JAYAPRAKASH R. NIGAM,MUMBAI vs. ITO 19(1)(3), MUMBAI

The sole issue raised by the assessee in the grounds of the appeal pertains to the confirmation of addition by the CIT(A) of cash deposits of Rs.24,59,540/- and other deposits of Rs.1,27,300/- in the Axis Bank Account of the assessee as made by the AO u/s 68 of the Income tax Act, 1961 by holding that these amounts represented receipts out of various business transactions by the assessee which were not offered to tax and thus treated the same as unexplained income of the assessee.

Brief facts of the case are that the assessee filed return of income on 31.7.2008 declaring total income of Rs.1,58,920/-. The case of the assessee was selected for scrutiny and statutory notice under section 143(2) was issued and served upon the assessee on 5.8.2009 and subsequently, the notice u/s 142(1) along with the questionnaires was issued and served upon the assessee on 6.8.2009. The assessee was engaged in the business of job work/sub contracting for making and repairing of sofa sets, dining table chairs, foam works for furniture etc under the proprietary concern M/s Mahavir Foam Centre. During the course of assessment proceedings, the AO observed that the assessee had two bank accounts. One with Corporation Bank, Khar (W), the transactions wherein were considered by the assessee and return was filed on the basis of receipts in that account and the second was with Axis Bank, Danda Khar(W) in which the assessee was found to have been depositing cash throughout the year and cash so deposited used to be withdrawn through ATM, in Gorakhpur U.P. Such transactions were made repeatedly and the total amounts so deposited in the said Axis Bank during the year were Rs.24,59,540/-. Apart from cash transactions, other deposits of Rs.1,27,300/- were also found deposited in the said bank. The AO thus has given show cause notice to the assessee vide order sheet noting dated 8.9.2010 and 15.9.2010 giving him opportunity to explain as to why the same should not be added to the total income of the assessee. The AO finally framed the assessment under section 143(3) of the Act vide order dated 27.12.2010 by assessing the income at Rs.27,45,760/- as against returned income of Rs.1,58,920/- by adding Rs,24,59,540/- as unexplained cash and Rs.1,27,300/- as other deposits after considering and rejecting the reply of the assessee filed vide letter dated 15.9.2010 by holding that the assessee had employed the systematic scheme to evade tax and transferred money from Bombay to Gorakhpur by depositing the money on a particular day and thereafter making withdrawals against the deposits after two to three days. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority who also dismissed the appeal of the assessee after calling the remand report from the AO and considering the submissions of the assessee. During the course of appellate proceedings before the ld.CIT(A), the assessee filed a sworn in affidavits of various persons to explain that the cash deposits made in the bank account was given by various persons who were stated to be labourers and daily wage earners to be remitted to their family members who were permanently staying in Gorakhpur, Uttar Pradesh. The ld. CIT(A) forwarded the copies of these affidavits to the AO and also directed the AO to make further inquiries to ascertain the veracity of the claim of the appellant.

During the course of remand proceedings, the assessing officer issued notices u/s 133(6) of the Act to 25 persons. However, the postal authority could serve notices only to 14 persons and even the said 14 persons failed to comply with the notices issued by the AO on 12.10.2012. A copy of the remand report was given to the assessee during the appeal proceedings and the assessee vide letter dated 29.8.2013 replied the same. The preliminary reasons given by the assessee was that these people were daily wages earners and during off season, which is a lean agricultural period, these workers used to come to Bombay to do their jobs for some period on daily basis and used to return to their homes in Gorakhpur , Uttar Pradesh during crop sowing and harvesting season. The ld. CIT(A), not finding any substance in the reply of the assessee dismissed the appeal by observing and holding as under: “5.1 I have duly considered the above reply of the appellant and find that none of the alleged employees/labourers and persons from his home town, whose sworn affidavit's had been filed as additional evidence, appeared before the assessing officer during the course of remand proceedings. In this view of the matter, the sworn affidavits filed by the appellant can no longer be considered as documentary evidence of proof which can explain the source of cash deposits in the bank account of the appellant with the Axis Bank, and the appellant's argument vide reply dtd.29.8.2013, reproduced above also becomes devoid of any merits. In regard to the cheque deposits of Rs.1,27,300/- in the above bank account also treated as unexplained, the appellant in the written submission dtd.26.5.2011, has stated that the same is also belonging to such other persons for the same reasons, for the cash deposits. In the subsequent reply dtd.29.8.2013, the appellant has not made any submission on this addition. In the light of the fact that the appellant had himself filed affidavits of his employees/labourers and persons from his hometown that they had given sums to the appellant to be given to their folks in their hometown, as they had no banking facility in Mumbai for the reason that they could not open the same, as they had no local address proof , the appellant ought to have produced them during the remand proceedings, Also, when the AO issued notices u/s 133(6) of the Act, on the basis of the affidavits filed of these persons, the same could be served only on 14 persons and they also did not respond. In the case of remaining 11 persons, the notices were returned by the postal authorities with the remark "Not Known" . Thereafter, the assessing officer provided another opportunity to the appellant vide letter dtd.12.1 0.2012 to produce all the 25 persons with documentary proof, but he failed to either produce the above persons or file any explanation. 5.2 In view of the discussion made above, I uphold the finding of the assessing officer that the cash and cheque deposits of Rs.24,59,540/- & Rs.1,27,300/- respectively appearing in the appellant's bank Account NO.18601 01 00033530 with the Axis Bank, Ground Floor Plot No.239, Warin Pada, Gopal Buwa Road, Danda Khar (w), Mumbai, are explained and have not been taken into account in computing the total income for the year under consideration and, therefore, rightly added to the income of the appellant. I accordingly confirm the addition of Rs.25,86,8401- and dismiss the ground.”

The ld. AR submitted before us that the assessee is a small petty contractor who was doing repair work of sofa and furniture etc and used to bring temporary labourers from Gorakhpur who were of casual nature visiting Bombay during lean agricultural period so that they could earn bread and butter for their family and go back to their native place during agriculture seasons. These workers used to hire small room collectively and use to stay in that room in large number. The ld counsel submitted that this is the general phenomena of labour migration to Mumbai and back. They were not having any permanent address in Bombay as used to live in slum areas temporarily. The ld. AR further submitted that it was not possible for them to open their bank account and therefore the assessee, being their employer, used to provide them the facility for sending their money to their dependent in Gorakhpur by taking cash from them and depositing it in his(assessee) bank account in Mumbai and allowing withdrawals from ATM located at Gorakhpur within two to three days after depositing in Mumbai. So this was nothing but business arrangement developed by the assessee so that the assessee could get labour easily by arranging the payments of the labourers working in Mumbai to be received by their family members in Gorakhpur. The ld. Counsel further submitted that the methodology employed by the assessee was wrong but it was out of genuine needs and exigencies of these poor people who could not even able to send their money to their hometown, had the assessee was provided this facility. The ld.AR further submitted that this is a common practice adopted by the petty contractors to engage the labourers from Uttar Pradesh, employ them for some time before they go back and then move for agricultural work in rainy season to their native places. So far as non compliance of the notice u/s 133(6) issued to the 14 persons by AO during the remand proceedings are concerned, the ld.AR submitted that these laborers did not have any permanent address to live in Mumbai as they come for very short period and go back to their native places in crop season. Moreover, these workers are hardly educated to understand all these things and even the affidavits filed in the appeal proceedings were arranged from their native places. The ld. AR finally submitted that this is being a peculiar case of assessee and therefore a lenient view be taken by either deleting the addition as made by the AO or by setting aside the order of the ld.CIT(A) and restore the same to the file of the AO to decide the case afresh.

Per contra, the ld. DR heavily relied on the orders of authorities below and prayed that the appeal of the assessee be dismissed with costs.

We have heard the rival submissions and perused the relevant material placed on record including the orders of authorities below. We find that the assessee had two banks accounts , one with Corporation Bank and another with Axis Bank. The deposits made in the Corporation Bank were considered by the assessee for the purpose of filing of return of income whereas the money deposited with the Axis Bank amounting to Rs.24,59,540/- in cash and Rs.1,27,300/- other than cash were not taken into account while calculating the income derived by the assessee. From the orders of authorities below and submissions of the ld.AR ,it is apparent that this is a case of migratory labourers who come to Bombay to earn their livelihood and return back to their native places as soon as sowing and harvesting seasons sets in. These labourers neither have any permanent address in Mumbai nor do they have necessary documents such as identification card and other documents so that they could open their bank account and deposit the money earned in Bank at Mumbai and remit the same to their native place. This is a normal practice in the case of migratory labour that they handover their money to the contractor with whom they are working with temporarily or any other person having a bank account with the conditions that money earned by them from the said contractor would be delivered to their native places so that deposited money can be withdrawn by their family members within two –three days. This transaction appears to be genuine and reasonable as this is a normal trend in the market in respect of migrated labour. In fact, it is also true that the affidavits filed by the assessee which were stated to be arranged from the said labourers from Gorakhapur, their native places, could not verified as to their veracity. Even the AO during the remand proceedings could not be verify the authenticity of these affidavits. However, considering the peculiar facts and circumstances of the case, we are of the considered opinion that the assessee should be given one more opportunity to explain his case and to prove the veracity of the affidavits and other submissions as made before the ld.CIT(A) to meet the ends of justice. We, therefore, set aside the order of the ld. CIT(A) and restore the same to the file of the AO with a direction to decide the case afresh after giving proper and reasonable opportunity of being heard to the assessee . We also direct the assessee to co-operate with the AO for speedy disposal of the case.