Section 158B

Definition

(a) Block Period

It refers to the 6 assessment years preceding the financial year in which a search (Sec. 132) or requisition (Sec. 132A) is initiated, plus the period starting from 1 April of the financial year of search/requisition up to the date the last search authorization is executed.

(b) Undisclosed Income

It includes Money, bullion, jewellery, virtual digital assets, or other valuable items, or Income or expenditure entries in books, documents, or transactions which represent income or property not disclosed or that would not have been disclosed under the Income-tax Act. It also includes wrongly claimed expenses, exemptions, deductions, or allowances discovered during the block period.

Explanation — Last Authorization Executed

The last authorization is considered executed:

(a) In case of search: When the search concludes and the last Panchnama is recorded.
(b) In case of requisition (Sec. 132A): When the authorized officer actually receives the books, documents, or assets.

Section 158BA

Assessment of Total Undisclosed Income as a Result of Search

1

If a search (Sec. 132) or requisition (Sec. 132A) is initiated on or after 1 September 2024, the Assessing Officer (AO) will assess or reassess the total undisclosed income of the block period according to the provisions of Chapter – XVI-B.

2

Any assessment, reassessment, or recomputation proceedings under other provisions of the Act for A.Ys. within the block period that are pending on the date of search/requisition will abate (terminate). Proceedings initiated after the search but before the block assessment order will also abate, except for the A.Y. in which the last search authorization is executed.

3

If during pending proceedings a reference to the Transfer Pricing Officer (Sec. 92CA) was made or an order was passed, those proceedings also abate along with the assessment on the date of search or requisition.

4

If another search/requisition occurs later, the assessment of the earlier search must be completed first, and then the assessment for the later search will be conducted under this Chapter. If the remaining time to complete the later assessment is less than 3 months, it will be extended to 3 months.

5

If the block assessment order is annulled in appeal or legal proceedings, the earlier abated assessments/reassessments will revive from the date the Commissioner receives the annulment order. If the annulment is later set aside, the revival ceases.

6

Total income other than undisclosed income for the year in which the last search authorization is executed will be assessed separately under normal provisions of the Act.

7

Total undisclosed income of the block period will be taxed at the rate specified under Section 113, regardless of the year to which that income relates.

Section 158BB

Computation of Undisclosed Income of the Block Period

(1) The total undisclosed income for the block period is the sum of:

(a) Undisclosed income declared by the assessee in the return filed under Section 158BC.
(b) Undisclosed income determined by the AO during assessment.

(2) The following will not be treated as undisclosed income of the block period:

(a) Income already assessed or determined before the search.
(b) Income declared in returns filed before the date of search or requisition.
(c) Income recorded in regular books of account in the normal course for:
- (i) A previous year where the return due date has not yet expired.
- (ii) The period from 1 April of the year of search until the day before the search.
- (iii) The period from the date of search until execution of the last search authorization, if properly recorded.
(d) Certain incomes covered under special tax provisions (e.g., sections 115A, 115G, 194P).

Note

However, if the AO believes any such income is actually undisclosed, he may recompute it.

(3) Undisclosed income will be computed based on:

(a) Evidence found during search or survey,
(b) Books of account or documents seized or requisitioned, and
(c) Other information available to or discovered by the AO during proceedings.

(4) Income relating to transfer pricing transactions (Section 92CA) for the period between 1 April of the P.Y. and the date of the last search authorization will not form part of block undisclosed income and will instead be assessed under normal provisions of the Act.

(5) For firms, undisclosed income is calculated before deducting partner remuneration, salary, interest, commission, etc. Provisions related to unexplained income or investments (Sections 68, 69, 69A, 69B, 69C) apply. Transfer pricing provisions may apply where relevant.

(6) Tax will be charged on the total undisclosed income determined for the block period as per the applicable rate.

(7) Brought-forward losses and unabsorbed depreciation cannot be set off against undisclosed income determined in block assessment. However, they can be carried forward and adjusted in future years according to normal provisions.

Section 158BC

Procedure for Block Assessment

Section 158BC of the Income-tax Act prescribes the procedure to be followed by the AO for assessing undisclosed income for a block period when a search under Section 132 or requisition under Section 132A is conducted.

1

Where a search or requisition is initiated on or after 1 September 2024, the Assessing Officer shall:

(a) Issue a notice requiring the person searched to furnish a return of undisclosed income for the block period.
(b) The return must be filed within the time specified in the notice, not exceeding 60 days.

2

The return filed under this section will be treated as a return filed under Section 139. After filing, the AO must issue notice under Section 143(2) for scrutiny.

However, a return filed after the specified time limit will not be treated as a return under Section 139. No notice under Section 148 (reassessment) is required for initiating block assessment proceedings. Revised return is not permitted once the return under this section is filed.

3

The time limit for filing the return may be extended by up to 30 additional days if all the following conditions are satisfied:

(a) The due date for filing the return for the previous year immediately preceding the search has not expired before the search date.
(b) The assessee is liable for audit under Section 44AB.
(c) The accounts for that year have not been audited at the time of issuing the notice.
(d) The assessee requests in writing for additional time to complete the audit.

4

The Assessing Officer shall determine the total undisclosed income of the block period as per Section 158BB. While doing so, the following provisions apply:

(a) Section 142 – Inquiry before assessment
(b) Section 143(2) & 143(3) – Scrutiny assessment
(c) Section 144 – Best judgment assessment
(d) Section 145, 145A, 145B – Method of accounting and valuation rules

5

After determining the total undisclosed income, the AO shall pass an order of assessment or reassessment for the block period and determine the tax payable on the undisclosed income.

Note: Section 144C (Dispute Resolution Panel procedure) does not apply to block assessment orders.

6

Assets seized during search under Section 132 or requisitioned under Section 132A will be dealt with according to Section 132B.

7

Section 143(1) (intimation/processing of return) does not apply to returns filed under Section 158BC.

8

Before issuing the notice under this section, the Assessing Officer must obtain prior approval from: Additional Commissioner / Additional Director / Joint Commissioner / Joint Director

Section 158BD

Undisclosed Income of Any Other Person

Section 158BD deals with situations where undisclosed income detected during a search belongs to a person other than the person searched.

1

If during a search under Section 132 or requisition under Section 132A, the Assessing Officer finds that undisclosed income belongs to or relates to another person (other person) and not the person searched (specified person), then this section becomes applicable.

2

The AO of the person searched shall record satisfaction that the undisclosed income belongs to another person, and hand over the seized assets, documents, or information (such as money, bullion, jewellery, virtual digital assets, books of account, etc.) to the AO having jurisdiction over that other person.

3

The Assessing Officer having jurisdiction over the other person shall then initiate proceedings against such person under Section 158BC, and conduct the block assessment of the undisclosed income according to the provisions of this Chapter.

4

If only one specified person is involved, the block period of the other person will be the same as that of the specified person. If multiple specified persons are involved, the block period of the other person will be the same as the block period that ends later among those specified persons.

5

For the other person, the relevant date for determining abatement of pending assessments under Section 158BA will be the date on which the seized material or information is received by the AO having jurisdiction over that other person, rather than the date of search.

Section 158BE

Time Limit for Completion of Block Assessment

Section 158BE specifies the time limit within which the Assessing Officer must complete a block assessment under Section 158BC after a search or requisition.

1

The assessment order must be passed within 12 months from the end of the quarter in which the last authorization for search under Section 132 or requisition under Section 132A was executed.

2

If during block assessment proceedings the Assessing Officer makes a reference to the Transfer Pricing Officer under Section 92CA, the time limit is extended by an additional 12 months.

3

If the assessee receives an additional 30 days to file the block return under the proviso to Section 158BC, the time limit for completing the block assessment becomes 13 months instead of 12 months.

4

While calculating the time limit, the following period is excluded:

(a) The period from the date of search/requisition until the seized books, documents, or assets are handed over to the Assessing Officer having jurisdiction, subject to a maximum of 180 days.
(b) If the limitation period expires before the end of a month, it will be extended to the end of that month.

5

In cases involving another person whose undisclosed income is detected during the search, covered under Section 158BD, the assessment must be completed within 12 months from the end of the quarter in which notice under Section 158BC is issued to that other person. If a transfer pricing reference under Section 92CA is made, the time limit extends by 12 months. If the return filing time is extended by 30 days, the assessment period becomes 13 months.

6

Certain periods are excluded while computing the time limit, such as:

Period during which court stay or injunction on assessment proceedings is in force.
Time taken for exchange of information with foreign authorities under tax treaties.
Time allowed for re-hearing under Section 129.
Period for special audit under Section 142(2A).
Time taken for valuation report under Section 142A.
Time taken for proceedings relating to exempt entities under Section 10, charitable trusts under Section 12AB, GAAR proceedings under Section 144BA, or Advance Rulings under Section 245Q / 245R.

7

After excluding the above periods, if the remaining time available for completing the assessment is less than 60 days, it will automatically be extended to 60 days. If this extended period ends before the end of a month, it will be extended to the end of that month.

Section 158BF

Certain Interests and Penalties Not to Be Levied or Imposed

Exemption from Interest & Penalty

No interest under 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.

Section 158BFA

Levy of Interest and Penalty in Certain Cases

Section 158BFA deals with the levy of interest and penalty relating to undisclosed income determined during block assessment proceedings following a search.

1

If a person fails to furnish the return of undisclosed income within the time specified in the notice issued under Section 158BC, the assessee shall be liable to pay simple interest at 1.5% per month (or part of a month) calculated on the tax payable on the undisclosed income determined in block assessment. The interest period runs from the day after the due date specified in the notice until the date of completion of block assessment.

2

During block assessment proceedings, the Assessing Officer or Commissioner (Appeals) may impose a penalty equal to 50% of the tax payable on the undisclosed income determined under Section 158BC.

3

Penalty will not be levied if the following conditions are satisfied:

(a) The assessee files the return of undisclosed income under Section 158BC.
(b) Tax payable on such return is paid, or the assessee allows seized money to be adjusted against the tax liability.
(c) Proof of tax payment is submitted with the return.
(d) The assessee does not file an appeal regarding the income declared in the return.

4

If the Assessing Officer determines undisclosed income higher than the income declared in the return, the penalty will apply only to the excess amount of undisclosed income determined by the AO.

5

Penalty cannot be imposed unless:

(a) The assessee is given a reasonable opportunity of being heard.
(b) If the penalty exceeds ₹2,00,000, the officer must obtain prior approval from the Additional/Joint Commissioner or Director.

6

The order imposing penalty must be passed within prescribed limits, generally within the financial year in which the proceedings are completed, or within six months from the end of the financial year in which the appellate order is received, whichever is later.

Different time limits apply where Appeal to Section 246A (Commissioner Appeals), Appeal to the Income Tax Appellate Tribunal under Section 253, or Revision under Section 263 of the Income-tax Act.

7

While calculating the time limit for penalty orders, the following periods are excluded:

(a) Time taken to re-hear the assessee under Section 129.
(b) Period during which court orders or injunctions stay the penalty proceedings.
(c) If after such exclusions the remaining period is less than 60 days, it is automatically extended to 60 days.

8

If a penalty order is passed by an authority other than the AO, a copy of the order must be sent to the AO immediately.

Section 158BG

Authority Competent to Make Assessment of Block Period

The block assessment order for the block period must be passed by AO not below the rank of:

Deputy Commissioner or Assistant Commissioner
Deputy Director or Assistant Director

Prior Approval Required

For searches initiated or requisitions made on or after 1 September 2024 under Section 132 or Section 132A, the block assessment order cannot be passed without prior approval of one of these authorities: Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director.

Section 158BH

Application of Other Provisions of This Act

General Applicability

Same as otherwise provided in this chapter, all other provisions of this Act shall apply to assessment made under this Chapter.

Notices Under Section 158B / 158BC