In response to issues arising from the existing framework for search assessments under section 148 of the Income-tax Act, the Finance Act 2021 introduced significant amendments. The amendments abolished the separate regime for search assessments, integrating them into reassessment provisions. This change aims to address problems like staggered assessments over years, leading to prolonged litigation and increased costs. To enhance efficiency, a new scheme of block assessment is proposed for cases involving searches or requisitions initiated on or after April 1, 2021. The block period for assessment will cover six previous assessment years, aiming for consolidated assessments to conclude within twelve months. The revised provisions also outline tax rates and penalties applicable to undisclosed incomes discovered during the block assessment period. These changes, effective from September 1, 2024, aim to simplify procedures, ensure coordinated investigations, and reduce procedural complexities in handling search cases.
Budget 2024: Introduction of block assessment provisions in cases of search under section 132 and requisition under section 132A
Vide Finance Act, 2021 the provisions of section 153A and section 153C of the Act were amended to provide that the said provision shall only apply to search and seizure proceedings under section 132 or requisition under section 132A of the Act initiated on or before 31.03.2021. The separate regime for search assessments was abolished and such assessments were subsumed into the reassessment provisions. Further, sections 147, 148, 149, 151 and 151A of the Act were also amended to provide that in case of search, survey or requisition initiated or conducted on or after the 1st April, 2021, it shall be deemed that the Assessing Officer (AO) has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or requisition is made or any material is seized or requisitioned. Further, if the AO has information which suggests that the income escaping assessment, represented in the form of asset, amounts to or is likely to amount to fifty lakh rupees or more, notice under section 148 can be issued if ten years have not elapsed from the end of the relevant assessment year.
2. Searches conducted by the Income-tax Department are important means for unearthing black money. However, it has been gathered from the field formations that there are multiple problems that are arising under the present scheme of search assessment under section 148 of the Act. The absence of any legal requirement for consolidated assessments in search cases has led to a situation where every year only the time-barring year is reopened in the case of the searched assessee. This results in staggered search assessments for the same search and consequentially, the searched assessee may be engaged in the search assessment process for almost up to ten years. This is time-consuming process which escalates the litigation cost for the taxpayer as well as for the department. For the duration of such period, legal position on an issue may undergo change, leading to different additions in different years, on the same issue. Moreover, since such a long duration is involved, there is a possibility of change of opinion with respect to the line of enquiry. Further, due to such staggered assessments, coordinated investigation is not feasible in search cases.
3. In order to make the procedure of assessment of search cases cost-effective, efficient and meaningful, it is proposed to introduce the scheme of block assessment for the cases in which search under section 132 or requisition under section 132A has been initiated or made. The main objectives for the introduction of this scheme are early finalization of search assessments, coordinated investigation during search assessments and reduction in multiplicity of proceedings.
3.1 It is proposed to amend the provisions of Chapter XIV-B of the Act, to provide the following for assessment of search cases:
(i) Where on or after the 1st day of September, 2024, a search is initiated under section 132, or books of account, other documents or any assets are requisitioned under section 132A, in the case of any person, the Assessing Officer shall proceed to assess or reassess the total income of such person in accordance with the provisions of the said Chapter.
(ii) The ‘block period’ shall consist of previous years relevant to six assessment years preceding the previous year in which the search was initiated under section 132 or any requisition was made under section 132A and shall include the period starting from the 1st of April of the previous year in which search was initiated or requisition was made and ending on the date of the execution of the last of the authorisations for such search or date of such requisition.
(iii) Regular assessments for the block period shall abate. There will be one consolidated assessment for the block period. Till block assessment is complete, no further assessment/reassessment proceeding shall take place in respect of the period covered in the block.
(iv) The Assessing Officer shall assess the ‘total income’ of the assessee, including the undisclosed income which shall include any money, bullion, jewellery or other valuable article or thing or any expenditure or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be incorrect.
(v) The undisclosed income falling within the block period, forming part of the total income, shall be computed in accordance with the provisions of this Act, on the basis of evidence found as a result of search or survey in consequence of such search or requisition of books of account or other documents and such other materials or information as are either available with the Assessing Officer or come to his notice by any means during the course of proceedings under the said Chapter.
(vi) The assessment in respect of any other person shall be governed by the provisions of section 158BD, which provides that where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person, other than the person with respect to whom search was made or whose books of account or other documents or any assets were requisitioned, then, any money, bullion, jewellery or other valuable article or thing, or assets, or expenditure, or books of account, other documents, or any information contained therein, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of the said Chapter shall apply accordingly.
(vii) The tax shall be charged at sixty per cent for the block period, as per section 113 of the Act. The proviso to section 113 has been amended to provide that the tax chargeable under this section shall be increased by a surcharge, if any, which may be levied by any Central Act. However, presently, no surcharge is proposed for income chargeable to tax for the block period. No interest under the provisions of section 234A, 234B or 234C or penalty under the provisions of section 270A shall be levied or imposed upon the assessee in respect of the undisclosed income assessed or reassessed for the block period.
(viii) Penalty on the undisclosed income of the block period as determined by the Assessing officer shall be levied at fifty per cent of the tax payable on such income. No such penalty shall be levied if the assessee offers undisclosed income in the return furnished in pursuance of search and pays the tax along with the return.
(ix) The time-limit for completion of block assessment of the searched assessee shall be twelve months from the end of the month in which the last of the authorisations for search under section 132, or requisition under section 132A, was executed or made. The time-limit for completion of block assessment of any other person shall be twelve months from the end of the month in which the notice under section 158BC in pursuance of section 158BD, was issued to such other person. However, an exclusion of nearly six months shall be available in respect of period from date of search to the date of handing over of seized material to the Assessing Officer.
(x) Where any evidence found as a result of search or requisition relates to any international transaction or specified domestic transaction referred to in section 92CA, pertaining to the period beginning from the 1st day of April of the previous year in which last of the authorisations was executed and ending with the date on which last of the authorisations was executed, such evidence shall not be considered for the purposes of determining the total income of the block period and such income shall be considered in the assessment made under the other provisions of this Act.
(xi) The notice under clause (a) of sub-section (1) of section 158BC requiring the searched assessee to furnish his return of income for the block period, as well as the order of assessment for the block period shall be issued or passed, as the case may be, with the previous approval of the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director.
(xii) The provisions of section 144C of the Act shall not apply to any proceeding under the said Chapter.
4. This amendment will take effect from the 1st day of September, 2024.
Extract of Clause 32 of Finance Bill 2024
Clause 32 of the Bill seeks to amend section 113 of the Income-tax Act relating to tax in the case of block assessment of search cases.
It is proposed to amend the said section in order to provide reference of total income instead of total undisclosed income.
This amendment will take effect from 1st September, 2024.
Extract of Clause 43 of Finance Bill 2024
Clause 43 of the Bill seeks to amend section 144C of the Income-tax Act, relating to reference to dispute resolution panel.
It is proposed to amend sub-section (15) of the said section so as to provide that “eligible assessee” shall not include person referred to in sub-section (1) of section 158BA or section 158BD.
It is further proposed to insert a new sub-section (16) so as to provide that the provisions of this section shall not apply to any proceedings under Chapter XIV-B.
This amendment will take effect from 1st September, 2024.
Extract of Clause 49 of Finance Bill 2024
Clause 49 of the Bill seeks to substitute Chapter XIV-B of the Income-tax Act relating to special procedure for assessment of search cases.
Proposed section 158B provides definition for expressions “block period” and “undisclosed income”.
Proposed section 158BA relates to Assessment of total income as a result of search.
Sub-section (1) of said section provides that notwithstanding anything contained in any other provisions of the Act, where on or after the 1st day of September, 2024, a search is initiated under section 132, or books of account, other documents or any assets are requisitioned under section 132A, in the case of any person, then, the Assessing Officer shall proceed to assess or reassess the total income of the block period in accordance with the provisions of the said Chapter.
Sub-section (2) of said section provides that the assessment or reassessment or recomputation under the provisions of this Act, if any, pertaining to any assessment year falling in the block period, pending on the date of initiation of the search under section 132, or making of requisition under section 132A, as the case may be, shall abate and shall be deemed to have abated on the date of initiation of search or making the requisition.
Sub-section (3) of said section provides that assessment or reassessment or recomputation or order passed shall also abate with reference to sub-section (1) and sub-section (3) of section 92CA.
Sub-section (4) of said section provides that where any assessment under the provisions of this Chapter is pending in the case of an assessee in whose case a subsequent search is initiated, or a requisition is made, such assessment shall be duly completed, and thereafter, the assessment in respect of such subsequent search or requisition shall be made under the provisions of the said Chapter.
Proviso to the said sub-section provides that period for completing the assessment shall extended to three months in given cases.
Sub-section (5) of said section provides that if any proceeding initiated under this Chapter or any order of assessment or reassessment made under clause (c) of subsection (1) of section 158BC has been annulled in appeal or any other legal proceeding, then, notwithstanding anything in this Chapter or section 153, the assessment or reassessment relating to any assessment year which has abated under sub-section (2) or sub-section (3), shall revive with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner:
Proviso of the said sub-section provides that such revival shall cease to have effect, if such order of annulment is set aside.
Sub-section (6) of said section provides that the total income of the assessment year relevant to the previous year in which the last of the authorisations for a search is executed or a requisition is made, shall be assessed separately in accordance with the other provisions of the Act.
Sub-section (7) of said section provides that the total income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates.
Proposed section 158BB relates to computation of total income of block period.
Sub-section (1) of said section provides that the total income referred to in subsection (1) of section 158BA of the block period shall be the aggregate of certain incomes.
Sub-section (2) of said section provides that the undisclosed income falling within the block period, forming part of the total income referred to in sub-section (1) of section 158BA, shall be computed in accordance with the provisions of the Act, on the basis of evidence found as a result of search or survey or requisition of books of account or other documents and such other materials or information as are either available with the Assessing Officer or come to his notice during the course of proceedings under this Chapter.
Sub-section (3) of said section provides that where any evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are either available with the Assessing Officer or come to his notice during the course of proceedings under this Chapter, or determined on the basis of entries relating to such income or transactions as recorded in books of account and other documents maintained in the normal course on or before the date of the search or requisition, relates to any international transaction or specified domestic transaction referred to in section 92CA, pertaining to the period beginning from the 1st day of April of the previous year in which last of the authorisations was executed and ending with the date on which last of the authorisations was executed, such evidence shall not be considered for the purposes of determining the total income of the block period and such income shall be considered in the assessment made under the other provisions of the Act.
Sub-section (4) of said section provides that for the purposes of determination of undisclosed income,––
(a) of a firm, such income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner;
(b) the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to “financial year” in those sections shall be construed as references to the relevant previous year falling in the block period;
(c) the provisions of section 92CA shall, so far as may be, apply and references to “previous year” in that section shall be construed as reference to the relevant previous year falling in the block period excluding the period referred to in sub-section (3).
Sub-section (5) of said section provides that the tax referred to in sub-section (6) of section 158BA shall be charged on the total income determined in the manner specified in sub-section (1) as reduced by the total income referred to in clause (ii), (iii) and clause (iv) of sub-section (1).
Sub-section (6) of said section provides that for the purposes of sub-section (1) and sub-section (5), if the disclosed income under clause (i) of sub-section (1) or where the income disclosed in respect of any previous year comprising the block period, or the returned income or assessed income under clause (ii) or clause (iii) of the sub-section (1), or where the income as determined under clause (iv), is a loss, it shall be ignored.
Sub-section (7) of said section provides that for the purpose of assessment under this Chapter, losses brought forward from the previous year (prior to the first previous year comprising the block period) under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter but may be carried forward for being set off in the previous year subsequent to the assessment year in which the block period ends, for the remaining period, taking into account the block period and such assessment year, and in accordance with the provisions of the Act.
Proposed section 158BC relates to procedure for block assessment.
Sub-section (1) of said section provides that where any search has been initiated under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,—
(a) the Assessing Officer shall, in respect of search initiated, or books of account or other documents or any assets requisitioned, on or after the 1st day of September, 2024, issue a notice to such person, requiring him to furnish within such period, not exceeding a period of sixty days, as may be specified in the notice, a return in the form and verified in the manner, as may be prescribed, setting forth his total income, including the undisclosed income, for the block period.
Provisos to clause (a) deal with certain situations under section 139 and section 148 and deal with revised returns.
Clause (b) of said sub-section provides that Assessing Officer shall proceed to determine the total income including the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, subsections (2) and (3) of section 143, section 144, section 145, section 145A and section 145B shall, so far as may be, apply.
Clause (c) of said sub-section provides that Assessing Officer, on determination of the total income of the block period in accordance with this Chapter, shall pass an order of assessment or reassessment and determine the tax payable by him on the basis of such assessment or reassessment.
Provisos of that sub-section deal with orders passed under section 144C and section 158BD.
Clause (d) of said sub-section provides that the assets seized under section 132 or requisitioned under section 132A shall be dealt with in accordance with the provisions of section 132B.
Sub-section (2) of said section provides that the provisions of sub-section (1) of section 143 shall not apply to the return furnished under said section.
Sub-section (3) of said section provides that the prior approval shall be required for issuance of notice.
Proposed section 158BD relates to undisclosed income of any other person.
The said section provides that where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, any money, bullion, jewellery or other valuable article or thing, or assets, or Explanation or books of account, other documents, or any information contained therein, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly.
Proposed section 158BE relates to time-limit for completion of block assessment.
Sub-section (1) of said section provides that notwithstanding the provisions of section 153, the order under section 158BC shall be passed within twelve months from the end of the month in which the last of the authorisations for search under section 132, or requisition under section 132A, was executed or made, as the case may be.
Proviso to the said sub-section provide for extension of period by twelve months under certain circumstances.
Sub-section (2) of said section provides that in computing the period of limitation under sub-section (1), the period (not exceeding one hundred and eighty days) commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A and ending on the date on which the books of account, or other documents or money or bullion or jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A, as the case may be, are handed over to the Assessing Officer having jurisdiction over the assessee, in whose case such search is initiated under section 132 or such requisition is made under section 132A, as the case may be, shall be excluded.
Proviso to the said sub-section provide for extension of period by twelve months under certain circumstances.
Sub-section (3) of said section provides that the period of limitation for completion of assessment or reassessment for the block period in the case of the other person referred to in section 158BD shall be twelve months from the end of the month in which the notice under section 158BC in pursuance of section 158BD, was issued to such other person.
Proviso to the said sub-section provide for extension of period by twelve months under certain circumstances.
Sub-section (4) of said section provides the periods which shall be excluded in computing the period of limitation.
Proposed section 158BF relates to certain interests and penalties not to be levied or imposed. The said section provides that no interest under the provisions of section 234A, 234B or 234C or penalty under section 270A shall be levied or imposed upon the assessee in respect of the undisclosed income assessed or reassessed for the block period.
Proposed section 158BFA relates to levy of interest and penalty in certain cases.
Sub-section (1) of said section provides that where the return of total income including undisclosed income for the block period, in respect of search initiated under section 132, or books of account, other documents or any assets requisitioned under section 132A, on or after the 1st day of September, 2024, as required by a notice under clause (a) of sub-section (1) of section 158BC, is not furnished within the time specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one half per cent. of the tax on undisclosed income, determined under clause (c) of sub-section (1) of section 158BC, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and ending on the date of completion of assessment under clause (c) of sub-section (1) of section 158BC.
Sub-section (2) of said section, inter alia, provides that subject to certain conditions the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that the person shall pay by way of penalty a sum which shall be equal to fifty per cent. of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of subsection (1) of section 158BC.
Sub-section (3) of said section provides the circumstance under which no order imposing a penalty under sub-section (2) shall be made.
Sub-section (4) of said section provides the period which shall excluded in computing the period of limitation under the said section.
Sub-section (5) of said section provides that an income-tax authority on making an order under sub-section (2) imposing a penalty, unless he is himself an Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer.
Proposed section 158BG relates to authority competent to make assessment of block period.
The said section provides that the order of assessment for the block period shall be passed by an Assessing Officer not below the rank of a Deputy Commissioner or an Assistant Commissioner or a Deputy Director or an Assistant Director, as the case may be.
Proviso to said section provides that no such order shall be passed without the previous approval of the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director, as the case may be, in respect of search initiated under section 132, or books of account, other documents or any assets requisitioned under section 132A, on or after the 1st day of September, 2024.
Proposed section 158BH relates to application of other provisions of the Act.
The said section provides that save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter.
Proposed section 158BI relates to chapter not to apply in certain circumstances.
The said section provides that the provisions of this Chapter shall not apply where a search was initiated under section 132, or books of account, other documents or any assets were requisitioned under section 132A, before the 1st day of September, 2024, and proceedings in relation to such search or requisition, as the case may be, shall be governed by the other provisions of the Act.
These amendments will take effect from 1st September, 2024.
Extract of Clause 76 of Finance Bill 2024
Clause 76 of the Bill seeks to amend section 246A of the Income-tax Act relating to appealable orders before Commissioner (Appeals).
It is proposed to amend the said section so as to insert a new clause after clause (k) to provide that an order passed under clause (c) of sub-section (1) of section 158BC in respect of search initiated under section 132, or books of account, other documents or any assets requisitioned under section 132A may be appealable under that section.
This amendment will take effect from 1st September, 2024.
Extract of Clause 85 of Finance Bill 2024
Clause 85 of the Bill seeks to amend section 276CCC of the Income-tax Act relating to failure to furnish return of income in search cases.
It is proposed to amend said section in order to provide reference of clause (a) of subsection (1) of section 158BC therein.
This amendment will take effect from 1st September, 2024.
[Clauses 32, 43, 49, 76 & 85]
