While I understand that Upanishads try to reconcile and prove logically that Atman is the true witness, why can't it be that Subtle body alone is our true nature ? Where and when was this subtle body created first and what happens to it after one realises his true nature as Atman? Why does Atman produce or project multiple Subtle bodies???
Why can't it be that Subtle body alone is our true nature ?
The subtle body can't be our true nature because it perishes after moksha. A Jiva is eternal.
Never was there a time when I did not exist, nor you, nor these rulers of men. Nor shall all of us cease to be hereafter.
Self is also eternal.
Know that Reality, by which everything is pervaded, to be indestructible. No one can cause the destruction of this immutable being.
He who thinks him (the Self) to be the killer, and who experiences him (the Self) as the killed – both of them know not. He (the Self) neither kills nor is killed.
He (this Self) has neither birth nor death. Nor does he cease to be, having been in existence before; unborn, eternal, permanent and primeval, he is never killed when the body is killed.
O Arjuna! Know this self to be eternal, undecaying, birthless and indestructible. A person who knows him to be so – how and whom can he kill, how and whom can he cause to be killed?
Since both Jiva and Self are eternal then it naturally follows that the Self is the real nature of Jiva.
Where and when was this subtle body created first and what happens to it after one realizes his true nature as Atman?
There is no first creation. Subtle bodies are periodically manifested (together with the universe) and periodically de-manifested.
The subtle body perishes after moksha.
Abandoning of subtle body after moksha
The river Viraja, forms the eighth enclosure. It flows in between the spaces of ether. It spreads over five yojanas all round. It is the most sacred river that wards of rebirth. O bird, those who bathe herein go to Brahmaloka where they rejoice with the four-faced Brahma. Those who take the bath in the Viraja river abandon their subtle bodies and attain liberation. Those alone who have realized the Self and abide in Brahman can cross the Viraja river.
Garuda Purana, Brahma (Moksha) Khanda, Chapter X
Why does Atman produce or project multiple Subtle bodies???
It is not possible to answer this question. At most one can say is that the Atman sportingly projects the subtle bodies.
The Supreme Spirit, being approached (at His behest) by His own subtle Divine Power (Prakrti, Universal Nature), constituted of the three Gunas (Dispositions called Sattva, Rajas and Tamas), looked at her sportively, as it were, and thereby endowed her with the power of world evolution by impregnating her with his own emanation as the Jiva or the individual spirit.
Srimad Bhagavata Purana III.26.4
There is also a verse in Brahma Sutra that talks of the universe as the pastime of Brahman.
But (creation for Brahman is) a mere pastime like what is seen in the world.
Brahma Sutra II.1.33 of Sri Sankaracharya translated by Swami Gambhirananda