Cement trader deposits Rs 14.74 lakh during demonetisation, gets tax notice over Rs 5.72 lakh unexplained cash; wins case in ITAT Cuttack

Mr Patra, a cement trader from Balasore, Odisha, landed in trouble with the Income Tax Department after depositing Rs 14.74 lakh cash into his bank account during the demonetisation period in November 2016. The Income Tax Assessing Officer (AO) from Balasore flagged the deposit and estimated Patra’s cement sales by comparing his business activities before and after demonetisation. Based on this assessment, the AO treated Rs 5.72 lakh as unexplained cash and initiated proceedings against Patra.

However, Patra could not challenge the income tax department’s action or file an appeal at that time as he had suffered a big injury and was hospitalised. Doctor had advised him complete bed rest. Once he recovered, he filed an appeal before the Income Tax Appellate Tribunal (ITAT) Cuttack, with a delay of 736 days. The tribunal condoned the delay and decided to hear Patra’s case on merits.

Advocates Narahari Swain and Advocate P.K. Mishra, representing Patra, submitted his cash books and other evidence before the ITAT Cuttack. They said that between November 30, 2016, and December 6, 2016, Patra deposited Rs 14.74 lakh cash in his bank account, and the AO’s calculation treated Rs 5.72 lakh of this money as “unexplained cash,” but a review of Patra’s cement business’ cash book shows that as of November 8, 2016, he had Rs 14.78 lakh in cash available.


Thus, they (advocates) argued that Patra had adequate cash in his cash book on the date of demonitisation, and the cash deposited in his bank account came from this recorded cash balance, so the penalty order must be set aside.

The ITAT Cuttack said that the facts clearly show that Patra had an adequate cash balance as of the date of demonitisation to make the deposit in the bank account.

The ITAT Cuttack observed that the AO has not rejected Patra’s cement business books of account and has also accepted the net profit shown in the profit and loss account.

The ITAT Cuttack said: “Once the books of accounts have been accepted, the cash available as of the date of demonitisation and SBN (specified bank note) deposits are less than the cash availability as of the date of demonitisation, we are of the view that no addition is called for in the hands of the assessee. Consequently, the addition made by the AO and confirmed by ld CIT(A) stands deleted.”