No evidence, no demand: the Delhi High Court has held that a Rs 3.91 crore tax demand against a security guard with no taxable income cannot stand without evidence linking him to the transactions.
New Delhi: A former contractual security guard and cook has had an assessment order raising a tax demand of about Rs 3.91 crore against him quashed by the Delhi High Court, which held that the Assessing Officer made no independent inquiry linking him to the cash transactions attributed to his PAN, did not furnish the material relied upon, and counted the same transaction twice. The department remains free to start fresh proceedings if credible evidence emerges [Lalit v. Union of India, Ministry of Finance, and Others].
Justice Dinesh Mehta and Justice Dr. Aditi Choudhary, sitting as a Division Bench, allowed the writ petition in a judgment dated October 6, 2026. Advocate A.K. Babbar appeared for the petitioner, while Senior Standing Counsel Gaurav Gupta appeared for the Income Tax Department along with other counsel.
An order with nothing behind it
The Bench found that the assessment order cited no independent evidence connecting the petitioner to the transactions, and that the department could not show whether any inquiry had been made or whether the company’s statement had been recorded. It held that the Assessing Officer should at least have called for information from the company under Section 133(6) of the Income Tax Act, 1961, and observed:
“The least the AO ought to have done was to issue a notice under section 133(6)”
The Court also held that the petitioner was denied a fair hearing because the material relied upon was not provided despite his request, and that his plea of PAN misuse was not properly considered. Describing the Assessing Officer’s approach, it said:
“This approach of the AO reveals that he has not even cared to understand the nature of transaction”
On the figures, the Bench found that the officer had added the cash payment and the net sale amount shown in Form 26AS to arrive at turnover, which meant the demand against the petitioner was effectively twofold.
The petitioner’s account
The petitioner said he worked as a contractual security guard and cook at the Ashoka Hotel and Vigyan Bhawan in Delhi between 2015 and 2019, and that he obtained a PAN card only as government-issued identity proof. He said he had no taxable income and no dealings with Montage Enterprises Private Limited, a packaging material company.
A notice in February 2024 alleged cash payments of about Rs 24.86 crore to the company and cash sales of about Rs 24.62 crore recorded against his PAN. The Assessing Officer treated roughly Rs 49.49 crore as turnover and taxed 8% of it as income for Assessment Year 2017-18. The resulting assessment order dated March 17, 2025 carried a demand of about Rs 3.91 crore and was followed by penalty proceedings.
The petitioner told the department that his PAN had been misused, complained to the police and the cyber cell, produced his bank statements and sought the transaction details, which he said were never supplied. These are the petitioner’s contentions; the Court did not record a finding on who misused the PAN.
Why the appeal route did not close the door
The department argued that the petitioner had a statutory appeal. The Court did not treat that as an answer. It noted that the standard condition for a stay is a deposit of 20% of the disputed demand, which would have meant nearly Rs 78 lakh from a person of limited means, and that interest continues to run on the unpaid demand. The Bench said such a liability was not a neutral fiscal event for him, and that it exposed him to:
“constant fear of coercive recovery and complete loss of mental peace.”
Bringing in Article 21, the Bench held that the right to life includes the right to live with dignity and that mental health is an integral component of it, particularly where the State’s conduct causes avoidable mental anguish to a person of no means. It added:
“the huge demand of Rs. 3.91 crores is nothing short of threat to his mental and emotional health.”
The Court also took note that the petitioner had an EWS certificate and had applied for a waiver of his children’s school fees, and that he had shown his bank statements and provident fund withdrawals to explain his means.
Quashed, with liberty to the department
The Court quashed the impugned assessment order dated March 17, 2025 and allowed the writ petition. It left it open to the respondents to take up the proceedings afresh, subject to the limitation prescribed under law, if credible material linking the petitioner to the transactions emerges.
What the ruling tells assessing officers
The ruling restates that a tax demand must rest on evidence and on a fair hearing, not on figures attributed to a PAN. Where an assessee says his PAN has been misused, the Assessing Officer is expected to inquire, including by using the power to call for information under Section 133(6), before fastening liability.
It also shows how writ courts view the appeal-and-deposit route when the assessee has no means. By tying the size of the demand to Article 21, the Bench indicated that the statutory remedy can be bypassed where the pre-deposit would make it illusory.
Case Title: Lalit v. Union of India, Ministry of Finance through its Secretary and Others [W.P.(C) 9365/2025]
Bench: Justice Dinesh Mehta and Justice Dr. Aditi Choudhary, Delhi High Court
Date of Judgment: October 6, 2026
Appearances: Advocate A.K. Babbar for the petitioner; Senior Standing Counsel Gaurav Gupta with Advocates Shivendra Singh, Yojit Pareek, Vedansh Anand and Shivam Kumar for the respondents