a) Present scheme of administration of Search and Assessment of search cases needs to be made effective to reduce technical complexities


Desirability to bring back block assessment system

  • Present scheme provided in section 132 read with section 271AAB and section 153A provides various different effective incidences of tax on assessee subjected to search if declaration is made during search or beyond the conclusion of search. The complexity involved be removed and single situation be provided where assessee be subjected to 60% tax on block assessment basis on undisclosed income in the return of income filed in response to notice for filing
    return after the search. This will bring in the following benefits:
  • With concept of block assessment, litigation as regards the year of tax ability of certain income/assets discovered in search would be eliminated.
  • The avoidable technicality of abetted assessment would be removed.
  • Presently, avoidable litigation on account of jurisdiction maintainable u/s. 153A or 147 of the ACT for the particular year based on incriminating material would be avoided.
  • Present scheme providing reduced incidence of tax on undisclosed income during search makes assessee indulge in unethical practice and the search team susceptible to compromises due to administrative pressures to achieve targets of surrender. The focus will shift to collection of incriminating material, coordinated investigation and quality of assessment.
  • If it is provided that an assessee can agree to subject the whole of sums/assets to be taxed in the block period of search at a flat rate of 60% (tax which is equal levy of 100% penalty on today’s maximum marginal rate). No further proceedings/ assessments would become necessary. Taking into consideration the ground reality, such voluntary compliance at every stage should be encouraged. By closing the option of voluntary compliance in search cases at higher cost, the defaulting tax payers are compelled to opt for litigation in respect of the income, which he would have otherwise readily agreed to offer for taxation. In this process he may or may not succeed but can definitely prolong the litigation.


It is suggested that the continuance of earlier block assessment procedure is desirable and would help in:

(a) reducing controversy over the year of tax ability of income;

(b) providing suitable incentive for a person to make the necessary disclosure without indulging in litigation and

(c) removing administrative difficulties such as multiplicity of appeals, bunching together of assessments etc.

b) Need to simplify penal provisions of section 271AAB


  • Amended Section 271AAB provides for imposition of penalty @ 30% on undisclosed income found during the course of search and admitted at the stage of search subject to fulfillment of other specified conditions in section 271AAB(1A)(a) 60% penalty is to be imposed in other cases u/s 271AAB(1A)(b).
  • The above system of penalty is very complex to implement in reality. In search cases, penalty should ideally be the same irrespective of the time of admission/ declaration by the culprit assessee. Assessing officers sometimes puts undue pressure on the assesees during search proceedings to extract the maximum amount of declaration. One of the reasons for the same is the pressure of target achievement by the assessing officers.
  • In such cases, quality of assessment suffers a lot and high pitched assessments are made unnecessarily.


It is suggested that the provisions of section 271AAB needs to be simplified. The time of admission may not be considered for imposition of penalty amount as once admitted all culprit assesses should be treated on the same footings.

Source-  ICAI Pre- Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2021