The Delhi High Court has quashed an income tax assessment imposing a demand of approximately ₹3.91 crore on Lalit, a contractual security guard and cook, after finding that the tax authorities attributed transactions worth nearly ₹50 crore to him without conducting an independent inquiry into his claim that his Permanent Account Number (PAN) had been misused.
A Division Bench of Justice Dinesh Mehta and Justice Aditi Choudhary set aside the assessment order dated March 17, 2025, holding that the proceedings suffered from serious procedural shortcomings and violated the principles of natural justice. The Court also permitted fresh proceedings if credible evidence connecting Lalit to the transactions emerges within the period allowed by law.
Background
Lalit told the Court that he had worked as a contractual security guard at Hotel Ashoka and later as a cook at Vigyan Bhawan in Delhi. He maintained that he had no taxable business income and had obtained a PAN primarily as government-issued identity proof.
In February 2024, he received a notice alleging cash transactions involving Montage Enterprises Pvt. Ltd., a company dealing in packaging materials. The notice referred to cash payments of ₹24.86 crore and sales of approximately ₹24.62 crore linked to his PAN.
Lalit denied conducting these transactions and filed complaints with the police and cyber cell, alleging misuse of his PAN details. He also requested supporting transaction records from the Income Tax Department.
However, the Assessing Officer treated the combined amount of ₹49.48 crore as his turnover and calculated 8% as taxable income, resulting in the disputed demand. Lalit subsequently approached the High Court.
The Bench found that the assessment relied on information available through Form 26AS and the department's risk-management records without an independent investigation establishing Lalit's connection with the company.
The Court noted that the officer had not adequately considered Lalit's response, bank statements and complaints alleging identity theft. It also questioned why the department had not sought further information directly from Montage Enterprises.
The judges observed that the officer's treatment of the transaction figures had effectively counted the amounts twice, substantially increasing the alleged turnover.
Emphasising the need for a fair assessment, the Bench remarked, "the assessment made without disclosing the adverse material" could not stand when the taxpayer's response had not been properly considered.
The Court also rejected the objection that Lalit should first pursue the statutory appeal. Given his financial circumstances, the requirement to deposit 20% of the disputed demand could mean arranging nearly ₹78 lakh merely to obtain interim protection.
The Bench held that the circumstances warranted intervention to protect his fundamental rights under Articles 14 and 21 of the Constitution, including the right to dignity and protection against arbitrary state action.
The Delhi High Court quashed and set aside the assessment order dated March 17, 2025. It clarified that the Income Tax Department could initiate fresh proceedings if cogent evidence linking Lalit to the disputed transactions became available, subject to the limitation period prescribed by law.
The writ petition was allowed accordingly.
Case Details
Case Title: Lalit v. Union of India, Ministry of Finance & Others
Case Number: W.P.(C) 9365/2025
Bench: Justice Dinesh Mehta and Justice Aditi Choudhary
Decision Date: October 6, 2026
