The recent notification of the Central Board of Direct Taxes (CBDT) asking banks to furnish details of cash deposits above a certain amount has got many worried about receiving notice from the income-tax department. But, if a person has been a diligent taxpayer and can account for his deposits, he doesn’t need to worry.
The government has told banks to provide details of individuals who deposit Rs 2.5 lakh or more in savings accounts or fixed deposits between November 9 and December 30. Also, deposits of Rs 12.5 lakh or more in a current account need to be reported to the authorities. The notification also said that the permanent account number (PAN) needs to be compulsorily quoted in case of cash deposits exceeding Rs 50,000 on a single day, or over Rs 2.5 lakh between November 9 and December 30.
When you receive a notice, don’t panic. “Even if a notice is issued, it will ask the person to explain the source of income. The assessee will need to provide documents supporting his claim regarding the source of money,” says Amit Maheshwari, partner, Ashok Maheshwary & Associates. He adds that if sufficient explanation is not provided, proceedings and penalties could follow. “Notices under different sections are just the starting point. The penalties, interest, etc. vary depending on the outcome of the proceedings,” says Divya Baweja, partner, Deloitte Haskins & Sells.
Never filed returns: Such individuals can receive a notice under Section 142(1). The person is required to file the returns or produce relevant information and records as demanded by the assessing officer. If this is accompanied by a notice under Section 143(2), the person is required to attend the proceedings or send his accountant or lawyer for it.
After scrutiny, if the officer is satisfied with the explanations, he will issue a clean chit, otherwise he will state the discrepancy between the reported income and actual income and calculate the tax demand. This order will be supported by a notice of demand under Section 156.
“If the person doesn’t comply with the notice, the officer will calculate the tax liability based on his own assessment. If an assessee has been called upon to produce books of accounts under Section 142(1) and fails to do so, the tax authorities have reason to believe that such an assessee has in his possession money, bullion, jewellery or other valuable articles representing income that has not been disclosed. The department may then exercise its power of search and seizure,” says Nishit Dhruva, managing partner, MDP & Partners.
Deposits don’t match returns: This leads to a notice under Section 143(2). It implies that your I-T return has been selected for detailed scrutiny. The assessing officer may ask for books of accounts and bank account details. The next step for the taxpayer is to get in touch with the assessing officer and submit the evidence sought.
If your assessment is done, you may receive a notice under Section 148. This is sent in cases where an officer has certain evidence (disproportionate bank deposits, for example) to infer that the person has not disclosed certain income in his return. Not complying with this can also result in search and seizure. “Notice under Section 148 can be issued within four years from the end of the relevant assessment year if the income that escaped assessment does not exceed Rs 1 lakh, and within six years from the end of the relevant assessment year if the income that escaped assessment is more than Rs 1 lakh,” says Dhruva. However, if the evaded income pertains to an asset located outside India, such a notice can be issued within 16 years from the end of the relevant assessment year.
Immunity from penalty: Since the demonetisation drive started, some tax experts have suggested that the tax laws offer immunity from penalty if a person discloses his unaccounted income voluntarily and pays tax on it. This view holds that a person should declare income under Sections 69(A), 69(B) and 69(C) that deal with certain unexplained cash credits, investment, expenditure, etc., in the current financial year. Pay tax on it and become compliant. The assessee can then include this when filing tax for the current financial year.
Account for deposits above Rs 2.5 lakh Not all tax experts agree. “Disproportionate deposits cannot be passed off as income in the current financial year. The assessing officer can take the view that the disproportionate income belongs to previous financial years and proceed accordingly,” says Suresh Surana, founder, RSM Astute Consulting Group. He adds that such declaration will also lead to the assessing officer demanding details of tax deduction at source, service tax, value-added tax, and so on. “The government has made clear its intention to penalise black money earners and may amend sections that give immunity to tax evaders. In some cases, penalties and prosecutions under other Acts like the Prevention of Money Laundering Act, 2002, can also be invoked,” says Maheshwari. But some experts argue one can get immunity from penalty if the assessing officer finds no evidence of concealment in previous years, and individuals have more leeway in this than business owners.