There is “absolutely no evidence” that a 22-year-old Sydney man arrested in raids in September planned to behead a civilian in Martin Place, a court has heard.

Omarjan Azari was arrested in the largest counter-terrorism raids in Australian history and charged with preparing to commit a terrorist attack.

Speculation by some media on the day suggested Azari had planned to snatch a random civilian and film their execution in the central Sydney landmark.

“Despite media reports of the alleged plot, it’s emerged yesterday that the crown have absolutely no evidence of such a thing or who is responsible for it,” Azari’s lawyer, Steven Boland, told the court in a bail hearing on Friday.

The prosecution denied ever claiming such a plot existed, arguing it had only ever alleged that Azari planned a “gruesome act” without giving details or mentioning a location.

It is unclear where the beheading rumours originated. On the day of the raids Tony Abbott was asked in a press conference about “news that there are people willing to conduct public beheadings in Australia”.

The prime minister replied: “That’s the intelligence we received. The exhortations, quite direct exhortations, were coming from an Australian who is apparently quite senior in Isil [Islamic State] to networks of support back in Australia to conduct demonstration killings here in this country.”

Azari is being held in solitary confinement at the state’s super maximum security prison in Goulburn. He appeared via video link and remained silent throughout.

Fresh charges were laid against the Guildford man on Monday for allegedly making $15,000 available to a terrorist organisation to finance the travel of Australians to Syria and Iraq.

Azari declined to apply for bail, but his lawyer indicated an application for his release would be made when he appeared in court again on 24 February.