, and noting the mental anguish caused.
On the merits, the Court found the order “founded solely on the limbs of information available on risk management strategy or Form 26AS.” Counsel for the Revenue could not point to any independent enquiry or any statement from the owner of the company. The AO should at least have issued a notice under Section 133(6) to the company or recorded its statements. Once the petitioner denied the transactions, the burden shifted to the AO. The Court found that the AO had added a cash payment and the net Form 26AS figure without understanding the transactions and acted with a closed mind, and that the petitioner’s PF withdrawals and EWS status “had some substance.”
What the Court Actually Held
- Where an appeal would require a deposit the assessee cannot afford, the remedy is illusory and a writ petition can be entertained against the assessment order.
- An assessment founded solely on risk-management or Form 26AS information, without independent enquiry, is arbitrary once the assessee denies the transactions.
- The burden shifted to the AO after denial; failure to supply the material relied on and to consider the reply violated natural justice.
- The assessment order dated 17 March 2025 was quashed; the Revenue may reopen only if it finds other cogent and incriminating material linking the petitioner to the transactions, subject to limitation.
Why This Judgment Matters
- It protects people whose PAN appears in large transactions they deny, often signs of misuse of identity.
- It requires Assessing Officers to verify system-generated data before taxing on it.
- It shows when a writ court will step in despite an alternative appeal remedy.
What Should Advocates Take Away From the Judgment?
For Taxpayers
- If you receive a notice about transactions you never made, deny them in writing, ask for the material relied on, and file police or cyber-cell complaints, as the petitioner did.
- Proof of modest means, such as PF withdrawals or an EWS certificate, can support your denial.
For Counsel
- Where the demand is huge and the assessee is poor, argue that the 20% pre-deposit makes the appeal illusory.
- Press for disclosure of the underlying material and for verification under Section 133(6) of the counterparty’s statements.
Key Takeaways
- The ₹3.91 crore demand was quashed.
- Portal data and Form 26AS alone cannot prove income the assessee denies.
- An unaffordable pre-deposit can make an appeal an illusory remedy.
- The Revenue may reopen only on cogent material, within limitation.
Frequently Asked Questions
Can the tax department assess me only on Form 26AS or portal data?
In this case the Delhi High Court held that an assessment founded solely on such information, without any independent enquiry, could not stand once the assessee denied the transactions.
Do I have to file an appeal before going to the High Court?
Usually yes, but the Court held that where a stay requires a 20% deposit that the assessee cannot afford, the appeal is an illusory remedy and a writ petition can be entertained.
Is the matter closed for the Revenue?
Not entirely. The Court allowed the Revenue to reopen proceedings if it finds other cogent and incriminating material linking the petitioner, subject to limitation.
Conclusion
A cook was treated as a multi-crore trader because his PAN appeared in system data. The High Court insisted that the Assessing Officer verify before taxing, and refused to send a man of no means into an appeal he could not afford.
Practical takeaway: When a tax notice attributes transactions you never made, deny them promptly, demand the underlying material, report possible misuse of your PAN, and keep evidence of your actual means.
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