V.K.PURI.,KOLKATA vs. ACIT CIR - 26,KOLKATA., KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

Both appeals by the assessee are arising out of order of Commissioner of Income Tax (Appeals)-XIV, Kolkata in appeal No.2&3 Rest/CIT(A)- XIV/Kol/10-11 dated 19.11.2012. Assessments were framed by ITO Ward- 3(2), Kolkata u/s 144 / 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.03.2005 for assessment years 2002-03 and 1997-98 respectively.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 2 2. Both appeals are filed by same assessee, therefore they are clubbed and heard together and passing a consolidated order for the sake of convenience. First we take up ITA No. 1904/Kol/2012 for A.Y 02-03. 3. Assessee has raised following grounds of appeal:- “(1) That under the facts & circumstances of the case, the intimation of preceding u/s. 147 read with Sec. 148 of the I.T. Act is vague, arbitrary, bad in law and beyond the provision of law and therefore reopening proceeding is liable to be quashed. (2) That under the fats circumstances of the case, the L’d CIT(A) erred in confirming the addition of Rs.49,50,127/- of those investments / deposits in banks etc. holding that no evidence was produced to establish the nexus or immediate connection between maturity values of earlier investments to purchase the listed alleged investments, although the AO in the Remand Report dated 14/02/2011 at para – 5 conducted detailed examination of various documents, evidence & consequently recommended for deletion of the addition of Rs.49,50,127/-. (3) The L’d CIT(A) did not consider the repeated & multiple additions, once in the relevant Asst. Year when such investments were purchased and again in the year of maturity when matured amounts were being deposited in the bank accounts. (4) The L’d CIT(A) erred in confirming the addition made by the L’d AO which was based on surmises, suspicion & conjecture as evident from para – 14 of the Asst. Order. (5) The L’d CIT(A) erred in confirming the addition The L’d AO (a) on the basis of non existent investments On the basis of investments listed twice in the Asst. Order. (6) The L’d CIT(A) erred in confirming the addition made by the L’d AO at the hands of the appellant being income declared by two major daughters of Rs.3,63,470/- & Rs.1,74,109/- by Neha Puri & Divya Puri, respectively (originally assessed on protective basis in daughters’ hand), despite these incomes were ordered to be determined by the appellate authorities on substantive basis at the hands of respective daughters. (7) The L’d CIT(A) erred in adding the amounts of Rs.4,82,953/- and Rs.1,12,000/- once again in the hands of appellant in spite of the fact that similar additions were made in the hands of major daughters Neha Puri & Divya Puri, respectively, who were submitting their income tax

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 3 returns independently and whose income have been held on substantive basis, and these two additions were deleted by their appellate authorities for reason that the investments were either explained or were non existent. (8) That under the facts & circumstances of the case, the L’d CIT(A) was wrong in confirming the interest income Rs.1,61,638/- being 10% of investment Rs.16,16,386/- stands in the name of wife Amita Puri despite income was ordered to be determined by the ITAT, Mumbai on maturity of deposits at the hand of Mrs. Amita Puri where corresponding investments were reflected. Moreover further addition of interest income at the hand of the appellant will tantamount to double taxation. (9) The L’d CIT(A) erred in enhancing the assessment by further adding interest incomes of Rs.4,6,048/- and Rs.64,552/- which is unjustified, arbitrary and beyond the provision of law, since the same has already been taxed in the hands of Amitra Puri, the wife. (10) The L’d CIT(A) was wrong in relying upon the 2nd Remand Report dated 12/09/2012, which was framed without any detailed examination of the various documents & submissions and therefore suffers from injury, illegality and irrelevance. (11) The L’d CIT(A) erred in observing that additional evidence is not admissible despite paper books containing various documentary evidence were referred to the AO by him for examination in terms of the ITAT, Kolkata order dated 25/06/2010, thus rule 46A was complied with.” Before coming to the specific issue of the case, let us understand the history of the case. The assessee is an individual and serving as Central Government employee in Central Excise Department. There was a search operation conducted at the residence of assessee in Mumbai by the Central Bureau of Investigation (CBI for short) on dated 20-02-2002. As a result of search, various documents such as FDRs, TDRs, Bank passbook were seized by the search party which were handed over to the Department of Income Tax. The AO examined the seized documents and found various deposits, investments in the name of assessee, his wife, Amita Puri, his daughters – Divya Puri and Neha Puri and details of such investment / deposits are tabulated and reproduced below:-

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 4 Sl Description V.K.Puri Amita Puri Divya Puri Neha Puri No. 1 D-141 page 1521 UTI Bank 65,995 65,995 65,995 Ltd. Pune, 30.06.01 31.03.02 2 Page 220 Syndicate bank 1,95,893 Intt. 112/-, 9,399/-, 145, 65,286/-, 58,727/-, 19,586/-, 42,630/-, 8/-, from 09.07.01 to 21.03.02 3 D-299 Syndicate VCCC 42,000 No.45546 01.12.01 4 D-331 DHFC Bank 01.04.01 5,27,489 to 31.03.02 5 D-38, page 1560 Stock 60,000 Holding Corpn. 09.10.01 6 05.10.01 1561 page – do- 3,00,000 7 D-178 page 1485 GTBL 40,000 40,000 40,000 40,000 10.09.01 22005113386, 87, 88 8 D-139 page 1359 Indusind 42,000 42,000 Bank 12.09.01 TDR No. 504340002 / 287625 1360 / 287626 9 D-169 A/c No. 0018910 59,652 HDFC 09.04.01 10 -do- 19368 59,652 11 D-206 LIC 04.06.01 P-1805 61,907 to 1812 dt. 15.06.01 12 D-419 DD.No. 36323, 25,000 55,000 30,000 316398 NIFT 28.06.01 09.01.02 D-395 31652 dt. 08.05.01 D-418/4 DD Rs.500 13 D-151 04.03.2002 ICICI 62,852 62,852 65,381 Bank 14 D-88 page 1371 Te 8,17,171 Ratnakar Bank Ld. A/c No. 1858 VKP, Amita, Divya & Neha 15 Page 1395 & 1393 & 1392, 20,079 20,079 1390 Bonds & Dividend D-52 16 D-154 SHCL Relief Bond 3,00,000 85451 20.10.01 17 D-209 ICICI Bank 1038162, 42,000 42,000 42,000 42,000 163 dt. 02.05.01 18 D-209 ICICI Bank 1038162, 55,000 55,000 163 dt. 02.05.01 19 Page 1214, 1215 Cash ICIC 78,417 78,417 Bank 01.05.01 20 D-156 page 1573 UTI Bank 42,000 40,000 Ltd. 984263, 984270, 08.09.01 21 D-70 / D-71 page-1511 CBI 40,000 40,000 C 250310, 309 TDR

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 5 30.04.01 22 Page 1321 Syndicate Bank 2,02,392 07.03.02 23 Page 1285 SBI Statement 42,892 5,91,401 42,892 01.04.01 to 31.03.02 A/c No. 031142, 140 24 D-187 The Cosmos Coop B. 42,000 Ltd. page 1279 10.06.01 25 D-436 to 446, 448, 449 AND Deposits Union Bank of India 1,57,343 03.05.01 to 09.02.02 26 D-168 10.04.02 HDFC 1264 65,381 TOTAL 49,50,127 27,38,788 16,16,386 1,12,000 4,82,953

The AO found that the assessee has filed his return of income declaring income of Rs.4,52,166/- for the relevant previous year. The AO observed huge difference between the income of assessee declared in the return and the investment / FD revealed from the seized documents. The AO also observed that the assessee did not attend the income tax proceedings at all and kept the matter lingering on one or the other pretext. Since the assessee in the present case is a central government employee and was transferred from one place to another during the proceedings of income tax therefore the assessee failed to attend the hearing. However the AO sought the clarification on the facts revealed from the seized documents. The assessee submitted a reply vide letter dated 10.03.2005 but no corroborative evidence was furnished in support of his claim. The assessee being a central govt. employee was posted at Raipur at the time of assessment so he could not attend the assessment proceedings personally to defend his case. At the same time, assessment was getting time barred so AO had no alternate but to frame the assessment u/s 144 of the Act to the best of his judgment. Accordingly, AO framed the assessment under section 144 of the Act as under : i) Income as per return : 4,52,166.00 Addition made in the assessment ii) Undisclosed investment 49,50,127.00 iii) Income declared by kum. Neha puri 3,63,470.00

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 6 iv) Income declared by kum. Divya puri 1,74,109.00 v) Estimated interest income of Amita Puri 1,61,638.00 The Ld. CIT(A) has enhanced the income of the assessee as detailed below : vi) Income from interest 4,36,048.00 vii) Income from interest 64,552.00

Now let us take the specific grounds of appeal raised by the assessee 4. First ground raised by assessee in this is that Ld. CIT(A) erred in confirming the action of Assessing Officer by making an addition of ₹49,50,127/- on account of undisclosed investments / deposits in his bank.

The AO during the course of assessment found that the income declared by the assessee is of Rs.4,52,166/- for the relevant previous year but there were lot of investment in the name of assessee, his wife and his two daughters for the amount of Rs. 49,50,127/-. The AO sought the clarification from the assessee for the source of investment. The assessee failed to attend the hearing but made a reply of the show cause notice. However the reply was not substantiated with the supporting evidence. In the present case the assessment was getting the time barred, so the AO had no alternate but to frame the assessment u/s 144 of the Act to the best of his judgment. Accordingly, AO treated the entire investment / deposit as unexplained income of the assessee and added the amount of ₹ 49,50,127/- to the income of assessee.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 7 assessee, Mrs. Amita Puri received the gold and silver from her father Mr. Inder Sain Puri. However the ld. CIT(A) disregarded the claim of the assessee by observing as under : 1) No evidence was produced before the AO to establish the nexus or immediate connection between maturity value and primary/ original investment. 2) The appellant failed to substantiate the sources of funds wherefrom the original investment was made or investment made from his disclosed sources of income. 3) No evidence that the father of Mrs. Amita Puri was the man of means. No gift deed was filed. The jewellery was never disclosed in the return of income or wealth tax return. 4) No declaration was filed under gold control Act. 5) The assessee Shri V.K. Puri never declared the said assets as per the CCS (Conduct) Rules, 1964. 6) Shree Amibika Jewellers was very small firm dealing in artificial jewellery and no such purchase of jewellery from Smt. Amita Puri was recorded in its books of accounts or its sales tax and income tax return. 7) The CBI’s investigation led to the finding that Shri Vinesh Vyash, prop. of Shree Ambika Jewellers, had fraudulently prepared the purchase bills with the help of Shri Girish Jain, his employee and Shri Dinesh Vyas in June-July, 2002, i.e., after the registration of R.C. against the assessee, his wife Smt. Amita Puri, and Shri Vinesh Vyas u/s. 120B, 104, 193 of IPC r.w.s. 13(2), 13(10)(e) of Prevention of Corruption Act, 1988, with the court of Special Judge, Patiala House Courts, New Delhi on 30.01.2004. 8) During the first round of appeal the then Ld. CIT(A) had issued summons to the principal officer of Shree Ambika Jewellers. However, the summons was not complied with. The appellant was also asked to produce him, however, he could not produce the principal officer before the then CIT(A).

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 8 In view of the above findings ld. CIT(A) upheld the action of AO by observing as under:- “….. I am of the considered view that this is a case where the appellant has floated the story of sale of jewellery and silver utensils to explain the investments in his hands in the disguise of wife’s income from bogus sale of jewerllery. I absolutely agree with the view of the Assessing Officer that the story of sale of jewerllery is only a concocted story and only an afterthought. The story of sale of jewellery has been floated by the appellant only to save himself from the provisions of Anti Corruption Law after detection of his undisclosed assets by the CBI. He has been a senior officer of Custom and Central Excise service, Govt. of India. The gold and silver items as claimed to have been sold were never disclosed, either before the Income Tax Department or before the employer Department. The failure on the part of the appellant and his wife in not disclosing the investment to concerned authorities shows bogus nature of sale of jewerllery. The fraudulent nature of the bills fabricated for the alleged sale of jewellery has also been established. The alleged sale of gold and silver items goes to the root of source of investment and the appellant has never been able to substantiate it. When the root of the source of the funds itself is unexplained, its reinvestment in the form of cash in the several banks and companies is false and unrealiable. The appellant has also tried to save himself by creating a design to shift his income in the hands of his wife, Smt. Amita Puri. It is well settled principle of law that if income belongs to ‘A’, it ought to be taxed in the hands of ‘A’, not in the hands of ‘B’ unless ‘A’ is minor. Income must be taxed in the hands of the person to whom it has accrued and to whom it really belongings. Therefore, the appellant cannot be allowed to take shelter behind the income of any other person. In absence of any disclosure of assets/income in IT/WT returns, the claim of the appellant regarding sale of gold and silver items cannot e accepted. If it is accepted then any person can be able to convert his black money into white by just claiming that he has sold gold and silver without producing any documentary evidence in the form of Income Tax and Wealth Tax returns. Considering all the facts & circumstances of the case I confirm the additions on account of investment of Rs. 26,84,104/- for Asstt. Yr. 1997-98 and Rs. 54,87,706/- for Asstt. Yr. 2002-03. ”

Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. Shri P.K.Himmat Singhka Ld. Authorized Representative appearing on behalf of assessee and Shri Alak Nag, Ld. Departmental Representative appearing on behalf of Revenue.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 9 6. We have heard rival contentions of both the parties and perused the materials available on record. Ld. AR submitted two sets of paper books containing pages from 1 to 318 and also submitted written submission which runs from pages 1 to 45. Before us the ld. AR also submitted a chart in tabular form where the source of every FD and investment in respect of all the four persons i.e. assessee, his wife and two daughters was explained. For instance the AO added a sum of Rs. 65,995.00x3= 1,97,985.00 in the hands of the assessee as undisclosed income. But actually these are 3 FDs in the name of the assessee, his wife and one daughter – Neha Puri. The ld. AR drew our attention to pages 115 to 117 of the paper book where it was seen from the bank statement that a sum of Rs. 48,000.00 each were deposited in FD account in the above three names on dated 26.3.1999. These FD got matured on 27.03.2002 for gross amount of Rs. 68,459/- (Net after TDS Rs. 65,995/-) This FD was disclosed to the income tax department in the statement of affairs of Amita Puri as on 31.3.2001 at page 31 of the Paper Book S. Nos. 70 to 71. 70 UTI JM Rd 48000 27.3.99 27.3.02 68469 S. No. 1 Pune 71 UTI JM Rd 48000 27.3.99 27.3.02 68489 S. No.1 Pune

The AO of Amita Puri has already accepted the investments of Rs.48,000/- each in the names of Amita Puri and V.K. Puri as belonging to Amita Puri and has charged interest in both cases in the hands of Amita Puri, which has been confirmed by Ld. CIT(A) and the Tribunal and implemented by the Department. Refer serial Nos. 66 and 67 at page 27 in which interest on two FDs in the name of V.K. Puri & Mrs. Amita Puri were included on cash basis by Amita Puri and included in computation of income at page 23 and same referred to order of ACIT at pages 50 to 52 of assessee’s paper book. This amount in the name of Neha Puri has been held by the Ld. CIT(A) Raipur as belonging to her and the interest income on this investment of Rs.48,000/- has been taxed in her hands on substantive basis, which has been upheld by the appellate authority. This amount was also added by AO to the income of Neha

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 10 Puri for AY 2002-03 as investment being from undisclosed source. Such addition was deleted by Ld. CIT(A), Raipur vide order dated 05.11.2007. Same referred to pages117 and 118 of deposit statement and pages 55 to 66 of the assessee’s paper book.

6.1 Similarly the amount of Rs.1,95,893/- ( 112 + 9399 + 145 + 65266 + 59727 + 19586 + 42630 + 8) is sum total of various credits in the bank statement of SB a/c No. 36516 in Syndicate Bank, Super Bazar, Delhi which is placed on page 119 of the paper book. The amount of Rs.112/-, 145/- & 8/- are interest received in SB a/c and tax has been paid by Amita Puri as a part of interest of Rs.3705/- which is placed at page 28 of the paper book. As seen from Bank statement, Rs.9,399/- relates to Vikas Cash Certificate (for short VCC) of Syndicate Bank 45546, VCC 45546 was invested for Rs.35,000/- on 21.08.1998 which matured on 21.11.2001for Rs.51,399/- which is placed at page 120 of the Paper Book. This FD was renewed on 21.11.2001 for Rs.42,000/- as VCC 56068 and balance of Rs.9,399/- was credited in SB a/c No.36516 on 01.12.2001.As seen from bank statement Rs.65,266/- to VCC 47971, VCC 47071 was invested for Rs.50,000/- on 06.05.1999 which is placed at page 121 of the Paper Book and pre-maturely cashed on 11.03.2002 for Rs.65,286/- of amount credited in SB a/c.As seen from bank statement of Rs.58,727/- to VCC 47977, VCC 47977 was invested for Rs.45,000/- on 08.05.1999 which is placed at page 122 and pre-maturely cashed on 11.03.2002 for Rs.58,727/- amount credited in SB a/c. As seen from Bank statement, Rs.19,586/- relates to VCC 47972, VCC 47972 was invested for Rs.15,000/- on 06.05.1999 which is placed at page 123 of Paper Book and pre-maturely cashed on 11.03.2002 for Rs.19,586/- amount credited in SB a/c. As seen from bank statement Rs.42,630/- to VCC 56068,VCC 56068 for Rs.42,000/- was invested on 21.11.2001 which is placed at page 124 of the paper book by renewal and out of maturity amount of VCC 45646. It was pre-maturely cashed on 11.03.2002 for Rs.42,630/- amount credited in SB a/c. VCC 45546, VCC 47971 and VCC 47972 are figuring in the statement

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 11 of affairs of Amita Puri (as on 31.03.2001) at Sl. No. 9, 40 & 41 at pages 30- 31. Interest amount of Rs.16,399/- relating to VCC 45546, Rs.15,286/- relating to VCC 47971, Rs.4,586/- relating to VCC 47972 and Rs.630/- relating to VCC 56068, were offered to tax by Amita Puri and assessed in her hands. Refer pages 22to 27 & 50 to 53 ( See Sl. No. 10, 63 to 63 at page 26-27.Interest amount of Rs.13,727/- from VCC No. 47977 (which was in the name of Neha Puri was offered to tax by Neha Puri at Sl. No.2 page 55, in the computation of income and was assessed in her hands, interest income of Rs.3,03,470/- was held by the Ld. CIT(A), Raipur as assessable on substantive basis in the hands of Neha Puri refer at page 63 of Ld. CIT(A) order. Similarly the details of all the investment were duly explained in the submission of the assessee which is placed on record. On the other hand the ld. DR relied on the order of authorities below.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 12 8.1 For the year under consideration, daughters of assessee namely Divya Puri and Neha Puri have declared income of Rs.3,63,470/- and Rs.1,74,109/- respectively in their individual hands which was assessed in their respective hands on protective basis. During the course of assessment proceedings of Mr. V.K. Puri the AO found several Investments/FDs in the name of assessee, his wife and his daughters which were not disclosed for the taxation purpose. The AO treated all the undisclosed investments/ FDs as the income of the assessee. Accordingly the AO opined that the income shown by the daughters of the assessee in actuality is the income of the assessee and it has just been routed through their accounts to avoid the tax liability. Therefore the AO added the income declared by both the daughters of assessee to the total income of assessee on substantive basis.

Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. We have heard rival contentions and perused the materials available on record.

11.1 From the aforesaid discussion we find that income declared by the daughters of the assessee in their respective hand were taxed in the hands of the assessee on substantive basis. Now from the submission of the assessee,

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 13 we observe that the same has been taxed in their individual names on substantive basis. The ld. DR has not brought anything on record contrary to the argument of ld. AR. and simply relied on the orders of authorities below. In view of above, we are inclined to reverse the order of the lower authorities and assessee’s ground is allowed.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 14 interest accrued on such investment also needs to be included in the income of the assessee but there was no information of such income. So in the absence of any information, it was not possible to quantify the interest income with accuracy. Therefore AO presumed interest rate @ 10% and worked out interest income of Rs.1,61,638/- and added to the total income of assessee.

Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 15 attention to the order of ITO 31(3), Kolkata in respect of Amita Puri at pages 50-53 of paper book-1 for A.Y 2002-03. Secondly, out of the total amount of Rs.26,84,104/- the investments are only to the extent of Rs.6,09,171/- the rest are being receipts, expenditure and interest received. Tax has already been paid on the interest income received on the matured investments and this was offered to tax in the year such income was received, the details of which are given under the Chart for A/.Y. 2002-03 titled “TABULAR EXPLANATION OF INTEREST REFCEIVDED AND OFFERED TO TAX” which may be seen at pages 296-301 of paper book-II for AY 2002-03. In view of this, there is no question of payment of interest of Rs.1,61,638//-. It is urged that this addition of interest may kindly be deleted. From the above we find that the wife i.e. Amita Puri of assessee has declared the income in her hand. The necessary details have also been furnished in the form of paper which is placed on record. In view of above we are inclined to reverse the order of the lower authorities and ground of assessee is allowed.

18.1 The ld. CIT (A) has enhanced the interest income in the hands of the assessee for the deposits made in the FD and in the company deposit on basis of remand report received from the AO. This interest income was not disputed by the AO at the time of assessment. However the ld. AR of the assessee submitted before us that the interest income for Rs. 5,00,600/- is actually the income of the wife (Smt. Amita Puri) of the assessee which is the part of the income declared by her for the AY 2002-03 for an amount of Rs. 16,01,520.00. Our attention drew to the page no. 50-52 of the paper book where the copy of the assessment order was placed. The ld. DR at the time of hearing did not bring anything on record contrary to the submission of the

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 16 assessee. We find that the addition of the interest income in the hands of the assessee will amount to double tax. Accordingly we reverse the order of the ld. CIT(A) and this ground of the appeal of the assessee is allowed.

Coming to ITA No.1905/Kol/2012 for A.Y. 97-98. 19. Assessee has raised following grounds:- “(1) That under the facts & circumstances of the case, the initiation of proceeding u/s. 147 read with Sec. 148 of the I.T Act is vague, arbitrary, bad in law and beyond the provision of law and therefore reopening proceeding is liable to be quashed. (2) That under the facts & circumstances of the case, the L’d CIT(A) erred in confirming the addition of Rs.26,84,104/- of those investments / deposits, etc. in banks etc. holding that no evidence was produced to established the nexus or immediate connection between maturity values of earlier investments to purchase the listed alleged investments, although the AO has stated in the remand report dated 14/02/2011, at para 3 thereof, that he conducted detailed examination of various documents and evidence contained in the paper book & consequently recommended for deletion of the addition of Rs.26,84,104/- (3) That the L’d CIT(A) erred in confirming the addition of Rs.63,860/-, Rs.19,160/- & Rs.26,547/- aggregating Rs.1,09,567/- (and being part of rs.26,84,104/-) listed at serial 6 & 8 of part 2 of Tabular Chart made in the Asst. Order, despite the AO having found in remand report that these were non existent bank accounts. (4) That the L’d CIT(A) erred in ignoring addition mistake Rs.4,98,800/- in the Asst. Order, as the addition should have been Rs.21,85,304/- instead of Rs.26,84,104/- comprising all alleged investments & bank deposits listed in the 144 / 147 order. (5) That the L’d CIT(A) was wrong in confirming the addition of Rs.10,23,864/- (but excluding salary), as part of Rs.26,84,104/- being made by the AO on the basis of entire credit summation in those alleged bank accounts, despite all credits were explained & found consisting of TA, maturity of bank FD, loan from bank, GPF advance, transfer from one bank to another, etc. (6) That under the facts & circumstances of the case, the L’d AO was wrong in estimating interest income Rs.2,68,410/- @ 10% on the alleged investment of rs.26,84,104/- despite the fact that income was ordered to be determined by the ITAT, Mumbai on maturity of deposits

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 17 in the hand of Mrs. Amita Puri where corresponding investments were reflected. Moreover, further addition of interest income at the hand of the appellant will tantamount to double taxation. (7) That the L’d CIT(A) erred in enhancing the assessment by further adding interest incomes of Rs.4,86,480/- and Rs.6,70,567/- which is unjustified, arbitrary and beyond the provision of law, since the same has already been taxed in the hands of Mrs. Amaita Puri, the wife of the appellant. (8) That the L’d CIT(A) was wrong in relying upon the 2nd remand report dated 12/-09/2012, which was framed without any detailed examination of the various documents & submissions and therefore suffers from injury, illegality and irrelevance. (9) That the L’d CIT(A) erred in observing that additional evidence is not admissible despite paper books containing various documentary evidence were referred to the AO by him for examination in terms of the ITAT, Kolkata order dated 25/06/2010, thus rule 46A was complied with.

The brief facts of the case are that there was a search operation conducted at the residence of assessee in Mumbai by the Central Bureau of Investigation (CBI for short) on dated 20-02-2002. As a result of search, various documents such as FDRs, TDRs, Bank passbook were seized by the search party which were handed over to the Department of Income Tax. The AO examined the seized documents and found various deposits, investments in the name of assessee, his wife, Amita Puri, his minor daughters – Divya Puri and Neha Puri and details of such investment / deposits are tabulated reproduced below:- SL.No. Description Amount Shri V.K. Puri Smt. Amita Kum. Divya Kum. Neha Puri Puri! Puri

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 18 1 D-434 ICICI Banking 15,000 15,000 Corpn. Ltd. Mumbai FD No. 045123 & 24 Dt. 26/04/1996 2. D-293 Syndicate Bank, 25,000 50,000 Connaught Circle N. Delhi FX 57212 & 23 Dt. 06/05/1996 3. D-504 Saurashtra Cement 11,000 11,000 11,000 11,000 Ltd., Mumbai 6000066, 67, 68, 69 Dt. 24.07.96 4. D-582 Modern Terry 11,000 11,000 11,000 11,000 Threada Ltd., Jaipur FDTL 81000, 01, 02, 03 Dated 12.08.96 5. D-531 Cromption Greaves 1`1,000 11,000 11,000 11,000 Mumbai 767074, 86, 98, & 767103 Ddt. 21.08.96 6. D-598 VST Industries Ltd 11,000 11,000 11,000 11,000 Hyderabad MR No. 133111, 12,13, 14 dated 23.08.96 7. D-581 Modern Syniex (I) 11,000 11,000 11,000 11,000 Ltd. Jaipur FDSL 00652, 651, 653, 650 dt. 27.08.96 8. D-580 Modern Threade 11,000 11,000 11,000 11,000 Ltd., Jaipur FD TL 810000 01, 02, & 03 Dtd. 04.09.96 9. D-667/VIP Industries Ltd., 11,000 11,000 11,000 11,000 M9umbai FD 11219, 217,218, & 178 dated 07.09.96 10. D-562 Data Soft ware 6,110 6,110 6,110 6,110 (ESSAR) Chennai WRNT No. 2488, 87, 86, 89 Dt. 25.09.96 11, D-Jubil Oraganays Ltd. 11,000 11,000 11,000 11,000 FD 40505, 506, 507, 508 dated 30.09.96 12, D-606 Larason & Tubro 12,500 12,500 12,500 12,500 Ltd. Mumbai 111770, 71, 72 & 73 dated 04.10.96 13. D-567 BPL Ltd., 11,000 11,000 11,000 11,000 Banglore FD 46624, 629, 630 & 631 dt. 09.10.96 14. D-5 10 Pal credit & 5,000 5,000 5,000 5,000 Capital Ltd. Mumbai 7465, 66, 67 & 68 dt. 24.10.96 15. D-599 Godrej Soap Ltd. 11,000 11,000 FDR 551537 & 38 Dt. 28.10.96 16. D-126 127 Canara bank 50,000 50,000 Tannand lane Bombay FDR LME 0818038 & 37 Dt. 23.10.96

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 19 17. D-219 Syndicate bank 50,000 50,000 Dehradun Vikas Cash Certificate 232119, 20 Dtd. 29.10.96 18. D-586 Bharat Forgte Ltd. 11,000 11,000 11,000 11,000 Pune 000279, 280, 281 & 282 Dt. 30.10.96 19. D-542 Clariant India Ltd. 11,000 11,000 11,000 11,000 Mumbai CF 800100104, 101, & 800099 Dt.31.10.96 20. D-541 Kirloskar 11,000 11,000 11,000 11,000 Pncunatic Co. Ltd. A 64996, 97, 98 & 655020 Dt. 11.11.96 21. D 308 PNB Dehradum 50,000 FD 2559 Dt. 14.03.97 22. D-557 Zee Telefilm Ltd. 11,000 11,000 11,000 11,000 FD 6000157, 156, 155, 154 Dt. 25.03.97 23. D-621 IL & FS Ltd. 11,000 11,000 11,000 11,000 Mumbai, FD 00144548, 459, 460, 461 Ddt. 31.03.97 24. D-620 Bharat Petroleum 11,000 11,000 11,000 11,000 Corpn. Ltd. Mumbai TD No. 636793, 795, 796 & 797 Dt. 12.04.96 25. D-555 Krishna Bhagya 5,000 5,000 5,000 5,000 Jala Nigam Ltd., 640473, 74, 75, & 76 Dt. 15.04.96 26. D-585 MAS Service P. 10,000 Ltd., Bond Certificate No.55984 dt. 21.03.97 TOTAL 16,60,240 521,810 786,810 215,810 215,810

The AO found that the assessee has filed his return of income declaring income of Rs.1,94,230/- for the relevant previous year. The AO observed huge difference between the income of assessee declared in the return and the investment / FD revealed from the seized documents. The AO also observed that the assessee did not attend the income tax proceedings at all and kept the matter lingering on one or the other pretext. Since the assessee in the present case is a central government employee and was transferred from one place to another during the proceedings of income tax therefore the assessee failed to attend the hearing. However the AO sought the clarification on the facts revealed from the seized documents. The assessee submitted a reply vide letter dated 10.03.2005 but no corroborative evidence was

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 20 furnished in support of his claim. The wife of assessee Smt. Amita Puri also submitted a reply admitting part of the investment but no evidence was furnished in support of his claim. The assessee being a central govt. employee was posted at Raipur at the time of assessment so he could not attend the assessment proceedings personally to defend his case. At the same time, assessment was getting time barred so AO had no alternate but to frame the assessment u/s 144 of the Act to the best of his judgment. Accordingly, AO framed the assessment under section 144 of the Act as under : i) Income as per return : 1,94,230.00 Addition made in the assessment ii) Undisclosed investment 26,84,104.00 iii) Accrued interest income 1,61,638.00

The Ld. CIT(A) has enhanced the income of the assessee as detailed below : i) Income from interest 4,86,480.00 ii) Income from interest 6,70,567.00

Accordingly and finally, the AO treated the entire investment / deposit as unexplained income of the assessee and added to the amount of ₹ 26,84,104/- to the income of assessee.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 21 1) No evidence was produced before the AO to establish the nexus or immediate connection between maturity value and primary/ original investment. 2) The appellant failed to substantiate the sources of funds wherefrom the original investment was made or investment made from his disclosed sources of income. 3) No evidence that the father of Mrs. Amita Puri was the man of means. No gift deed was filed. The jewellery was never disclosed in the return of income or wealth tax return. 4) No declaration was filed under gold control Act. 5) The assessee Shri V.K. Puri never declared the said assets as per the CCS (Conduct) Rules, 1964. 6) Shree Ambika Jewelers was very small firm dealing in artificial jewellery and no such purchase of jewellery from Smt. Amita Puri was recorded in its books of accounts or its sales tax and income tax return. 7) The CIB’s investigation led to the finding that Shri Vinesh Vyash prop. of Shree Ambika Jewellers, had fraudulently prepared the purchase bills with the help of Shri Girish Jai, his employee and Shri Dinesh Vyas in June-July, 2002 i.e. after the registration of RC against the assessee, his wife Smt. Amita Puri, and Shri Vinesh Vyas us/s 120B, 104, 193 of IPC r.w.s 13(2), 13(10)(e) of Prevention of Corruption Act, 1988, with the court of Special Judge, Patiala House Courts, New Delhi on 30.01.2004 8) During the first round of appeal the then Ld. CIT(A) had issued summons to the principal officer of Shree Ambika Jewellers. However the summons was not complied with the appellant was also asked to produce him, however, he could not produce the principal officer before the then CIT(A).

22.1 In view of the above findings of the ld. CIT(A) upheld the action of AO by observing as under :-

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 22 “….. I am of the considered view that this is a case where the appellant has floated the story of sale of jewellery and silver utensils to explain the investments in his hands in the disguise of wife’s income from bogus sale of jewerllery. I absolutely agree with the view of the Assessing Officer that the story of sale of jewerllery is only a concocted story and only an afterthought. The story of sale of jewellery has been floated by the appellant only to save himself from the provisions of Anti Corruption Law after detection of his undisclosed assets by the CBI. He has been a senior officer of Custom and Central Excise service, Govt. of India. The gold and silver items as claimed to have been sold were never disclosed, either before the Income Tax Department or before the employer Department. The failure on the part of the appellant and his wife in not disclosing the investment to concerned authorities shows bogus nature of sale of jewerllery. The fraudulent nature of the bills fabricated for the alleged sale of jewellery has also been established. The alleged sale of gold and silver items goes to the root of source of investment and the appellant has never been able to substantiate it. When the root of the source of the funds itself is unexplained, its reinvestment in the form of cash in the several banks and companies is false and unrealiable. The appellant has also tried to save himself by creating a design to shift his income in the hands of his wife, Smt. Amita Puri. It is well settled principle of law that if income belongs to ‘A’, it ought to be taxed in the hands of ‘A’, not in the hands of ‘B’ unless ‘A’ is minor. Income must be taxed in the hands of the person to whom it has accrued and to whom it really belongings. Therefore, the appellant cannot be allowed to take shelter behind the income of any other person. In absence of any disclosure of assets/income in IT/WT returns, the claim of the appellant regarding sale of gold and silver items cannot e accepted. If it is accepted then any person can be able to convert his black money into white by just claiming that he has sold gold and silver without producing any documentary evidence in the form of Income Tax and Wealth Tax returns. Considering all the facts & circumstances of the case I confirm the additions on account of investment of Rs. 26,84,104/- for Asstt. Yr. 1997-98 and Rs. 54,87,706/- for Asstt. Yr. 2002-03. ”

Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 23 form where the source of every FD and investment in respect of all the four persons i.e. assessee, his wife and two daughters was explained. For instance the AO added a sum of Rs. 15000.00x2= 30,000/- in the hands of the assessee as undisclosed income. But actually these are 2 FDs in the name of the assessee, his wife. The ld. AR drew our attention to pages 93 to 94 of the paper book where it was seen that these investments have been made out of cash withdrawals of Rs. 1.10 lakh (Rs. 35,000/- from SB a/c No. 6581 on 26.04.1996 page 299 or Rs.10,000/- and Rs.25,000/- from SB a/c No. 6583 on 20.04.1996 and 26.04.1996 page 303, Rs.20,000/- from SB a/c No. 6663 on 26.04.1996 page 306 and Rs.20,000/- from SB a/c No. 6664 on 26.04.1996 page 309, all of UBI of Mumbai). The cash flow statement may be seen at page 283 of the paper book. The source of credits in these four SB accounts of UBI is given at page 234 of paper book. The total investment made in ICICI Bank on 26.04.1996 was at Rs.1 lakh, which comprised these two FDs of Rs.15,000/- each and two other FDs of Rs.35,000/- each, which are not part of the present proceedings.

Similarly the details of all the investment were duly explained in the submission of the assessee which is placed on record. On the other hand the ld. DR relied on the order of authorities below.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 24 which is placed on page 352 to 359 of the second paper book. In view of above we are inclined to reverse the order of the lower authorities and assessee’s ground is allowed.

During the course of assessment proceedings AO has added a sum of Rs. 26,84,104.00 as undisclosed investment but the assessee did not offer any interest income in the year under consideration. As the above investment has been included as undisclosed income of the assessee, therefore the interest accrued on such investment also needs to be included in the income of the assessee but there was no information of such income. So in the absence of any information, it was not possible to quantify the interest income with accuracy. Therefore AO presumed interest rate @ 10% and worked out interest income of Rs.2,68,410/- and added to the total income of assessee.

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 25 Rs.4,36,048/- by way of bank FD interest and a sum of Rs.64,552/- by way of interest in Company deposits. With aforesaid direction the additions made by the Assessing Officer are confirmed for both the years. Accordingly, ground No. (viii) of the appeal of both years are dismissed.”

Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.

28.1 The ld. CIT (A) has enhanced the interest income in the hands of the assessee for the deposits made in the FD and in the company deposit on

ITA No.1904-1905/Kol/2012 A.Ys. 2002-03 & 1997-98 V.K.Puri v. ACIT Cir-26,Kol. Page 26 basis of remand report received from the AO. This interest income was not disputed by the AO at the time of assessment. However the ld. AR of the assessee submitted before us that the interest income for Rs. 11,57,047/- is actually the income of the wife (Smt. Amita Puri) of the assessee which is the part of the income declared by her for the AY 1997-98 for an amount of Rs. 15,00,200.00. Our attention was also drawn to the page no. 89-90 of the 1st paper book where the copy of the assessment order was placed. The ld. DR at the time of hearing did not bring anything on record contrary to the submission of the assessee. We find that the addition of the interest income in the hands of the assessee will amount to double tax. Accordingly we reverse the order of the ld. CIT(A) and this ground of the appeal of the assessee is allowed.