MUMBAI: KYC documents, routinely handed over for jobs, banking and other formalities, can become a tool for alleged identity misuse, leaving ordinary citizens fighting income-tax (I-T) demands over transactions they claim were never made.A former office boy in Mumbai has won a major legal battle after the Income Tax Appellate Tribunal (ITAT) quashed a reassessment saddling him with an income addition of nearly Rs 1.46 crore arising from transactions (treated as unexplained cash credit and expenditure) attributed to a pharmaceutical concern.However, he won this I-T battle owing to invalid service of the I-T notice – which resulted in quashing of the reassessment. The ITAT did not address the issue of misuse of KYC documents.A government official told TOI that instances of mis-use of KYC documents reach the corridors of the ITAT from time to time. The concerned individual, who on noticing misuse of his KYC documents should immediately approach the police authorities to file a complaint.This would provide a strong footing in tax litigation. Also, taxpayers should always check their annual information statements and annual information returns available on the tax portal to see whether any dubious financial transactions appear against their PAN.In this case, Waghela – the taxpayer alleged that Mehta, his former employer, had misused his signatures and KYC documents to obtain a second PAN in his name without his knowledge and set up Kingsy Pharma.Waghela told the tribunal that he had worked as an office boy for Mehta for around 18 months from Sept 2009, earning a monthly salary of Rs 3,500. He said he had handed over documents and signatures believing they were required for employment and security purposes.According to Waghela, Kingsy Pharma, its bank account and pharmaceutical licences were created and operated without his knowledge. He denied running the business or undertaking the transactions attributed to it.The I-T department had initiated reassessment proceedings after receiving information about Kingsy Pharma, which had been identified by the Maharashtra State VAT Department as a concern providing accommodation entries. Bank transactions of Rs 1.3 crore and Rs 18.8 lakh were attributed to the concern under the disputed PAN.The I-T officer treated these amounts as unexplained expenditure and unexplained credit, taking Waghela’s total assessed taxable income to Rs 1.46 crore.The ITAT, however, found that the notice initiating reassessment had never been validly served. Notices sent to a Bandra address were returned undelivered, while a subsequent notice was affixed to a locked room at Sonam Apartment in Bhiwandi, without evidence connecting Waghela to the premises. He responded promptly when a show-cause notice finally reached him at his Vile Parle address and by email.Holding that valid service of the notice under Section 148 of the I-T Act was essential, the ITAT quashed the reassessment and consequently the additions made to Waghela’s income.
