On February 26, 2024, Mr Lalit who worked as a cook in Hotel Ashoka, got an income tax notice.The notice claimed that he made a cash sale of Rs 24.62 crore from a packing materials company and thus owed Rs 4 crore in income tax plus a penalty for under-reporting his income. Mr Lalit earned a low salary, well below the tax-free limit, and was shocked to receive this notice. So, he immediately checked his Form 26AS.
His Form 26AS showed that his PAN had an entry for the Rs 24.62-crore cash sales. It also showed that 1% TDS was deducted on this amount. Thereafter, Lalit went to the Greater Kailash Police Station, New Delhi, and the Delhi Police Cyber Cell, Saket to file a formal complaint.
However, the Income Tax Department Assessing Officer (AO) ignored Lalit’s efforts. The officer told him that under the tax law, he must pay the tax or challenge the order in front of a competent authority. The problem was that the tax demand was close to Rs 4 crore and for challenging it, Lalit needed to make a pre-deposit of about Rs 78 lakh, which was almost impossible on his low salary. So he filed a case in the Delhi High Court with Advocate A.K. Babbar’s help.
Lalit told the court that he had earned no taxable income, and had not entered into any transaction mentioned in the tax notice. He claimed that somebody had misused his PAN details.
Mr. Babbar argued that Lalit fell victim to an identity theft and somebody had misused his PAN credentials. He stressed that Lalit had no link to the packaging material company since he worked as a cook.
Also read: Taxpayer wins case in ITAT Mumbai: Rs 1 crore tax demand quashed after TDS mismatch in Form 26AS
Mr Babbar also highlighted that Lalit was a contractual employee in the Ashoka Hotel and the Vigyan Bhawan and in the past, had worked with many contractors to whom he had given copies of his PAN card for verification purposes. So Mr Babbar’s contention was that someone might have misused Lalit’s PAN.
Babbar also argued that simply because the TCS records or Form 26AS and annual summary finds mentioned Lalit’s Permanent Account Number, the tax demand couldn’t be raised against him and the corresponding amount couldn’t be treated as his turnover/business receipts in the absence of any other material evidence.
On October 6, 2026 the Delhi High Court gave relief to Mr Lalit and cancelled the entire tax demand notice.
Where an individual falls victim to identity fraud, as Lalit did, what to do?
Pranshu G, Partner at Ashok Pranshu & Co, said to ET Wealth Online that if you are a victim of identity fraud you should immediately lodge police and cybercrime complaints once you notice the fraud. Separately notify the jurisdictional Income Tax and GST authorities in writing, retaining acknowledgements. Check AIS, Form 26AS and the GST portal’s “Search by PAN” facility, and report unauthorised registrations. Respond to every tax notice with complaints, bank statements and employment records, requesting the underlying evidence and independent verification.
Pranshu says: "If these are ignored, promptly challenge the order and seek recovery protection; a High Court writ may be appropriate where natural justice is violated."
How did Lalit win the case?
Pranshu says that the Delhi High Court found that the assessment rested solely on Form 26AS and portal information, without independent evidence connecting Lalit to the transactions. His employment history, bank statements and financial circumstances supported his claim of PAN misuse. Yet, the officer ignored his explanation and police complaints, withheld the underlying material and failed to enquire with the alleged counterparty.
The income tax officer also wrongly counted gross and net figures of the same transaction twice. Pranshu says that these failures breached natural justice and constitutional protections against arbitrariness.
Pranshu says: "Given Lalit’s limited means, the appellate remedy was considered ineffective. Fresh proceedings remain permissible only upon other cogent evidence linking him to the transactions, within statutory limitation."
Delhi High Court discussion
Hon’ble Justice Dinesh Mehta and Hon’ble Justice Aditi Choudhary of the Delhi High Court heard this case.
Income Tax Department failed to prove it took any action against the packing materials company
The Delhi High Court asked the Income Tax Department if they have any other evidence or materials apart from Lalit’s Form 26AS and whether the Income Tax Department has conducted any independent inquiry or recorded the statement of owner of said packaging company so as to establish that transactions had taken place with Lalit.
Mr.Gaurav Gupta, Senior Standing Counsel for Income Tax Department could not give any satisfactory reply on the basis of available record.
Thus Delhi High Court observed that it isclear that the tax assessment order is founded solely on the limbs of information available on risk management strategy or Form 26AS and no independent inquiry has been conducted by the AO.
The Delhi High Court also said that the AO should have issued a tax notice under section 133(6) to said packaging company and ask for further details or record its statements.
Lalit had applied for EWS certificate for waiver of school fees and also withdrew money from PF a/c
The Delhi High Court said that the assessment order reveals that the Income Tax Assessing Officer (AO) has proceeded absolutely arbitrarily and with closed or predetermined mind.
In his reply, which the AO has reproduced, Lalit stated that he had withdrawn amount from his PF account between 2013 and 2018 to meet the needs of funds and that he had got a EWS certificate issued and applied for waiver of school fee for his children.
The Delhi High Court observed that this plea of Lalit needed some empathy, if not sympathy and objective scrutiny of the matter and detailed examination.
The Delhi High Court said: “Because, these facts clearly suggested that petitioner’s (Lalit) defence that someone had misused his PAN number, had some substance.”
That apart, the AO has not brought on record any evidence to show that Lalit has ever indulged in any business, let alone packaging business.
The Delhi High Court said: “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.”
Thus Delhi High Court gave full relief to Lalit and quashed the tax demand notice. However, the court also said that if in the future the Income Tax Department finds any incriminating evidence against him the the case can be reopened.