Fertilizer Dealer's 'October Spike' in Sales Saves the Day as ITAT Deletes Rs. 2.45 Cr Demonetization Addition [Read Order]

The Agra Bench of the Income Tax Appellate Tribunal (ITAT) dismissed a revenue appeal and upheld the deletion of an addition of Rs. 2.45 crore made on account of cash deposits during the demonetization period. The case revolved around large cash deposits made by a fertilizer trader in October 2016, which the Assessing Officer had treated as unexplained income under section 69A of the Income Tax Act.

Surendra Kumar Gautam of Sadabad, Hathras, who was engaged in the business of trading fertilizers under the name Shriram Fertilizers. He had deposited Rs. 3.14 crore in his Syndicate Bank account during the demonetization window, out of which Rs. 2.45 crore was in specified bank notes. The Assessing Officer questioned the sudden surge in cash sales in October 2016, which touched Rs. 1.07 crore, compared to lower figures in earlier months. Holding that the assessee failed to establish the genuineness of such sales, the officer added Rs. 2.45 crore as unexplained income while accepting Rs. 69.28 lakh as business income.

On appeal, the Commissioner of Income Tax (Appeals), NFAC, deleted the addition after examining detailed records. The assessee had furnished month-wise cash flow statements, stock registers, and party-wise details of cash sales. It was shown that October and November traditionally witnessed higher demand for fertilizers, particularly urea, due to potato cultivation in the region. The CIT(A) noted that similar spikes in sales and deposits had occurred in October of earlier years as well, with deposits exceeding Rs. 1 crore in 2014 and 2015. The appellate authority also recorded that VAT had been paid on the entire sales and the transactions were accepted by the state VAT department.

The revenue challenged this deletion before the Tribunal, arguing that the assessee had initially admitted to receiving cash from unidentifiable persons, that the auditor had not independently verified debtors, and that additional evidence was admitted in violation of Rule 46A. It was also contended that if farmers had indeed paid advances, the trend of deposits should have been visible in earlier months, which was not the case.

The Bench comprising Sunil Kumar Singh (Judicial Member) and M Balaganesh (Accountant Member), however, found no merit in the revenue’s objections. It observed that the assessee had a consistent track record of depositing cash in banks even before demonetization and that the October surge was in line with past patterns. The Tribunal held that the Assessing Officer’s doubts were based on conjecture and ignored the stock registers and quantitative details available on record. It further noted that minor omissions in the audit report could not override cogent documentary evidence produced by the assessee.

The Bench concluded that the cash deposits were duly explained as arising from recorded sales and business operations.

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