Delhi ITAT Mandates Fresh Adjudication Over Rs. 1.17 Crore Addition Linked to Allegedly Fraudulent Bank Account

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently delivered a crucial ruling emphasizing the necessity of conducting profound and comprehensive factual investigations before attributing unexplained bank deposits to an assessee. In the matter of K. P. Religious & Charitable Trust Vs ITO, the Tribunal overturned the concurrent findings of the lower tax authorities, who had levied a massive addition of Rs. 1,17,33,995 under Section 69 of the Income Tax Act 1961. The core of the dispute revolved around a bank account that the assessee claimed was entirely fabricated by third parties utilizing manipulated Know Your Customer (KYC) documentation.

By remanding the case back to the Commissioner of Income Tax (Appeals) [CIT(A)], the ITAT underscored that appellate authorities possess co-terminus powers with the assessing officers and must actively investigate allegations of financial fraud and identity theft rather than summarily dismissing them.

Factual Matrix of the Dispute

The controversy pertains to the Assessment Year 2011-12. The assessee, a religious and charitable trust, had submitted its return of income on 29-09-2022, declaring a nil total income. Subsequently, the tax department's Investigation Wing (Unit-III, New Delhi) flagged suspicious financial activities involving the assessee and another entity, M/s Royal Park Hospitality Pvt. Ltd.

According to the intelligence gathered, a bank account held with Punjab National Bank (PNB) in Vijay Nagar, Ghaziabad, operating ostensibly in the name of the assessee trust, had witnessed substantial cash and cheque deposits amounting to Rs. 1,17,33,995 during the financial year 2010-11. Relying on this specific intelligence, the Assessing Officer (AO) initiated reassessment proceedings by issuing a notice under Section 148 of the Income Tax Act 1961 on 29-03-2018, invoking the provisions of Section 147 of the Act.

The Assessee's Stance: Allegations of Identity Theft

During the reassessment proceedings, the assessee vehemently denied any association with the PNB account. The trust argued that the account was maliciously opened and operated by unauthorized third-party individuals, specifically identifying Mr. Chandra Shekhar and Mrs. Usha Yadav.