The Finance (No. 2) Act, 2024, introduced amendments to Chapter XIV-B of the Income-tax Act, impacting block assessments for search and requisition cases effective from February 1, 2025. Key changes include defining “undisclosed income” to include virtual digital assets under Section 158B and aligning provisions under Section 158BA to include terms like “recomputation” and “reference.” Amendments to Section 158BB refine the computation of block period income, distinguishing income disclosed in returns filed before a search from other undisclosed incomes. Specific provisions clarify taxation of international or domestic transactions during partial periods. Additionally, Section 158BE revises the time limit for completing block assessments to twelve months from the end of the quarter in which the last search or requisition occurred, addressing procedural inefficiencies in group cases. These changes aim to enhance clarity, streamline procedures, and ensure appropriate taxation under evolving circumstances.
Budget 2025: Amendments proposed in provisions of Block assessment for search and requisition cases under Chapter XIV-B
Vide Finance (No. 2) Act, 2024, the concept of block assessment was introduced by amending provisions of Chapter XIV-B (sections 158B to 158BI of the Act) to be made applicable where a search under section 132 of the Act is initiated or requisition under section 132A of the Act is made, on or after 01st September, 2024.
2. Section 158B of the Act defines “undisclosed income” for the purposes of Chapter XIV-B. It is proposed to add the term “virtual digital asset” to the said definition.
3. Sub-section (2) and sub-section (3) of section 158BA of the Act provide that any assessment or reassessment or recomputation or a reference or an order pertaining to any assessment year falling in the block period pending on the date of initiation of the search or making of requisition, shall abate. Further, sub-section (5) of the said section provides that if any proceeding initiated under Chapter XIV-B has been annulled in appeal or any other legal proceeding, then, the assessment or reassessment relating to any assessment year which has abated under sub-section (2) or sub-section (3), shall revive. It is proposed to align the said sub-sections by adding the words “recomputation”, “reference” or “order” in sub-section (5) of the said section.
4. Sub-section (4) of section 158BA of the Act provides that where any assessment under Chapter XIV-B 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 Chapter XIV-B. It is proposed to substitute the word “pending” as the assessment is ‘required to be made’ though it may not be pending when the subsequent search is initiated.
5. Section 158BB of the Act provides the methodology for computation of total income of block period. It is proposed to amend clause (i) of the sub-section (1) of the said section to substitute reference to ‘total income disclosed’ with “undisclosed income” which has been declared in return. Consequential amendment is also proposed in sub-section (6) of the said section to reflect this change. It is further proposed to amend clause (iii) of the sub-section (1) to specify that any income declared in the return of income filed under section 139 or in response to a notice under sub-section (1) of section 142 or section 148, prior to the date of initiation of the search or the date of requisition, shall form part of the total income of the block period for which credit would be given while charging the tax for the said period. It is also proposed to omit the word total from ‘total income’ in clause (ii) and (iii) of the sub-section (1). It is also proposed to amend clause (iv) of sub-section (1) to provide the clarity over computation of the income pertaining to the previous year which has ended but the due date for furnishing the return for such year has not expired prior to the date of initiation of the search or requisition so that income pertaining to books of account maintained in normal course for the said period is taxed under the normal provisions.
6. Sub-section (3) of section 158BB of the Act proposes to tax under the normal provisions any income which relates to any international transaction or specified domestic transaction, 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. This was provided as it may be difficult to assess arm’s length price of part period transactions. It is proposed to amend the said sub-section to provide that the income pertaining to any international transaction or specified domestic transaction shall not be considered in the income of the block period. Therefore, in the said sub-section, it is proposed to provide the reference to such income instead of evidence as provided earlier.
7. Section 158BE of the Act provides the time-limit for completion of block assessment as twelve months from end of the month in which the last of the authorisations for search has been executed. Search and seizure proceedings are more often than not conducted in a group of cases which require coordinated investigation and assessments. However, the present time-limit results in multiple time barring dates in one group of cases which leads to challenges in taking the cases to a logical conclusion. Hence, the time-limit for completion of block assessment is proposed to be made as twelve months from end of the quarter in which the last of the authorisations for search or requisition has been executed.
8. These amendments will take effect from the 1st day of February, 2025.
[Clauses 46, 47, 48 & 49]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 46 of the Bill seeks to amend section 158B of the Income-tax Act relating to definitions.
Clause (b) of the said section defines undisclosed income.
It is proposed to amend clause (b) of the said section to insert the word “virtual digital asset” in the definition of undisclosed income.
This amendment will take effect retrospectively from 1st February, 2025.
Clause 47 of the Bill seeks to amend section 158BA of the Income-tax Act relating to assessment of total income as a result of search.
Sub-section (4) of the said section provides that where any assessment under Chapter XIV-B 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 Chapter XIV-B.
It is proposed to amend sub-section (4) of the said section to substitute the word “pending” with the words “required to be made”.
Sub-section (5) of the said section provides that if any proceeding initiated under Chapter XIV-B has been annulled in appeal or any other legal proceeding, then, the assessment or reassessment relating to any assessment year which has abated under subsection (2) or sub-section (3), shall revive.
It is proposed to amend sub-section (5) of the said section to insert the words “recomputation”, “reference” and “order” which would stand revived in case any proceeding under chapter XIV-B is annulled in appeal.
These amendments will take effect retrospectively from 1st February, 2025.
Clause 48 of the Bill seeks to amend section 158BB of the Income-tax Act relating to computation of total income of block period.
Sub-section (1) of the said section provides the methodology for computation of total income of block period. Clause (i) of the said sub-section provides that total income of the block period shall include total income disclosed in the return furnished under section 158BC. Clause (iii) of the said sub-section provides that total income of the block period shall include total income declared in the return of income filed under section 139 or in response to a notice under sub-section (1) of section 142 or section 148 and not covered under clause (i) or clause (ii). Clause (iv) of the said sub-section provides that where the previous year has not ended, total income of the block period shall include total income determined, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of last of the authorisations for the search or requisition relating to such previous year.
It is proposed to substitute sub-section (1),––
(a) in clause (i) of the said sub-section to clarify that undisclosed income is required to be declared in the block return;
(b) in clauses (ii) and (iii) of the said sub-section to omit the word “total” from “total income”;
(c) in clause (iii) of the said sub-section to insert the words “prior to the date of initiation of search or requisition”;
(d) in clause (iv) of the said sub-section so as to provide that the income as recorded in the books of account and other documents maintained in the normal course on or before the 31st day of March of the previous year which has ended but the due date for furnishing the return for such year has not expired prior to the date of initiation of the search or requisition, shall form part of total income. Further, the income in respect of period commencing from 1st day of April of the previous year in which the search is initiated or requisition is made and ending on the day immediately preceding the date of initiation of search or requisition, shall be computed on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course for such period on or before the day immediately preceding the date of initiation of search or the date of requisition. Also, the income in respect of period commencing from the date of initiation of the search or the date of requisition and ending on the date of the execution of the last of the authorisations for search or requisition, shall be computed on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course for such period on or before the date of the execution of the last of the authorisations.
Sub-section (3) of the said section proposes to tax under the normal provisions any income which relates to any international transaction or specified domestic transaction, 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. To appropriately provide for this intention of the legislature, sub-section (3) of the said section is proposed to be substituted.
It is also proposed to amend sub-section (6) to substitute the words, “undisclosed income declared” in the place of “disclosed income”.
This amendment will take effect retrospectively from 1st February, 2025.
Clause 49 of the Bill seeks to amend section 158BE of the Income-tax Act relating to time-limit for completion of block assessment.
Section 158BE, inter alia, provides the time-limit for completion of block assessment as twelve months from end of the month in which the last of the authorisations for search or requisition has been executed.
It is proposed to amend sub-section (1) so as to provide that the order under section 158BC shall be passed within twelve months from the end of the quarter in which the last of the authorisations for search or requisition was executed.
It is also proposed to amend sub-section (3) of the said section so as to provide that the order under section 158BC in pursuance of section 158BD shall be passed within twelve months from the end of the quarter in which the notice under section 158BC in the case of the other person referred to in section 158BD, was issued.
This amendment will take effect retrospectively from 1st February, 2025.
Sub-section (1) of the said section provides that the order of block assessment shall be passed within twelve months from the end of the month in which the last of the authorisations for search or requisition was executed or made.
Clause (i) of sub-section (4) of the said section provides that the period during which the assessment proceeding is stayed by an order or injunction of any court shall be excluded in computing the period of limitation under this section.
It is proposed to substitute the said clause so as to clarify the commencement date and the ending date of such exclusion period.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
46. Amendment of section 158B.
In section 158B of the Income-tax Act, in clause (b), after the words “money, bullion, jewellery” at both the places where they occur, the words “, virtual digital asset” shall be inserted and shall be deemed to have been inserted with effect from the 1st February, 2025.
47. Amendment of section 158BA.
In section 158BA of the Income-tax Act, with effect from the 1st February, 2025,–––
(a) in sub-section (4), for the word “pending”, the words “required to be made” shall be substituted and shall be deemed to have been substituted;
(b) in sub-section (5), for the words “the assessment or reassessment relating to any assessment year”, the words “the assessment or reassessment or recomputation or reference or order relating to any assessment year” shall be substituted and shall be deemed to have been substituted.
48. Amendment of section 158BB.
In section 158BB of the Income-tax Act, with effect from the 1st February, 2025,––
(a) for sub-section (1), the following sub-section shall be substituted and shall be deemed to have been substituted, namely:––
“(1) The total income referred to in sub-section (1) of section 158BA of the block period shall be the aggregate of the following:––
(i) undisclosed income declared in the return furnished under section 158BC;
(ii) income assessed under sub-section (3) of section 143 or section 144 or section 147 or section 153A or section 153C prior to the date of initiation of the search or the date of requisition, as the case may be;
(iii) income declared in the return of income filed under section 139 or in response to a notice under subsection (1) of section 142 or section 148 prior to the date of initiation of the search or the date of requisition, and not covered under clause (i) or clause (ii);
(iv) income determined––
(a) in respect of a previous year, where such previous year has ended and the due date for furnishing the return for such year has not expired prior to the date of initiation of the search or the date of requisition, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course before the date of initiation of search or the date of requisition;
(b) in respect of period commencing from 1st day of April of the previous year in which the search is initiated or requisition is made and ending on the day immediately preceding the date of initiation of search or requisition, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course for such period on or before the day immediately preceding the date of initiation of search or the date of requisition;
(c) in respect of period commencing from the date of initiation of the search or the date of requisition and ending on the date of the execution of the last of the authorisations for search or requisition, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course for such period on or before the date of the execution of the last of the authorisations;
(v) undisclosed income determined by the Assessing Officer under sub-section (2).”;
(b) for sub-section (3), the following sub-section shall be substituted and shall be deemed to have been substituted, namely:––
“(3) Where any income required to be determined as a result of search or requisition of books of account or other documents and any other material 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 execution of the last of the authorisations, 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 income 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.”;
(c) in sub-section (6), for the words “disclosed income”, the words “undisclosed income declared” shall be substituted and shall be deemed to have been substituted.
49. Amendment of section 158BE.
In section 158BE of the Income-tax Act,
(a) in sub-section (1), for the words “from the end of the month”, the words “from the end of the quarter” shall be substituted and shall be deemed to have been substituted with effect from the 1st February, 2025;
(b) in sub-section (3), for the words “from the end of the month”, the words “from the end of the quarter” shall be substituted and shall be deemed to have been substituted with effect from the 1st February, 2025;
(c) in sub-section (4), for clause (i), the following clause shall be substituted, namely:––
“(i) the period commencing on the date on which stay on assessment proceedings was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner; or”.
