After demonetization, there has been cases where in the businesses or individuals have deposited huge amounts in to their bank account. In such cases they received income tax department’s notice to explain the source of the cash. Although the cash deposited was made out of sale, individuals were asked for explanation.
There can be possibility that assessing officer (AO) is not accepting your explanation. He might take action against you. Do you know the powers he has? Or if he does not accepts your explanation, how and when you have to pay tax?
First of all, it is crucial to note that the cash that you have on hand must be reflected in your accounts book.
If AO does not accepts your explanation, he will send you a notice under section 143(2) of the I-T Act, 1961 once you file return for Assessment Year (AY) 2017-18.
If the turnover is more than 1 crore during the financial year 2016 to 2017, then the due date of filing the return is October 30, 2017.
When you will file the return, the AO can issue a notice u/s 143(2), selecting the case for scrutiny. The AO will issue notice u/s. 142(1) and ask for explanation of the source of the cash deposited in the bank.
In this case, you will once again have to give full details including supporting evidences.
To complete the assessment for AY 2015-16 (FY 2014 to 2015), the deadline is December 31, 2017; for AY 2016-17, the deadline is December 31, 2018; and for AY 2017-18, the deadline is September 30, 2019.
AO cannot hike any demand against you even if he does not accept your explanation without starting the proceedings by issue of notice us 143(2) and completing the proceedings by passing order us. 143(3).
Demand can be raised only if notice u/s. 156 of the I-T Act, 1961, is issued after passing order us 143(3). After he passes the order not accepting your claim, then you can file the appeal before the higher authorities.