I was really sceptical that the problem is in my machine. I tested the command I saw in the window
sh.exe C:\Users\MyUserName\AppData\Local\Atlassian\SourceTree\gitflow_local\gitflow\git-flow init -d

in git bash and the problem was with the backslashes. I changed them to forward slashes
sh.exe C:/Users/MyUserName/AppData/Local/Atlassian/SourceTree/gitflow_local/gitflow/git-flow init -d
and it worked fine.

I also tested initializing the gitflow with gitkraken and it worked like charm. So the problem happened after I updated to latest version my Sourcetree.

I updated my system Git to latest as well and tested sourcetree again, without success.