A tax demand running into crores against a contractual security guard has drawn sharp criticism from the Delhi High Court, which found serious flaws in the assessment process and questioned how transactions worth nearly ₹50 crore were attributed to a man who claimed his PAN had been misused.
Setting aside the assessment, the Court made it clear that revenue collection cannot come at the cost of basic scrutiny and fairness.
The case concerned Lalit, who worked as a contractual security guard and cook at Delhi’s Ashoka Hotel and Vigyan Bhawan between 2015 and 2019. According to his submissions, he had obtained a Permanent Account Number (PAN) primarily as an identity document and had no taxable income that could explain transactions of such magnitude.
The dispute surfaced in February 2024, when Lalit received an income tax notice linking his PAN to transactions involving Montage Enterprises Private Limited, a company dealing in packaging materials.
The notice cited cash payments of ₹24.86 crore and cash sales of ₹24.62 crore. Lalit denied having any connection with the transactions and approached the police and cybercrime authorities, alleging that his identity had been misused.
His explanation, however, did not prevent the tax authorities from raising a demand of approximately ₹3.91 crore.
Court questions the basis of the assessment
A division bench comprising Justices Dinesh Mehta and Aditi Choudhary found the assessment process deeply problematic. The Assessing Officer had combined the two transaction figures, treating ₹49.48 crore as Lalit’s turnover and calculating taxable income at 8%.
The Court pointed out that the approach effectively counted the same transaction twice, including both the gross amount and the amount remaining after tax collection. It also found that the officer had failed to conduct an independent inquiry to establish any link between Lalit and Montage Enterprises.
The bench expressed strong displeasure at the lack of basic examination of the transactions, observing that the officer appeared either not to have understood their accounting implications or not to have made an effort to understand them.
For the Court, the issue went beyond a questionable calculation. The assessment had proceeded without adequately addressing the central allegation: that Lalit’s PAN may have been used by someone else.
Financial circumstances could not be ignored
The Court also considered Lalit’s financial circumstances while examining the impact of the demand.
He had submitted bank statements and explained that he had withdrawn provident fund savings to meet his expenses. He had also obtained an Economically Weaker Section (EWS) certificate and sought a school fee waiver for his children.
These details, the bench indicated, called for careful and objective examination rather than an assessment based on the transaction figures alone.
The Income Tax Department argued that Lalit should pursue the statutory appellate remedy. The Court declined to accept that argument as a sufficient answer in the circumstances.
It noted that obtaining interim protection through the usual process could require a deposit of 20% of the disputed demand — nearly ₹78 lakh in this case. For someone in Lalit’s financial position, that requirement itself could present a formidable obstacle.
Revenue targets cannot replace fair assessment
The bench also highlighted the wider implications of imposing an enormous tax liability on a financially vulnerable individual without adequately establishing his connection to the underlying transactions.
Such action, it observed, could affect a person’s mental and emotional well-being and raise concerns under Articles 14 and 21 of the Constitution, which protect equality before the law and life and personal liberty.
The Court emphasised that tax officials must remain alert to possible fraud while grounding their decisions in verifiable facts. Meeting revenue targets, it made clear, does not excuse a failure to examine the reality of an individual case.
Assessment order set aside
The Delhi High Court accordingly quashed the assessment order dated March 17, 2025, which had resulted in the ₹3.91 crore demand against Lalit.
The relief does not permanently close the matter. The Court left the door open for fresh proceedings if credible evidence establishing Lalit’s connection with the transactions emerges, provided such action remains within the applicable statutory limitation period.
The ruling reinforces an important principle: when a tax assessment rests on transactions allegedly linked to a taxpayer’s identity, the authorities must examine the evidence and address credible claims of identity misuse before imposing a substantial liability.