Summary: Effective from September 1, 2024, the Budget 2025 amendments introduce block assessment procedures for search cases under Sections 158B to 158BI of the Income Tax Act. A block period now includes six assessment years preceding the search year, plus the period from April 1 of the previous year until the last authorization date. Undisclosed income encompasses unreported money, bullion, virtual digital assets (from February 1, 2025), and incorrect expenditure claims. Ongoing assessments for the past six years will abate upon search initiation, but appeals and revisions remain unaffected. If a block assessment is annulled, the abated assessments will revive unless overturned. For multiple searches, assessments must be completed sequentially, with possible extensions. The computation of block period income considers disclosed and undisclosed earnings, excluding certain firm-related expenses and prior losses. The procedure mandates filing a return within 60 days post-search, with subsequent scrutiny under Section 143(2). If undisclosed income is linked to a third party, jurisdiction shifts accordingly. Block assessments must conclude within 12 months, with extensions up to 180 days. No interest or penalties apply under Sections 234A-C and 270A, but delays attract a 1.5% monthly interest. A penalty of 50% of the tax due is imposed unless compliance conditions are met. Orders require prior approval from senior tax officials.
1. Introduction to Block Assessment
- Effective from 01.09.2024, block assessment is applicable when a search is initiated under Section 132 or requisition under Section 132A. This will be governed by Sections 158B to 158BI.
2. Definitions (Section 158B)
- Block Period: The block period comprises the 6 assessment years (AYs) immediately preceding the previous year (PY) in which the search or requisition occurs, along with the period from 1st April of the PY until the completion of the last authorization of the search or requisition.
- Last Authorization:
- Search: Concludes on the last panchnama drawn.
- Requisition: The period ends when the BOA or other documents or assets are received by the AO.
- Last Authorization:
- Undisclosed Income:
- Includes undisclosed money, bullion, jewellery, or Virtual Digital Assets (effective 01.02.2025).
- Incorrect expenditures, deductions, or allowances claimed.
- Any undisclosed income reflected in books of accounts or any document/transaction that represents undisclosed income.
3. Abatement of Pending Assessments (Section 158BA)
- If a regular assessment or reassessment is pending for the last 6 PYs as of the date of search initiation, it will abate. Similarly, references made to TPO or orders passed by the TPO in relation to these years will also abate. However, appeals and revisions will not be affected.
- If an assessment under this chapter or an order passed under Section 158BC is annulled in appeal, the abated assessment or reassessment will revive, starting from the date of such annulment, but only if the annulment is not set aside.
4. Assessments for Multiple Searches (Section 158BA)
- In case a second search occurs before the first search assessment is completed, the assessment for the first search must be completed first.
- If the time to complete the second search assessment is less than 3 months, the AO may request an extension of 3 months from the end of the month in which the first search assessment is completed.
5. Computation of Block Period Income (Section 158BB)
| Particular | Income | |
| A | Total Income disclosed in the return furnished u/s 158BC | xx |
| B | Total income assessed u/s 143(3) or 144 or 147 or 153A or or 153C (prior to the date of initiation of the search or the date of requisition) | xx |
| C | Toptal Income declared in the return u/s 139 or in response to the notice u/s 142(1) or 148 and not covered under A or B above | xx |
| D | Total Income determined where the PY has not ended (i.e. 1st April of PY till last date of Search ), on the basis of book entries or transactions as recorded in BOA and other document maintained in the normal course | xx |
| E | Undisclosed Income determined by AO | xx |
| Total | xx | |
| Less | Total Income assessed referred in B+C+D | xx |
| Total Income of Block Period | xx |
- Key Notes:
- Interest and remuneration to non-working partners in a firm will not be allowed when computing undisclosed income.
- Losses or unabsorbed depreciation from prior years cannot offset undisclosed income but can be carried forward for future set-off after the block period ends.
6. Procedure for Block Assessment (Section 158BC)
- After a search is initiated, the AO issues a notice requiring the person to file a return within 60 days (or as specified in the notice) declaring their total income, including undisclosed income for the block period.
- The return is treated as filed under Section 139 if submitted within the given timeframe, and the AO will issue a notice under Section 143(2).
- The AO will then determine the total income (including undisclosed income) and pass an assessment or reassessment order.
7. Undisclosed Income of Third Parties (Section 158BD)
- If the AO is satisfied that any undisclosed income belongs to a person other than the searched person, the evidence will be transferred to the AO having jurisdiction over that person.
- The process followed will be identical to the one followed for the searched person.
8. Time-Limit for Completion of Block Assessment (Section 158BE)
- For the searched assessee, the assessment must be completed within 12 months from the end of the month in which the last authorization for search under Section 132 was executed.
- For others, it must be completed within 12 months from the end of the month in which the notice under Section 158BC (pursuant to Section 158BD) was issued.
- The time limit may be extended up to 180 days.
9. Interest and Penalties (Section 158BF)
- No interest (under Sections 234A, 234B, 234C) or penalty (under Section 270A) will be imposed on the undisclosed income assessed for the block period.
10. Interest and Penalty in Certain Cases (Section 158BFA)
- Interest: If the return under Section 158BC is filed late, the assessee will be liable to pay simple interest at 1.5% per month on the tax on undisclosed income, calculated from the day after the specified period ends until the completion of the assessment.
- Penalty: A penalty of 50% of the tax payable on undisclosed income will be levied, but it can be avoided if the following conditions are met:
- Return under Section 158BC is filed.
- Tax is paid, or in case of seized assets, money is offered for tax adjustment.
- Evidence of tax payment is submitted.
- No appeal is filed against the assessment concerning disclosed income.
- If the undisclosed income determined exceeds what was shown in the return, penalty will be imposed on the additional undisclosed income.
11. Competent Authority for Block Assessment (Section 158BG)
- The AO passing the block assessment order must be at least of the rank of Deputy Commissioner (DC), Assistant Commissioner (AC), Deputy Director (DD), or Assistant Director (AD).
- Prior approval from senior authorities such as Add. CIT, Add. DIT, Joint Commissioner (JC), or Joint Director (JD) is required before issuing any assessment order.
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