PAN Misuse in Share Deals: ITAT Mumbai Sends Case Back to AO for Police Verification

Background of the Dispute

The matter concerns an appeal by Mitesh Suresh Shah Vs ITO (ITAT Mumbai) for Assessment Year (AY) 2016–17, where substantial additions were made by treating certain share transactions as belonging to the assessee. The assessee consistently maintained that his Permanent Account Number (PAN) had been fraudulently used by another individual with the same name, residing at Nagpur, and that he had never entered into the disputed share transactions.

The assessment was completed under Section 147 read with Section 144C(13) of the Income Tax Act 1961, based on directions issued by the Dispute Resolution Panel (DRP). The assessee challenged both the reassessment proceedings and the additions on merits. The controversy ultimately reached the Hon’ble Bombay High Court, which played a pivotal role in shaping the subsequent appellate process before the ITAT Mumbai.

Procedural Journey and High Court Intervention

Initially, the reassessment order dated 03.01.2023, passed under Section 147 r.w.s. 144C(13), and based on DRP directions under Section 144C(5), was questioned directly before the Hon’ble Bombay High Court through a writ petition.

The High Court, by order dated 18.08.2025, took note of an important factual aspect relating to the immediately preceding year, AY 2015–16:

For AY 2015–16, the same issue of alleged share dealings in the assessee’s name had come up.
In that year, the Assessing Officer (AO), after considering an enquiry report received from the police authorities, accepted that the assessee’s PAN had been misused by a third party.
Consequently, no addition was made in AY 2015–16 on account of such transactions.

Recognising that a similar pattern had surfaced in AY 2016–17, the High Court:

Recorded that the “same problem” had occurred again for AY 2016–17.
Granted a stay on recovery proceedings, given the peculiar facts.
Permitted the assessee to pursue a statutory appeal before the ITAT against the reassessment order.

In essence, the High Court did not finally adjudicate the tax liability but ensured that the assessee had full recourse to appellate remedy before the Tribunal, with the background of PAN misuse already acknowledged for the earlier year.

Grounds Raised Before the ITAT

Before the Tribunal, the assessee pressed multiple categories of grounds, broadly grouped as follows:

1. Validity of Reassessment under Section 147

The assessee contended that:

The reassessment under Section 147 r.w.s. 148, 149 & 151 was without jurisdiction.
Mandatory preconditions for reopening were not satisfied.
No separate, reasoned order disposing of objections to the reopening was passed by the AO.

On this basis, the assessee argued that the reassessment order itself was void in law and required to be quashed.

2. Challenge to DRP Directions

The assessee also questioned the directions issued by the DRP, asserting that:

The directions were contrary to law, arbitrary, and perverse.
Additional evidence tendered by the assessee was wrongly not admitted.
Hearing was not properly conducted, including alleged failure to adhere to prescribed norms for video conferencing.