Delhi High Court slams tax officer for ₹3.91 crore IT demand against security guard with EWS certificate

The Delhi High Court recently quashed a ₹3.91 crore income tax demand against a security guard and cook, strongly criticising the Assessing Officer (AO) for failing to apply his mind in the case [Lalit Vs Union of India]

A division bench of Justices Dinesh Mehta and Aditi Choudhary found that the officer had arbitrarily attributed transactions worth nearly ₹50 crore to the petitioner without looking into his claim that his Permanent Account Number (PAN) had been misused.

The Court was particularly critical of the officer's failure to understand the nature of the transactions.

"This approach of the AO reveals that he has not even cared to understand the nature of transaction –either he did not understand the basics of accounting or he did not want to," the bench said.

The petitioner, Lalit, worked as a contractual security guard and cook at Ashoka Hotel and Vigyan Bhawan in Delhi between 2015 and 2019.

He claimed to have obtained a PAN card merely as government-issued identity proof despite having no taxable income.

In February 2024, he received a notice alleging cash transactions involving Montage Enterprises Private Limited, a packaging materials company.

The notice referred to cash payments of ₹24.86 crore and cash sales of ₹24.62 crore against his PAN.

Lalit denied undertaking these transactions and filed complaints with the police and cyber cell, alleging identity theft.

However, the AO treated both transactions as his turnover of ₹49.48 crore and assessed 8% as taxable income, resulting in a demand of approximately ₹3.91 crore.

The Court found that the officer had effectively counted the same transaction twice by adding the gross amount and the net amount remaining after tax collection.

It also noted that no independent inquiry had been conducted to establish Lalit's connection with Montage Enterprises.

The Court observed that Lalit had produced bank statements and explained that he had withdrawn provident fund money to meet financial needs. He had also obtained an Economically Weaker Section (EWS) certificate and sought a school fee waiver for his children.

The bench said these circumstances warranted empathy and objective scrutiny. It rejected the Income Tax Department's argument that Lalit should pursue the statutory appellate remedy.

It noted that securing interim protection ordinarily requires depositing 20 percent of the disputed demand, amounting to nearly ₹78 lakh in the present case.

The bench observed that such an enormous demand could threaten the mental and emotional well-being of a financially vulnerable person, implicating Articles 14 and 21 of the Constitution.

It stressed that tax officers should not ignore reality while looking to achieve their revenue targets.

"A Tax Enforcement Officer should strive to achieve high revenue target but he should keep his feet firmly grounded on the floor of reality. His eyes should be sharp to pierce through the fraud but they should not slip away from the facts"

Accordingly, the Court set aside the assessment order dated March 17, 2025. However, it permitted fresh proceedings if credible evidence connecting Lalit to the transactions emerges, subject to statutory limitation.

Advocate AK Babbar represented the petitioner.

Senior Standing Counsel Gaurav Gupta along with advocates Shivendra Singh, Yojit Pareek, Vedansh Anand and Shivam Kumar, appeared for the respondents.

[Read Judgment]