Identity Misuse in Bank Account: ITAT Sets Aside Addition and Directs AO to Conduct Fresh Probe [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) set aside the addition of ₹15,97,500 made as unexplained cash deposits and directed the Assessing Officer (AO) to conduct a fresh probe after finding strong evidence of identity misuse in a bank account linked to the assessee.

Mayankkumar Rameschandra Bhatt, appellant-assessee, had no regular source of income in the relevant year. Based on AIR/ITS information, the AO found cash deposits of ₹15,97,500 in a Bank of India account during FY 2006-07.

A notice under section 148 was issued in March 2014, to which the assessee replied claiming he had already filed a return for AY 2007-08, but he did not provide proof. The AO treated him as a non-filer and completed the reassessment under sections 144/147, adding ₹15,97,500 as unexplained cash deposits under section 69A and ₹7,60,000 as short-term capital gains. Penalty proceedings were also initiated.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed relief. The AO, in his remand report, produced the bank statement, KYC details, and confirmed that Security Transaction Tax (STT )was paid on share transactions. The assessee filed an affidavit stating the account was fraudulently opened in his name and pointed to mismatched signatures and earlier bank replies that failed to trace the account.

The CIT(A) accepted that share sales were long-term and STT paid, deleting the ₹7,60,000 addition. However, the cash deposit addition of ₹15,97,500 was upheld, holding the account was in the assessee’s name based on PAN linkage and bank confirmation. The penalty issue was treated as premature. Aggrieved, the assessee filed this appeal.

The two member bench comprising Suchitra R.Kamble (Judicial Member) and Makarand V.Mahadeokar (Accountant Member) reviewed the case, including the orders of the lower authorities, the affidavit, RTI replies, bank documents, and an FIR filed alleging identity fraud and misuse of PAN.

It found that the reassessment was started only on the basis of AIR data showing cash deposits of ₹15,97,500 in a Bank of India account said to belong to the assessee. The AO had treated the account as the assessee’s and added the deposits under section 69A.

The tribunal noted that the assessee denied owning the account and filed evidence like a sworn affidavit, RTI responses showing initial issues in tracing the account, signature mismatches, and proof that most transactions were linked to a stock sub-broker with no connection to the assessee. It held that these raised serious doubts about who really owned and used the account.

It also observed that the tax authorities had not checked how the cash was used or who actually benefited, and that the affidavit was wrongly rejected without cross-examination. The FIR alleging identity fraud and misuse of PAN further supported the claim of misuse.

The tribunal set aside the ₹15,97,500 addition and directed the AO to conduct a full investigation. The AO was told to obtain KYC and account opening documents from the bank, examine all deposits and withdrawals, trace possible third-party beneficiaries, verify the FIR and any police action, and allow the assessee to submit further evidence or cross-examine third parties if relied upon.

The case was sent back for fresh adjudication, and the appeal was allowed for statistical purposes.

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