Facts of the Case

The assessee, an LIC agent with modest income, was linked to a savings bank account at Axis Bank in which extremely high cash deposits were recorded. He denied ownership of the account and alleged that it had been fraudulently opened in his name using forged documents.

Investigation revealed that numerous third parties had transacted through the account in connection with businesses unrelated to the assessee. Criminal proceedings were initiated, including registration of an FIR against persons suspected of fraud.

Despite investigative findings indicating that the account was not operated by the assessee, the Assessing Officer added deposits aggregating ₹18,32,63,238 as unexplained income under section 69. The CIT(A), NFAC confirmed the addition.

For a subsequent year, reassessment was also made treating deposits of ₹5,96,20,250 and LIC commission income as unexplained due to non-compliance.

Issues Involved

  1. Whether deposits in a bank account fraudulently opened in an assessee’s name can be taxed in his hands.
  2. Whether protective assessment is justified when the real beneficiaries are unknown.
  3. Whether reassessment without considering earlier findings and investigations is sustainable.
  4. Whether income from LIC commission can be added without allowing opportunity to explain expenses.

Petitioner’s Arguments

The assessee contended that he had no knowledge of the bank account, which had been opened through forgery in collusion with bank officials. He relied on:

  • Discrepancies in account opening documents
  • Non-matching identity details
  • Police investigation and FIR
  • Bank’s internal action against responsible officials

He submitted that he earned only LIC commission income and had no business activity capable of generating such massive deposits. Tax cannot be imposed merely because the account stood in his name when evidence showed fraudulent misuse of identity.

Respondent’s Arguments

The Revenue argued that the account existed in the assessee’s name and was used for large transactions, indicating undisclosed income. Pending police investigation, the deposits were protectively assessable in the assessee’s hands to safeguard revenue interests.

Court Order / Findings (ITAT Allahabad)

  • The account was opened using fabricated documents
  • Contact details and address did not belong to the assessee
  • The voter ID used differed from the genuine one
  • Transactions were conducted by unrelated business entities
  • No linkage between the assessee and those entities was found

The Tribunal held that once the Assessing Officer himself concluded that the account was not opened or operated by the assessee, taxing the deposits in his hands was unjustified. Tax must be collected from the correct person, not merely from the person whose identity was misused.

Accordingly, the addition of ₹18,32,63,238 under section 69 was deleted.

Important Clarification

  • Tax liability cannot be imposed solely because a bank account exists in an assessee’s name when evidence shows identity misuse.
  • Failure to identify actual beneficiaries does not justify taxing an innocent person.
  • However, where facts are unclear due to non-compliance, fresh verification is warranted.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771063251_CHANDRABHAWANKAUSHAMBIVS.ITOWARD25KAUSHAMBI.pdf

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