The government tried to justify its stand saying that fake permanent account number (PAN) cards were being used to "divert funds" to shell firms.
Attorney General Mukul Rohatgi made the submission as a bench comprising Justices A K Sikri and Ashok Bhushan asked him why Aadhaar has been made mandatory for applying for PAN when the apex court had earlier said it should be made optional.
Responding to the court's query, Rohatgi said the government has found that lots of fake PAN cards have been procured on the basis of fake ration cards and other documents and these were used to divert funds to shell companies.
He said there were instances were a person was found to be having several PAN cards and to stop such situation, it has been decided to make Aadhaar mandatory while applying for PAN.
"There is a legislative mandate now. Section 139AA of the Income Tax Act says so. It is the only option as we have found that people were getting PAN cards on fake ration cards and such PANs were used to divert fund to shell companies," the Attorney General told the bench.
To this, the bench observed "is this the remedy that you need to have Aadhaar for having PAN? Why has it been made mandatory despite this court's order?"
Section 139AA of the Income Tax Act, introduced by the Finance Act 2017, provides for mandatory quoting of Aadhaar or enrolment ID of Aadhaar application form for filing of income tax returns and for making application for allotment of PAN number with effect from July 1 this year.
Rohatgi referred to an earlier case and said they had found that SIM cards for mobile phones were procured on fake identity cards and the apex court had asked the Centre to put in place an effective mechanism to scrutinise it.
Senior counsel Arvind Datar, representing the petitioner, told the bench that they have challenged the constitutional validity of section 139AA of the income Tax Act which has made Aadhaar mandatory for applying for PAN card as well as for filing income tax returns.
"As per this section, if one does not have Aadhaar card, he cannot have a PAN. This would create huge difficulties," he told the bench which said it would hear arguments on the plea on April 25.
The apex court was hearing a plea filed by CPI leader Binoy Viswam challenging constitutional validity of section 139AA of the Income Tax Act.
It had, however, said that Centre cannot be barred from seeking Aadhaar cards, which are issued by UIDAI, for "non- benefit" purposes like filing of IT returns and opening of bank accounts.
The court had also said that a constitution bench was needed to be constituted to authoritatively decide on a batch of petitions challenging the Aadhaar scheme on grounds including that it infringes on the Right to Privacy of citizens.
The apex court on August 11, 2015 had said Aadhaar cards will not be mandatory for availing benefits of government's welfare schemes and barred the authorities from sharing personal biometric data collected for enrollment under the scheme.
However, on October 15, 2015 it had lifted its earlier restriction and permitted the voluntary use of Aadhaar cards in welfare schemes that also included MGNREGA, all pension schemes and the provident fund besides ambitious flagship programmes like 'Pradhan Mantri Jan Dhan Yojna' of the NDA government.