Reintroduction of Block Assessments for Income Tax Search Cases from 1st September 2024

Summary: The reintroduction of block assessments in search cases under the Income Tax Act, effective from 01 September 2024, marks a significant shift in the handling of undisclosed income discovered during search operations. Initially introduced in 1995, block assessments consolidated ten past assessment years into one block for reassessment. However, due to legal challenges and procedural complexities, this approach was replaced in 2003 with a new reassessment scheme under sections 153A to 153D. This scheme was operational until 2021, but technical flaws, such as issues with incriminating material, limitations, and staggered assessments, led to inefficiencies and revenue leakage. Consequently, the legislature decided to reintroduce the block assessment system with statutory provisions from Section 158B to 158BI under Chapter XIV-B of the Income Tax Act. This revised system addresses past issues by setting clear guidelines for computing total income, handling undisclosed income, and setting deadlines for assessment completion. The block assessment period will now cover six assessment years preceding the financial year of the search, plus the period from 01 April of the year of the search to the last date of authorization. The reintroduction aims to streamline the assessment process, reduce litigation, and ensure more efficient handling of undisclosed income in search cases.

Re-Introduction of the Block Assessments:-

Hon’ble Finance Minister of India in the budget 2024 re-introduced the concept of block assessments where search initiated on or after 01 September 2024. The provisions of block assessments was initially introduced under the Income Tax Act (“the Act”) in 1995.

Through Finance Act, 1995, the concept of Block Assessments was introduced where 10 past assessment years was considered as one block year for carrying out reassessment of escaped income discovered due to search and seizure operations. However, feeling legal hurdles in the operations of these provisions, new reassessment scheme in search and seizure cases was introduced in 2003 through the sections 153A to 153D.

This new scheme continued in operation from 2003 to 2021. The legislature felt leakage of revenue due to several technical glitches discovered by the taxpayers and approved by the Courts, such as not recording satisfaction, by the Assessing Officer of the “person searched”, making assessment/reassessment only on the basis of incriminating material found in the search i.e., escaped income could not be brought to tax, if discovered through post search investigations, difficulties faced in counting limitations for initiating proceedings or completing proceedings, or in identifying assessment years for which assessment/ reassessment is to be carried out, in the concept of pending and abatements, or in bringing to tax escaped income in the hands of a right person to whom it belonged and discovered in the search.

Considering several technical flaws in the new scheme of assessment/reassessment through sections 153A to 153D the legislature considered it appropriate to cover the post search assessments through sections 147 and 148. However, that there were multiple problems arising under the search assessments under section 147 and 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 resulting into 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.

The reintroduction of the block assessments made via Budget 2024 with Chapter XIV-B under the Income Tax Act containing the statutory provisions from Section 158B to 158BI.

Through this article I have tried to summarized the entire chapter of the block assessment introduced under the Income Tax Act for the searches conducted on or after 01 September 2024.

A timeline of applicable provisions on the basis of the date of the initiation of the search has been tabulated below:-

S. No	Period of Search	Relevant Provisions
1.	Prior to 1st June 2003	158BC – In case of searched person 158BD- In case of other than searched person
2.	After 1st June 2003 to 31st March 2021	153A – In case of searched person 153C- In case of other than searched person
3.	From 1st April 2021 to 31st August 2024	147 and 148- Based on the information of each assessment year
4.	With effect from 1st September 2024	158BC – In case of searched person 158BD- In case of other than searched person

A summary of key sections:-

S. No	Section	Relevant Provisions
1.	158B	Definition of block period and undisclosed income
2.	158BA	Assessment of total income as a result of search.
3.	158BB	Computation of total income of block period.
4.	158BC	Procedure for block assessment
5.	158BD	Undisclosed income of any other person
6.	158BE	Time-limit for completion of block assessment.
7.	158BF	Certain interests and penalties not to be levied or imposed.
8.	158BFA	Levy of interest and penalty in certain cases.
9.	158BG	Authority competent to make assessment of block period.
10.	158BH	Application of other provisions of this Act.
11	158BI	Chapter not to apply in certain circumstances.

A. Concept and definition of block period:-

The term block period has been defined u/s 158B(a) of the Income Tax Act to which will comprise of the following: –

– Six assessment years (A/yr) preceding the financial year (FY) in which search under section (u/s) 132 of the Act initiated, and

– Period starting from 01^st April of the previous year (P/yr) in which search initiated till and ending on the date of last authorization under section 132 of the Act.

B. Undisclosed Income:-

While reintroducing the block assessments under the Finance Act 2024, the scope of the term undisclosed income has been extended consisting of two limbs, the first limb of the definition of the undisclosed income is same as it was introduced initially in Finance Act 1995 to 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.

The extended and second limb of the definition of the undisclosed income as reintroduced in the Finance Act 2024 to include any expenses, deduction or allowances claimed under the Act which are found to be incorrect in respect of the block period.

C. Procedure of Block Assessments: –

• All the assessments under the Act pending as on the date of initiation of search in respect of any year falling within the block period will be abated.
• Assessing officer shall issue a notice u/s 158BC(1)(a) of the Act to file the return of income within period mention in the notice not exceeding 60 days to file the return of income for the block period.
• The above return of income file by assessee will be include the total income including the undisclosed income.
• This will be a single return in respect of the entire block period.
• Above return filed will be considered as return file u/s 139 of the Act and notice u/s 143(2) of the Act will be issued accordingly.
• Revision of the above return of the income file is not possible.
• Assessing officer shall on basis of the above return of the income filed by the assessee determined the total income including the undisclosed income for the block period as per the manner laid down u/s 158BB and other assessment or re-assessment provisions under the Act and pass the assessment order determining the tax payable by the assessee.

D. Time limit for completion of Block Assessments: –

• Assessing officer shall pass the assessment order in respect of the block assessments within 12 months from the end of the month in which last authorization made.
• The above period of 12 months will be further extended by 12 months where during the course of assessment any reference made u/s 92CA(1).
• In computing the above period of 12 months the period of starting of the search till the date on which books of accounts handed over to the AO will be excluded. However, this period will not exceed 180 days.
• Where any block assessment in respect of already conducted search is already pending under the Act as on the date of the initiation of the search made then the already pending assessment will be completed and thereafter the assessment in respect of the subsequent search will be initiated.
• However, where the period of completing the assessment in respect of subsequent search is less than 3 months than the period of the assessment shall be extended to further 3 months.

Following period shall be excluded while computing the above period of completion of the assessments under block assessments:-

1. the period during which the assessment proceeding is stayed by an order or injunction of any court; or

2. the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Principal Commissioner or Commissioner or a period of one year, whichever is less; or

3. the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee to be re-heard under the proviso to section 129; or

4. the period commencing from the date on which an application is made before the Authority for Advance Rulings or before the Board for Advance Rulings under sub section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Principal Commissioner or Commissioner under sub-section (3) of section 245R; or

5. the period commencing from the date on which a reference for declaration of an arrangement to be an impermissible avoidance arrangement is received by the Principal Commissioner or Commissioner under sub-section (1) of section 144BA and ending on the date on which a direction under sub-section (3) or sub-section (6) or an order 59 under sub-section (5) of the said section is received by the Assessing Officer; or

6. the period commencing from the date on which the Assessing Officer makes a reference to the Principal Commissioner or Commissioner under the second proviso to sub-section (3) of section 143 and ending with the date on which the copy of the order under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB, as the case may be, is received by the Assessing Officer; or

7. the period commencing from the date on which the Assessing Officer intimates the Central Government or the prescribed authority, the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) of section 10, under sub-clause (i) of the first proviso to sub section (3) of section 143 and ending with the date on which the copy of the order withdrawing the approval or rescinding the notification, as the case may be, under those clauses is received by the Assessing Officer; or

8. the period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (1) of section 142A and ending with the date on which the report of the Valuation Officer is received by the Assessing Officer; or

9. the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited or inventory valued under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit or inventory valuation under that sub-section;

E. Computation of the total income:-

Computation of the total income in case of block assessment has been provided under section 158BB(1) of the Act and shall comprise of the following:-

1. total income disclosed in the return furnished under section 158BC;

2. total income assessed under section 143(3) 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;

3. total income declared in the return of income filed under section 139 or in response to a notice under section 142(1) or section 148 and not covered under clause (i) or clause (ii);

4. total income determined where the previous year has not ended, 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;

5. undisclosed income determined by the Assessing Officer

Undisclosed income falling within the block period shall be computed in accordance with the provisions of the Act on the basis of the evidence found as a result of the search requisition of books of documents or any of the information available and such other materials or information’s as are either available with the Assessing Officer or come to his notice during the course of proceedings under this Chapter.

F. Tax on the undisclosed income:-

• Tax on the total income determined under the block assessment for the block period shall be charged at the rate of 60% irrespective of the previous year or years to which such income relates.
• No interest under section 234A, 234B or 234C of the Act or penalty under section 270A of the Act shall be levied or imposed upon the assessee in respect of the undisclosed income assessed or reassessed for the block period.
• Where the assessee does not file the return of income for the block assessment within the period provided in the notice of the assessing officer, then such assessee will be liable to pay the interest at the rate of 1.5% per month or part of the month starting from the end of the period specified in the notice till the expiry of the assessment made.
• If an assessee have any loss in the any of period within the block then such loss shall be ignored i.e. will not be adjusted from any other year income within the block and tax will be computed accordingly.
• Further, while computing the undisclosed income of the block period any brought forward losses which may be there at the starting of the block period will be ignored and will not be setoff from the undisclosed income of the block and may be carried forward for setoff in the assessment year relevant to previous year in which the block ends.

G. 50% penalty on the tax payable on undisclosed income:-

• Assessing Officer or the Commissioner Appeal may impose the penalty equal to 50% of the tax payable on the undisclosed income along with the penalty under section 271AAD for penalty for false or omission of entry in books of accounts, 271D penalty for failure to comply with provisions of section 269SS, 271DA penalty for failure to comply with provisions of section 269ST or 271E penalty for failure to comply with provisions of section 269T.

However, no penalty shall be payable in the cases where:-

1. Assessee has furnished the return for the block period within the time limit provided by the assessing officer

2. Tax payable on the basis of such return has been paid or adjusted from the assets seized

3. Evidence of the tax payment has been furnished along with the above return

4. Assessee has not filed the appeal against the assessment of that part of income which has been shown in the above return.

• Above penalty will levied on that portion of the undisclosed income as determined by the assessing officer during the course of proceedings which is in excess of the amount shown by the assessee in the return of income filed for the block.
• Where the assessee does not file the return of income for the block assessment within the period provided in the notice of the assessing officer, then such assessee will be liable to pay the interest at the rate of 1.5% per month or part of the month starting from the end of the period specified in the notice till the expiry of the assessment made.