The Allahabad High Court has clarified that while the Income Tax Department may initiate reassessment proceedings on the basis of relevant information linked to an assessee’s PAN, the department must ultimately lead positive evidence to establish that the disputed transactions were actually carried out by that assessee.
The bench of Justice Saumitra Dayal Singh and Justice Arun Kumar has observed that where an individual specifically denies involvement in business transactions and alleges identity theft, the question of his actual involvement cannot be conclusively determined merely at the preliminary stage under Section 148-A of the Income Tax Act, 1961.
The petitioner stated that he was a salaried employee of a private corporation and had never undertaken any business activity involving the sale or supply of goods or services. For AY 2022-23, he had disclosed total income of only ₹4,15,630, representing his salary income, and claimed that he had no other income.
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However, he received a show-cause notice dated March 30, 2026, under Section 148-A(1) of the Income Tax Act. The notice relied upon information generated through the Income Tax Department’s risk management system and linked to the petitioner’s PAN.
The information allegedly showed transactions of substantial value. According to the notice, a purchase transaction by a “dummy entity” was reported at approximately ₹11.16 crore. The notice also referred to total sales reported through GSTR-1 of approximately ₹24.03 crore and sales reported through GSTR-3B of approximately ₹29.46 crore. In addition, a TDS statement relating to professional services or royalty from the Food Safety and Standards Authority of India reflected an amount of ₹5.83 lakh.
The Income Tax Department took the view that the petitioner’s declared income of ₹4,15,630 did not correspond with the substantial transactions appearing against his PAN.
The petitioner categorically denied having undertaken any of the alleged business transactions. He specifically disowned any connection with Hari Om Traders, which had been described as his proprietary concern.
He also denied any association with the business premises disclosed to the GST authorities. According to the petitioner, he had never conducted business under the name of Hari Om Traders.
The petitioner further raised a serious allegation of identity theft, stating that his identity may have been misused while he was submitting certain online loan applications.
This became the central issue before the High Court: whether the mere linkage of business transactions to an individual’s PAN was sufficient to justify reassessment when that individual specifically denied carrying out those transactions.
The petitioner had approached the GST authorities to investigate the matter. In an email dated April 29, 2026, the GST authorities informed him that an application for GST registration had been submitted on September 8, 2021, in the name of M/s Hari Om Traders using the petitioner’s identity documents.
The GST record stated that the application was made in the petitioner’s name and that his PAN and Aadhaar documents had been submitted for obtaining registration. The GST registration was initially granted under the GST Act.
However, a subsequent field inspection reportedly found that the firm did not exist at its declared principal place of business. The GST registration was consequently suspended and ultimately cancelled suo motu on April 29, 2022, with the cancellation operating from the date of registration.
The GST authorities’ communication further stated that the firm appeared to have operated during the period from October 2021 to December 2021, although its registration was subsequently cancelled retrospectively. The GST record also contained the email address and mobile number associated with the registration.
Despite the petitioner’s objections, the Income Tax Officer passed an order dated June 16, 2026, under Section 148-A(3). The authority considered the objections untenable and proceeded on the basis that prima facie relevant material existed to justify reassessment proceedings.
Before the High Court, the petitioner argued that his objections had not been properly considered. According to him, the authority had failed to deal with his specific contention that he had not conducted any business and that his identity may have been misused.
The petitioner contended that before subjecting him to reassessment, the Revenue ought to have undertaken preliminary enquiries to ascertain whether he was actually the person behind the transactions attributed to Hari Om Traders.
The Revenue, on the other hand, argued that following the amendments to the reassessment provisions, the Department was required only to establish the existence of relevant material. It contended that the earlier and stricter requirement of recording “reason to believe” no longer operated in the same manner.
The Revenue also argued that consideration of objections under the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer did not require the assessing authority to record detailed findings on every individual objection at the preliminary stage.
The High Court accepted that the statutory framework has changed and that the earlier requirement of recording detailed “reasons to believe” does not continue in the same form.
The Bench observed that under Section 148-A(1), the assessing authority is required to determine whether or not it is a fit case for issuance of notice under Section 148. Consequently, detailed reasons to believe are not necessarily required to be recorded at this stage.
However, the Court made an important qualification. The disappearance of the earlier formulation of “reason to believe” does not mean that the assessing authority can act without considering whether the material relied upon is relevant or without applying its mind to the objections raised by the assessee.
The Court held that the time-tested requirements of relevancy of material and application of mind to the objections continue to have significance while determining whether reassessment proceedings should be initiated.
The Court noted that the Revenue admittedly possessed information linked to the petitioner’s PAN. Under the present tax framework, financial transactions for which client details are available can be reflected on the common portal by being linked to an individual’s PAN identity.
However, the petitioner did not dispute that certain transactions had been linked to his PAN. Instead, he disputed his involvement in those transactions, asserting that his identity had been stolen.
The Court noted that the petitioner had lodged a complaint concerning the alleged identity theft and had also approached the GST authorities.
This distinction proved significant. The existence of transactions connected with a PAN was not treated as conclusive proof, at the reassessment stage, that the PAN holder himself had carried out those transactions.
The High Court examined the GST authorities’ response and observed that no detailed enquiry had yet been conducted by the GST authorities resulting in a positive finding that the petitioner was not the person who carried out the transactions.
At the same time, the GST records showed that registration had been obtained using the petitioner’s identity, while a field inspection found that the firm did not exist at the declared business premises. The registration was subsequently cancelled, and no bank account was found attached to the GST account.
The Court therefore held that the GST communication could not, at that stage, be treated as conclusive evidence either in favour of or against the petitioner’s identity-theft defence.
The Income Tax Department was also entitled to conduct its own independent inquiry for the purposes of the Income Tax Act.
The Court ultimately declined to terminate the reassessment proceedings at the preliminary stage.
It observed that accepting the petitioner’s identity-theft defence would require evidence to be produced, documents to be examined and an inquiry to be conducted before a final conclusion could be reached regarding who actually carried out the transactions.
According to the Bench, such an exercise properly belongs to the assessment or reassessment proceedings rather than the preliminary stage under Section 148-A.
Thus, the Court did not hold that the petitioner had in fact suffered identity theft. Instead, it kept that defence open for consideration during the reassessment proceedings.
The High Court made it clear that allowing reassessment proceedings to continue does not absolve the Revenue of its responsibility to establish that the disputed transactions were actually performed by the petitioner.
The Court observed that once the petitioner pleads a negative fact—namely, that he did not conduct the transactions—and substantiates that position before the assessing authority, the Revenue would have to establish the corresponding positive fact: that the petitioner, and no other person, actually performed the transactions giving rise to the alleged escapement of income.
The Bench further indicated that unless primary evidence is produced by the Revenue, the evidentiary burden may not shift to the assessee.
This observation provides an important safeguard in cases where tax transactions appear against a person’s PAN but the individual disputes having undertaken them.
The High Court therefore disposed of the writ petition while preserving the petitioner’s right to lead evidence during the reassessment proceedings.
The Court clarified that the preliminary threshold for commencing reassessment had been met because relevant information existed against the petitioner’s PAN. However, the ultimate determination of tax liability would require the Revenue to establish the petitioner’s actual connection with the disputed transactions.
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