Tax officials raided several shops and offices of small traders in Delhi, Jaipur, Alwar and Indore to investigate allegations that they had illegally converted banned currency notes or accepted them to carry out illicit transactions.
The raids led to panic among traders across the country, causing many markets to remain closed. Meanwhile, lack of cash meant that those traders who did open their business remained without work for a third day after the central government demonetised Rs 500 and Rs 1,000 currency notes starting 9 November.
The inspections by income and sales tax officials came following reports that traders, including jewellers, were selling goods at inflated prices in exchange of banned currency notes, and even indulging in the illicit conversion of cash.
The move to demonetise notes of high denominations was announced by Prime Minister Narendra Modi after the close of business hours on 8 November. Banks and ATMs remained closed on 9 November. Although they reopened on 10 November, there wasn't enough cash in most branches and many ATMs remained closed on 11 November.
A severe cash crunch resulted in people resorting to desperate measures to convert their Rs 500 or Rs 1,000 currency, even as those with unaccounted cash in the denominations scrambled to find ways to get rid of it.
For example, gold was sold at an inflated rate of over Rs 50,000 per 10 grams to those who wanted to get rid of their currency. Several jewellery shops remained open until late night on 8 November after the demonetisation announcement. On later days, the shops allegedly continued to carry out such transactions against by providing receipts backdated before 9 November.
The tax officials also wanted to check if the traders were indulging in illicit conversion of cash - there were reports that Rs 500 was converted for four notes of Rs 100 each.
In Jaipur, income tax officials in range 1 and 3 (out of seven ranges) carried out raids on large traders involved in textiles or jewellery.
Sources in the IT department told Patrika that officials looked for unexplained amounts of cash, and tallied cash and goods stock registers to find out if there was any accumulation of cash that could not be explained by sales. The raids led to panic in city's markets such as Babu market, Indira market and Nehru market, which remained closed for most of the day.
In Indore, traders objected to the inspections by sales tax teams, following which major markets such as the Ranipur Market remained closed.
Meanwhile, rumours of tax raids and the lack of cash kept markets either lukewarm or closed in Mumbai, Bhopal, Surat, Bengaluru and Lucknow.
Long queues & closed shops in the capital
On 10 November too, the I-T department had investigated shops in New Delhi's Chandani Chowk area on reports that they were exchanging four Rs 100 notes for each Rs 500 note. As news of the officials presence spread, shops abruptly closed, PTI reported.
Rumours of the tax raids caused panic in the markets causing many shops to remain closed. As most bank branches and ATMs remained jam-packed through the day, neither customers nor wholesale traders had enough cash to could carry out transactions.
While some shops remained closed on 11 November, those that were open did not see much business. This included Delhi's wholesale automobile parts in Kashmere Gate, as well as Sadar Bazar in Old Delhi, considered the country's biggest wholesale market.
"There is panic in the market because of rumours of tax raids, although no such thing has been reported by any shop," said Devraj Baweja of New Delhi's Federation of Sadar Bazar Trades Association.
"The markets are in poor shape today. Barely 5% of the business is functioning. People have no cash to transact with. Traders have sent their assistants to banks to get their Rs 500 and Rs 1000 notes exchanged but due to the long queues they haven't returned even in the afternoon," Baweja said.
With inputs from Patrika staff in Jaipur, Ajmer, Indore, Surat, Lucknow, Bengaluru, Mumbai and Bhopal.
Edited by Aleesha Matharu