Depositing black money? Ready for income tax notices

Black money refers to the sum that you own which is unaccounted i.e. which you have not declared to the income tax department as having earned or received. In simple words, the amount on which tax was payable to the government as per the income tax laws, but, the sum was hidden or not disclosed to the department in order to evade the tax payment.

De-monetisation of the Rs 500 and Rs 1000 notes is a massive blow for those who have unaccounted money as they will face various penalties and prosecution proceedings under the Income Tax Act.

Consequences for people depositing unaccounted money:

CASE-I: Someone who has never filed a return deposits unaccounted money

“Let’s start with a case study, in which a person has unaccounted money (Black money) with him, and he has not filed any Income Tax Return (ITR) in earlier years. Say, this man has not received any notice from the Income tax department and has been successful in concealing his income so far.

The possible consequences he might have to face as per the provisions of current Income tax laws if he is found to have deposited unaccounted money are as follows:

Launch of new currency notes and ban on old notes of Rs 500 and Rs 1000 will force the assessee to get his cash exchanged or deposit it in banks. While depositing the unaccounted cash into his bank account or exchanging he will have to submit his PAN and other details to the banking officials. This would make the likelihood of his case being caught by the Income tax Department very high As a result, he would be likely to get notices from the income tax department asking him the source of this of this amount deposited by him in the bank

1. Notice under section 142(1):
This notice would require him to furnish his ITR within the time period allowed in the notice which is normally 15 days. Further the Assessing officer (A.O) would require him to produce his books of account, other documents and information. You might be astonished but here the A.O has powers even to enquire about your personal belongings and can ask you to submit your personal books of accounts. This notice can ask for information relating to the 3 years immediately preceding the financial year for which assessment is to be made.
Generally this notice would come along with a notice under section 144, 148 or 153A.

If you don’t comply with notice under section 142(1):
If the assessee does not comply with the directions, conditions specified in the notice, then he might have to face best judgement assessment under section 144 – this means that the A.O will assess your income and impose tax and penalty as per his own judgement. Also, in this case the A.O would not be liable to issue you any show cause notice under section 144 meaning that you would not be given any opportunity to convince the AO that section 144 should not be imposed on you.

Further, not complying with the notice directives would lead to a minimum fine of Rs 4 per day which may extend up to Rs 10 per day for each day the failure continues. Apart from this you might end up in prison for up to 1 year.

2. Notice under section 148:
You might receive a notice under this section in which case you would be subject to ‘income escaping assessment.’ This assessment is done under section 147 and the A.O has very wide powers while doing this assessment.

Here the A.O can open your assessment for the last 6 financial years i.e. he can ask you to explain source of your income , provide income related proofs etc for the last 6 years.

The A.O can ask for all the documents he thinks are necessary for him to compute your true income and finally assess your correct income and thereafter issue you a notice under section 156 demanding the amount of tax payable by you (as re-calculated by him), along with interest and penalties and prosecution.

3. Assessment under section 153A i.e. income tax raid:

After detecting your unaccounted income deposits, the tax department may decide to conduct an income tax raid at your place to find out other assets like gold, property papers, benami transactions etc in your possession/ ownership. In such a case you would not get any advance notice. Such search and seizure proceedings are the most aggressive step which can be taken by the income tax department and hope that you are not the one who gets in its ambit.

4. Directions under section 144A:
If your income tax return for any year is already being assessed under any section other than the normal self assessment, then your case could be hurt if you are detected depositing unaccounted income. The tax law permits the joint commissioner to instruct your A.O to take a stricter view of your case pending before him.

CASE-II-Someone who has not declared full income in returns filed

Let us take the case of a person who has filed the ITR for earlier years but the income declared in his returns is way less than what he was actually earning/receiving. Consequently, he has been evading tax. The consequences these people might have to face as per the provisions of current Income tax laws are as follows.

1. Notice under section 143(2):
You might receive a notice under section 143(2) which simply means that your case has been picked up for scrutiny by the income tax department. Now you would be asked to submit the evidences to substantiate the income declared in your ITR. For the financial year 2015-16, a notice under this section can be issued till 30.9.2017. In the notice the A.O can ask for books and accounts for any number of previous years.

Finally an assessment order under section 143(3) will be issued to you along with a notice to pay additional tax , interest thereon and penalty charges.

2. Notice under section 148 and section 153A can be issued here as well.