This article presents a master illustration designed to cover every important aspect of the new provisions of block assessment under Sections 158 to 158BI. The objective is to simplify the complex framework and help readers understand its practical application. Each step of the illustration has been structured to provide conceptual clarity along with numerical insight. This will serve as a handy reference for both students and professionals dealing with block assessment cases.
Question 1: Case on Dual Search & Abatement of Assessment
Mr. X was subject to a search under section 132 on 1st October 2024, and a prior reassessment for A.Y. 2022–23 was pending under section 147. Further, a second search was conducted on 1st February 2025 while the first block assessment was still pending.
Required:
a) Explain the treatment of the pending reassessment for A.Y. 2022–23 in light of section 158BA(2).
b) How will the assessment for the second search be dealt with under section 158BA(4)?
c) Assuming a reference under section 92CA was made on 25th September 2024 in the original reassessment, analyse the interplay of section 158BA(3) and its implications on abatement.
Solution:
a) Treatment of reassessment for A.Y. 2022–23:
As per section 158BA(2), any assessment/reassessment/re-computation under other provisions of the Act for any A.Y. falling in the block period pending as on the date of initiation of search shall abate.
Since the search was initiated on 1st October 2024, and reassessment for A.Y. 2022–23 was pending, it will abate and income for A.Y. 2022–23 will be included in the block assessment.
b) Treatment of second search while first block assessment is pending (158BA(4)):
If during the pendency of a block assessment another search is initiated, the earlier assessment must first be completed, and only after that, a new assessment for the second search can commence.
However, if the remaining time for the second assessment is less than 3 months, the period is extended to 3 months (Proviso to section 158BA(4)).
c) Effect of transfer pricing reference under section 92CA:
Per section 158BA(3), if a reference under section 92CA(1) was made before the search date, that proceeding (and related assessment) also abates.
So the reassessment for A.Y. 2022–23, which involved a reference on 25-Sept-2024, will also abate.
Question 2: Interplay of Undisclosed Income, International Transactions & Scope Limitation
During the search, the Assessing Officer found evidence relating to undisclosed international transactions (u/s 92CA) for FY 2024–25. The last panchnama was drawn on 15th October 2024.
Required:
a) Determine whether such international transactions would be assessed under Chapter XIV-B or under regular assessment, citing section 158BB(3) and 158BB(4)(c).
b) Discuss the scope of application of sections 68 to 69C to such undisclosed transactions in this case.
Solution:
a) Whether international transactions are covered under Chapter XIV-B:
According to section 158BB(3), evidence relating to international transactions (or specified domestic transactions) pertaining to the period between 1st April 2024 and 15th October 2024 (the FY in which the search is executed) shall not be included in block period income.
Instead, such income is to be assessed under normal provisions of the Act.
b) Applicability of sections 68–69C:
Section 158BB(4)(b) provides that sections 68 to 69C apply mutatis mutandis to determine undisclosed income.
Hence, the AO can apply deemed income sections (e.g., unexplained credits, investments, etc.) based on evidence from search, treating “financial year” as the relevant previous year within block period.
Question 3: Multiple Persons & Applicability of Chapter XIV-B
Search proceedings under section 132 were initiated on Mr. A. During the search, documents indicating undisclosed income of Mr. B were also found. The AO of Mr. A intends to initiate proceedings under section 158BD.
Required:
a) Discuss the procedure to be followed by the AO of Mr. B under section 158BC read with section 158BD.
b) Determine the time limit for completion of Mr. B’s block assessment as per section 158BE(3), assuming notice under 158BC was issued on 1st March 2025.
c) What is the block period applicable to Mr. B?
Solution:
a) Procedure under 158BD:
When AO of person A finds evidence belonging to person B:
- AO must hand over material to the AO of B.
- AO of B must issue notice under section 158BC.
AO shall assess B’s undisclosed income as per Chapter XIV-B, treating block period same as A’s block period.
b) Time limit for Mr. B’s assessment:
Under section 158BE(3):
Time limit = 12 months from the end of the month in which notice u/s 158BC is issued.
- If notice issued on 1st March 2025, deadline = 31st March 2026.
- If a reference under 92CA is made, the deadline gets extended by 12 months.
c) Block period for Mr. B:
As per Proviso to 158BC(1)(c), block period for B will be same as for A, i.e., six preceding years + period from 1st April 2024 to 15th October 2024 (date of last authorisation).
Question 4: Penalty & Interest Analysis
A search was conducted on 10th September 2024 and completed on 15th September 2024. The AO issued a notice under section 158BC requiring return within 45 days. The assessee failed to file the return within the due date and later filed it after 3 months.
Required:
a) Calculate the interest liability under section 158BFA(1).
b) Can the AO levy penalty under section 158BFA(2)? Explain the conditions for non-levy of penalty based on the first proviso.
c) Discuss whether interest under sections 234A, 234B, or 234C can be levied on such block period income.
Solution:
a) Interest liability under section 158BFA(1):
- Notice under section 158BC gave 45 days. Assume it expired on 30th October 2024.
- Return filed 3 months late, say 31st January 2025.
- Interest = 1.5% per month × Tax on undisclosed income × 3 months.
E.g., if tax = ₹10,00,000 → interest = ₹45,000.
b) Applicability of Penalty (158BFA(2))
Penalty = 50% of tax on undisclosed income.
However, penalty is not leviable if:
1.Return is filed under 158BC within due time,
2. Tax is paid,
3. No appeal filed on that part of income.
Since return was delayed, the first condition fails, so penalty is leviable.
c) Interest under 234A/B/C applicability:
As per section 158BF, no interest under sections 234A, 234B or 234C shall be levied in respect of undisclosed income for the block period. Only interest under 158BFA(1) applies.
Question 5: Limitations & Validity Period of Block Assessments
A search was initiated on 5th October 2024, and the last panchnama was drawn on 10th October 2024. A transfer pricing reference was made on 15th November 2024. The valuation report from DVO was received on 5th July 2025.
Required:
a) Calculate the due date for completion of assessment under section 158BE(1) and 158BE(2).
b) Discuss the exclusion of limitation periods under section 158BE(4), particularly clauses (v) and (viii), and their practical impact.
Solution:
a) Time limit under 158BE(1):
- Last panchnama: 10th October 2024
- Normal time limit: 12 months from end of Oct 2024 → 31st October 2025
If a reference under section 92CA is made on 15th November 2024, then per Proviso to 158BE(1), extended by 12 months → 31st October 2026
b) Application of section 158BE(4) clauses (v) & (viii):
- Clause (v): Time between making reference to DVO (e.g., 1st March 2025) and receiving report (e.g., 5th July 2025) is excluded from limitation.
- Clause (viii): Time from receipt of reference under GAAR (section 144BA) to order issuance is excluded.
After excluding such periods, if the remaining time is <60 days, it’s extended to 60 days; if it expires before month-end, it’s extended to month-end (provisos).
Question 6: Abatement, TP Reference & Multiple Notices
A search under section 132 was initiated on 5th September 2024 on M/s Alpha Ltd. At that time:
- A regular reassessment for A.Y. 2021–22 under section 147 was pending.
- During this reassessment, a Transfer Pricing (TP) reference under section 92CA(1) had already been made on 25th August 2024.
- Another search was initiated on 10th December 2024 (before the first block assessment was completed).
- The return under section 158BC was filed late by 2 months.
Required:
a) Analyze the effect on the reassessment and TP reference.
b) How should the second search be handled?
c) Calculate the interest under section 158BFA(1) if tax on undisclosed income is ₹12,00,000.
Solution:
a) As per section 158BA(2) & 158BA(3):
- The reassessment under section 147 for A.Y. 2021–22 and the TP reference shall abate due to initiation of search.
- Any assessment for years within the block period pending as on 5-Sep-2024 abates.
b) As per section 158BA(4):
- Second search on 10-Dec-2024 is during pendency of the first block assessment.
- First assessment must be completed first.
- If period available for second assessment is <3 months after first one, it is automatically extended to 3 months.
c) Interest under section 158BFA(1):
- Delay = 2 months.
- Interest = 1.5% × ₹12,00,000 × 2 months = ₹36,000.
Question 7: Assessment of Other Person & Limitation
During a search on Mr. A on 1st October 2024, documents relating to unexplained share capital of ₹50 lakh in the name of Mr. B were found.
- AO of Mr. A handed over documents to AO of Mr. B on 10th December 2024.
- AO of Mr. B issued notice under section 158BC on 1st February 2025.
Required:
a) What will be the block period for Mr. B?
b) What is the due date for completion of assessment under section 158BE(3)?
c) Discuss if penalty is leviable if Mr. B files the return and pays tax in time.
Solution:
a) Per Proviso to section 158BC(1)(c), the block period for Mr. B will be same as for Mr. A:
→ 6 preceding previous years + 1st April 2024 to 1st October 2024.
b) Time limit under section 158BE(3):
→ 12 months from end of the month in which notice u/s 158BC issued =
→ Notice issued: 1-Feb-2025
→ Due date = 28-February-2026
c) Penalty not leviable u/s 158BFA(2) if:
- Return is filed u/s 158BC within time,
- Tax is paid,
- No appeal filed on disclosed income.
So if all conditions are met, penalty is not leviable.
Question 8: Exclusion of International Transactions & DVO Reference
M/s Beta Inc. underwent a search on 10th October 2024. The last panchnama was drawn on 15th October 2024.
- TP evidence for transactions between 1-April-2024 to 15-Oct-2024 was found.
- Reference to DVO made on 1st February 2025, report received on 10th July 2025.
Required:
a) Will the TP transaction be included in block income?
b) Calculate the assessment deadline considering the DVO reference and TP reference made on 1-Nov-2024.
Solution:
a) As per 158BB(3) and 158BB(4)(c):
- Evidence of TP transactions for the period 1-Apr-2024 to 15-Oct-2024 will not be included in block assessment.
- It shall be assessed under regular provisions.
b) Normal deadline under 158BE(1) = 12 months from end of October 2024 = 31-Oct-2025
TP reference extends time by 12 months → 31-Oct-2026
DVO reference (1-Feb to 10-July = ~5.5 months) is excluded.
So effective deadline = 31-Oct-2026 + ~5.5 months exclusion = mid-April 2027
But as per Proviso, minimum 60 days must be available after exclusion. If <60 days left, extend to 60 days or month end as applicable.
Question 9: Set-off & Carry Forward of Losses
Search on M/s Gamma LLP initiated on 2nd September 2024.
During block period:
- Brought forward loss from earlier year = ₹5 lakh
- Unabsorbed depreciation from pre-block period = ₹3 lakh
- Undisclosed income discovered = ₹12 lakh
- Returned income for one year in block = (– ₹2 lakh loss)
Required:
a) Can AO set off ₹5 lakh loss or ₹3 lakh unabsorbed depreciation against block income?
b) Will the (–₹2 lakh) returned loss be adjusted against block income?
Solution:
a) As per section 158BB(7):
- No set-off of brought forward losses or unabsorbed depreciation against undisclosed income in block assessment.
- However, they can be carried forward for future years.
b) Per section 158BB(6):
- Returned or assessed loss during block period is ignored for computing total block income.
Therefore, block income = full ₹12 lakh; no loss set-off is allowed.
Question 10: Time Limits for Penalty & Appeals
Search initiated on 5-Sep-2024.
- Return under 158BC was filed late.
- Penalty proceedings under 158BFA(2) were initiated.
- Order imposing penalty passed on 20th December 2026.
- CIT(A) order on block assessment received on 10th June 2026.
Required:
a) Is the penalty order within limitation?
b) What if penalty exceeds ₹2 lakh — who can pass the order?
Solution:
a) Per section 158BFA(3)(c):
- Penalty order can be passed within 6 months from the end of FY in which CIT(A) order received = 10-Jun-2026
→ FY ends: 31-Mar-2027
→ Last date = 30-Sep-2027
→ Order dated 20-Dec-2026 is within time.
b) If penalty exceeds ₹2 lakh:
Only Deputy/Assistant Commissioner or Director can pass order, but with prior approval of Additional/Joint Commissioner/Director.
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