Evidentiary Breach: Invalidating Cash Deposit Assessments Arising from Chartered Accountant’s Misuse of KYC.
Assessment years 2011-12 and 2015-16
Flow of Events:
| Initial Findings | Revenue observes significant cash deposits in the assessee’s Syndicate Bank and OBC accounts for the relevant assessment years. |
| Assessee’s Defense | The assessee fails to explain the source of the cash deposits, and there are no maintained books of account. |
| Reassessment Proceedings | Proceedings under section 147 are initiated due to alleged escapement of income from taxation. |
| Ex-parte Assessment | An ex-parte assessment is conducted under section 144 read with section 147, adding the cash deposits as unexplained credits from undisclosed sources under section 68. |
| Appeal to Tribunal | The assessee, a salaried employee, appeals to the Tribunal. It is revealed that a CA, identified as ‘B’, had misused the assessee’s ID proof to open various bank accounts, conduct transactions, and acquire assets in the assessee’s name.
Also, categorically finding recorded by the Assessing Officer while re-opening the case of ‘B’ wherein it has been accepted that the cash deposited in the case of the assessee is done by ‘B’ and not by the assessee. |
| Fraud Unearthed | In February-March 2016, a fraud amounting to Rs. 2000 crores is uncovered, implicating ‘B’ and others. ‘B’ is identified as the mastermind behind the scam. |
| Acceptance of Misconduct | The reasons recorded for reopening ‘B’s case confirm his involvement in the Syndicate Bank scam and acknowledge his cash deposits in accounts opened in the assessee’s name. |
| Tribunal Decision | The Tribunal rules in favor of the assessee, ordering the deletion of the additions made in the assessee’s name. |
Conclusion and Preventive Action:
The case underscores the critical importance of safeguarding personal identification documents and exercising caution when entrusting them to professionals. To mitigate such risks in the future, individuals should:
| ✔ Exercise diligence in verifying the credentials and integrity of professionals handling their financial matters. |
| ✔ Implement stringent measures to safeguard personal identification documents and monitor their usage. |
| ✔ Regularly review financial transactions and account activities to detect any unauthorized or suspicious activity promptly. |
| ✔ Educate oneself about financial regulations and seek legal recourse promptly in case of identity misuse or fraudulent activities. |
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