Facts of the Case

The Assessing Officer received information regarding substantial credits in a bank account maintained with Jammu & Kashmir Bank in the name of M/s Elina Medi Services, allegedly a proprietary concern of the assessee. Reassessment proceedings under section 147 were initiated for Assessment Years 2011-12 and 2012-13.

During the proceedings, the assessee filed returns declaring income primarily from salary. However, large credits amounting to ₹5.37 crore (AY 2011-12) and ₹13.67 crore (AY 2012-13) were observed in the said bank account. The Assessing Officer treated these credits as business turnover and estimated income at 8% under section 44AD, resulting in additions of ₹42,76,560 and ₹1,08,94,145 respectively.

The assessee denied any connection with the bank account or the business, asserting that he was merely a salaried employee and that his identity documents had been misused by his employer to open the account and route funds. The CIT(A), NFAC confirmed the additions.

 Issues Involved

  1. Whether reassessment proceedings under section 147 were valid in the circumstances.
  2. Whether credits in a disputed bank account could be taxed as the assessee’s business income without establishing ownership or control.
  3. Whether the authorities properly discharged the burden of proving that the assessee opened, operated, or benefited from the account.

 Petitioner’s Arguments

The assessee contended that he had never opened or operated the bank account in question and had no association with M/s Elina Medi Services. He stated that he was a salaried employee earning modest income and maintained only one personal bank account with SBI.

He alleged that his employer had fraudulently used his documents to open the impugned account and conduct large-scale transactions among group entities. The assessee submitted that deposits in the account originated from entities belonging to the employer’s group and were transferred to other related entities, indicating that he was neither the operator nor beneficiary. He also highlighted complaints made to authorities regarding the alleged fraud.

 Respondent’s Arguments

The Revenue argued that the bank account stood in the name of a proprietary concern linked to the assessee, and documentary evidence indicated business activity. The bank had certified the account as a business account, and parties transacting through the account had not provided satisfactory explanations.

It was contended that the Assessing Officer had adopted a reasonable approach by treating credits as business turnover and estimating income, especially since the assessee failed to conclusively disprove ownership or involvement.

 Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the assessee had consistently denied ownership and operation of the bank account. However, the Assessing Officer had not conducted adequate investigation to verify these claims.

Specifically, the Tribunal noted the absence of:

  • Forensic examination of signatures on account opening documents and transaction instruments
  • Proper examination of the introducer of the account
  • Independent verification from authorities registering the business
  • Analysis of credit and debit entries to identify the actual beneficiary
  • Statements or confirmations from parties transacting through the account

The Tribunal held that while normally the burden lies on a person to explain entries in an account standing in his name, where ownership itself is disputed, the Department must bring evidence to disprove the denial.

Accordingly, the Tribunal restored the matter to the Assessing Officer with directions to determine:

  1. Whether the assessee actually opened the bank account
  2. Whether he operated the account
  3. Whether he was the beneficiary of the transactions

If these are established, income may be assessed in his hands; otherwise, action may be taken against the real operator or beneficiary. The appeals were allowed for statistical purposes.

 Important Clarification

The Tribunal did not decide on the taxability of the amounts on merits but emphasized that taxation must follow proper determination of ownership, control, and beneficial interest. The Assessing Officer must conduct thorough investigation and assess income in the hands of the actual operator or beneficiary of the bank account.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771061451_AMRESHKUMARSINGHALLAHABADVS.ITO21ALLAHABAD.pdf

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