Practical Aspects on Completion of Assessments regarding Substantial Cash Deposits made during demonetization

We all remember the date 08 November 2016 when our Hon’ble Prime Minister Shri Narendra Modi took huge step and demonetized the specified bank notes (SBN) i.e. Rs.500 and Rs.1000 currency notes. This was the step taken to clean black money from society.

The period of around 50 days was given to deposit SBN in banks. This period lasted from 09/11/2016 to 30/12/2016. People deposited all their sums in bank either in their bank account or in bank accounts of other persons like their employees, staff and children.

Operation clean money was initiated in this regard by our Hon’ble Prime Minister to ascertain whether the entire cash deposits made by them are declared in their income tax returns and also to trace and establish the ultimate beneficiary of the transaction. Under this operation notices u/s 142(1) of the income-tax Act,1961 was issued to persons whose cash deposits does not relates to income declared in their Income Tax returns. Notice u/s 142(1) was sent to make inquiry before assessment to around 3 lakh cases against which return was required to be filed.

Out of them 87000 cases has not filed return of income and assessment proceedings had been initiated in their cases. AO’s shall be given bank statements and other documents so that they complete assessments u/s 144 of the Act to the best of their judgement.

These assessments were required to be completed by 30th June 2019. But looking to the workload of Assessing Officers it is humanly impossible to complete cases therefore Central Board of Direct Taxes gave 2 months extension to IT Deptt. to finalise assessments in demonetization cases i.e. till 30th September 2019 of 87000 entities across the country who made suspicious deposits post demonetisation.

Special attention is given to ‘Entry Operators” or Hawala trade-like instances whose unaccounted commission receipts are to be taxed. Assessments shall be completed in the cases where such amount has already been deposited under “Pradhan Mantri Garib Kalyan Yojana”.

Looking to the practical aspects, in query letter issued by AO’s they are asking the source from which such substantial cash are deposited in bank accounts. Now under these assessments two categories of entities falls-

  1. Entities which deposited black money in some other person’s accounts and who can be traced.
  2. Small and medium class businessman who earns money from the sale of products in cash and the cash available with them has been deposited in a bank. These are the persons who despite showing entire cash deposits as sales in their IT Returns has not filed return in response to notice issued u/s 142(1) of the Act.   

A sample questionnaire issued u/s 142(1) of the Act is also enclosed for reference.

Download Sample questionnaire

It is therefore necessary that each and every notices received from Income-tax Department shall be answered in due course of time. 

The Author can be reached at her own business website www.fintaxsolutions.in.net

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