Introduction
Block assessments are specific measures outlined in the Income-tax Act aimed at taxing undisclosed income discovered during search and seizure operations. The reintroduction of block assessments in search cases under the Income Tax Act, effective from September 1, 2024, marks a significant shift in the management of undisclosed income identified during these operations. The changes introduced in the Finance Act, 2024, demonstrate the government’s commitment to enhancing transparency, simplifying processes, and combating tax evasion. The Finance (No. 2) Act, 2024, has established a new block assessment scheme that applies to search and requisition cases. This scheme is relevant for searches conducted on or after September 1, 2024, and requires that the total income for the entire block period be assessed as a whole.
The main objective of this paper is to compare the old provisions under section 158B- 158BI with the new amendments introduced in the Finance Act 2024, highlighting the impact.
Demystifying Block Assessment
Over time, the idea of block assessment in search cases has undergone substantial change. Chapter XIV-B (which includes Sections 158B to 158BH) of the Income-tax Act was first introduced by the Finance Act, 1995, and it became operative on July 1st, 1995. This approach made it possible to calculate undisclosed income for a “block period,” which at first included the ten years prior. The previous six years were then added to the block period definition by the Finance Act of 2001.
On June 1, 2003, the Finance Act of 2003 stated the special provisions under Chapter XIV-B to be repealed. It was replaced by the introduction of Sections 153A, 153B, and 153C. Taxpayers were required to submit returns for the six relevant assessment years under these sections. A later amendment to Section 153A by the Finance Act of 2017 gave the Assessing Officer (AO) the authority to send out notices for assessments that were past due by up to ten years if there was proof that assets representing income exceeding Rs. 50 lakh had avoided the assessment.
Ultimately, this framework was eliminated by the Finance Act of 2021 and combined with the reassessment provisions found in Sections 147 to 151A. The AO was able to reevaluate income for a maximum of three years under this revised regime, which applied to searches, surveys, or requisitions started on or after April 1, 2021. However, the reassessment period may be extended to ten years from the end of the relevant assessment year if it is discovered that assets representing income exceeding Rs. 50 lakh evaded assessment.[1]
The absence of a legislative framework for consolidated assessments in search cases has led to the reintroduction of the block assessment scheme. Previously, the process could be extended over a maximum of ten years due to staggered search assessments, as only the time-barring year could be reopened annually. The new block assessment scheme aims to make the process more effective, cost-efficient, and significant by simplifying the assessment process.
Comprehensive Analysis of the Finance Act, 2024
The amendments to Chapter XIV-B under the Finance Act of 2024 represent a notable change in tax administration, especially regarding search cases. These updates indicate the government’s goal to simplify, speed up, and enhance the tax assessment process while ensuring stricter compliance.
A significant change is the shift from multiple-year assessments to a consolidated block assessment covering six years. This approach not only streamlines tax evaluations but also helps avoid piecemeal litigation and assessment discrepancies. The establishment of a fixed 60% tax rate on unreported income brings clarity, minimizing disputes over tax calculations. While penalties under Sections 234A, 234B, and 234C are waived, the 50% additional tax for non-disclosure serves as a strong deterrent against tax evasion.
The mandate to complete assessments within 12 months promotes efficiency, helping to clear the backlog of pending cases. However, the option for an additional six-month extension recognizes the complexities involved in material transfers during tax investigations. By excluding transfer pricing transactions (Section 92CA) from block assessments, the amendments avoid jurisdictional overlaps, ensuring specialized scrutiny for these cases.
Comparative Analysis of Old and New Provisions
Section 158B – The previous Act used the term “conducted” to describe how a search was carried out, while the new Act replaced it with “initiated,” which refers to the beginning of the search process. This change in wording is significant because the new Act broadens the scope of block assessments to encompass events that occur before the actual search actions take place.
Under the old Act, only the time leading up to the start of the search or requisition was considered, but the new Act expands this timeframe to include the period from April 1 of the previous year until the last authorization for the search is executed. This change effectively lengthens the block period.
Regarding block assessments, the old Act permitted a 10-year look-back period for searches that took place before June 2001. In contrast, the new Act does not include this specific provision, indicating a change in the duration the government can review search cases.
While the old Act concentrated on “false” claims related to expenses and deductions, the new Act opted for the term “incorrect,” which encompasses both fraudulent and unintentional mistakes.[2]
Section 158BA – The previous Act only assessed undisclosed income during the block period, concentrating solely on income identified through searches. In contrast, the new Act evaluates the total income for the block period, encompassing both disclosed and undisclosed income. This modification broadens the assessment scope, necessitating the inclusion of all income sources identified during the search.
The earlier Act lacked provisions for the abatement of assessments, meaning each year was assessed independently, even if a search was underway. The new Act, however, permits the abatement of pending assessments or reassessments during the search period, which streamlines the process and prevents unnecessary duplication of efforts.
Another significant change is the revival of abated proceedings. The old Act did not provide for the revival of such proceedings, but the new Act allows for their revival if the tax authorities receive an annulment order.
In terms of taxation, the old Act focused solely on taxing undisclosed income under Section 113. The new Act, however, taxes total income under regular provisions, while block period income (including undisclosed income) continues to be taxed under Section 113.[3]
Section 158BB – The previous Act relied mainly on evidence gathered from searches to determine undisclosed income. In contrast, the new Act adopts a broader approach by incorporating various types of evidence, including third-party databases, digital records, and other relevant materials. This enhancement makes the assessment process more thorough and precise.
When it comes to loss offset, the previous Act did not permit any losses to be deducted from undisclosed income. However, the new Act allows for certain losses under Section 158BB(6) to be excluded from consideration during the block period computation. This change ensures that the emphasis is placed on accurately reporting undisclosed income.
The previous Act did not specifically cover the treatment of international transactions, while the new Act clarifies that evidence related to these transactions is excluded from the block period computation. This clarification helps define how such transactions should be treated and maintains consistency with other sections of the Act.
In the old Act, the burden of proof was clearly on the assessee, but the new Act shifts this burden by taxing total income and evaluating disclosed income separately. [4]
Section 158BC – Under the previous Act, taxpayers had a window of 15 to 45 days to file their returns after a search began. In contrast, the new Act extends this period to a more accommodating 60 days, giving taxpayers additional time to prepare and submit their returns accurately.
The previous Act did not mention Sections 145A (method of accounting) or 145B (timing of income recognition), but the new Act explicitly incorporates these sections, offering a more uniform approach to income recognition in search cases. Additionally, Section 144C, which pertains to specific types of disputes (such as transfer pricing), is excluded from income computation in block assessments under the new Act, as it may not fit the objectives of block period assessments.
Also, the new Act mandates that prior approval from the Additional Commissioner or similar authorities is required before issuing notices or making assessment orders, a procedural requirement that was absent in the old Act. This modification aims to enhance oversight and reduce the risk of arbitrary decision-making. Also, the new Act excludes Section 143(1) for block period returns, a provision that was not excluded in the old Act, suggesting a more efficient assessment process.[5]
Section 158BD – In the previous Act, the term “belongs to” was used to indicate the income of other individuals, suggesting a direct ownership of undisclosed income. The new Act expands this concept with phrases like “pertains to” and “relates to,” enabling a more thorough investigation of income that may not be directly owned by someone else but is still associated with them in some manner. [6] In Manish Maheshwari v. ACIT[7], the Supreme Court determined that Section 158BD can only be applied if the Assessing Officer (AO) who conducted the search is convinced that the undisclosed income is associated with a third party. This satisfaction note is a necessary prerequisite before the case can be transferred to another AO. The Court stated that not recording this satisfaction makes the block assessment invalid. This ruling strengthens procedural protections, ensuring that tax authorities cannot unjustly extend search assessments to unrelated individuals without adequate evidence and due process as mandated by law.
Section 158BE – The updated timeline for finishing block assessments—set at 12 months with a possible extension—intends to speed up case resolutions. However, the option for a six-month exemption for transferring seized materials could lead to delays if not carefully managed. This extension allows authorities greater flexibility to handle more complicated assessments.[8]
Section 158BF – The previous Act outlined penalties across several sections, including Section 271(1)(c), Section 271A, and Section 271B, addressing a wide array of non-compliance issues. In contrast, the new Act focuses specifically on penalties under Section 270A, which pertains to underreporting and misreporting of income. Additionally, while the old Act referred to “interest under the provisions of Section 234A, 234B, and 234C,” providing clear guidance on the applicability of these sections, the new Act simply states “interest under Sections 234A, 234B, and 234C,” which may introduce some confusion. Moreover, the old Act imposed penalties based on undisclosed income identified during block assessments, whereas the new Act expanded this to include income that is assessed or reassessed during the block period, thereby widening the scope of penalty applicability.[9]
Section 158BFA – The changes to Section 158BFA take a tougher stance on interest and penalties, raising the interest rate for late filings from 1% to 1.5% per month. This adjustment aims to promote timely compliance. Whereas, the penalty framework has been simplified, limiting it to 50% of the tax owed instead of allowing penalties that could reach three times the tax amount. This clarity may lead to improved compliance, as businesses will have a clearer understanding of the financial repercussions. Furthermore, the requirement for senior tax authorities to approve penalties over ₹2 lakh adds an additional level of oversight, minimizing the risk of arbitrary penalties.[10]
Section 158BG – The new requirement that assessments starting on or after September 1, 2024, need approval from Additional Commissioners or similar authorities improves governance. However, this extra layer of oversight might create potential bottlenecks in tax enforcement. It is essential for authorities to find a balance between oversight and efficiency to prevent unnecessary procedural delays that could impede timely assessments. [11]
Section 158BI – The new Act, effective from September 1, 2024, takes a forward-looking approach, steering clear of any disputes over past taxation. By not considering older searches, it avoids overlapping assessments, which helps maintain consistency and lowers the risk of litigation. Both taxpayers and authorities benefit from this clarity, as previous cases will still be governed by the old laws, while new searches will adhere to more streamlined procedures. This change improves the efficiency of managing search cases and aligning taxation practices with contemporary compliance standards while ensuring fairness and transparency in tax assessments.[12]
Insights and Reflections
The reintroduction of block assessments under the Finance Act, of 2024, presents a significant opportunity to tackle undisclosed income identified during search operations. By consolidating assessments for the entire block period, this method simplifies what was once a complicated process. The focus on transparency and the incorporation of comprehensive evidence, such as digital and third-party records, improves accuracy and minimizes the chances of evasion.
Additionally, the provisions streamline taxation by merging all income—both disclosed and undisclosed—into a single framework, which helps eliminate duplication and inconsistencies. This approach ensures fair treatment for taxpayers while equipping authorities with the necessary tools to effectively combat tax evasion. The inclusion of a wider range of evidence types and consistent treatment of income sources enhances the integrity of the tax administration.
The effectiveness of this scheme lies in its capacity to resolve long-standing inefficiencies in the taxation of undisclosed income. The phased implementation allows stakeholders to transition smoothly, adapting to the changes while ensuring operational continuity. Although the penalty and interest provisions are strict, they strike a balance between deterrence and predictability, promoting compliance without excessively punishing taxpayers.
In an increasingly digital financial landscape, the updated framework aligns with contemporary data-driven practices, ensuring that tax assessments remain relevant and effective. By building trust through improved oversight and procedural fairness, the new block assessment regime marks a vital advancement toward a more just and efficient tax system, benefiting both taxpayers and the nation’s economic governance.
References
- Taxmann, Block Assessment Scheme under the Finance (No. 2) Act 2024, TAXMANN (Aug. 25, 2024). ↑
- Income-tax Act, No. 43 of 1961, § 158B, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BA, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BB, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BC, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BD, as amended by Finance Act, No. 12 of 2024 (India). ↑
- (2007) 289 ITR 341 (SC) ↑
- Income-tax Act, No. 43 of 1961, § 158BE, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BF, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BFA, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BG, as amended by Finance Act, No. 12 of 2024 (India). ↑
- Income-tax Act, No. 43 of 1961, § 158BH, as amended by Finance Act, No. 12 of 2024 (India). ↑
(This post has been authored by Jahnavi Daga, a Fourth-Year Student of Institute of Law, Nirma University.)
CITE AS: Jahnavi Daga, ‘Evolving Framework of Block Assessment: A Comparative Analysis of Old and New Provisions in Finance Act 2024’ (The Contemporary Law Forum, 12 March 2025) <https://tclf.in/2025/03/12/evolving-framework-of-block-assessment-a-comparative-analysis-of-old-and-new-provisions-in-finance-act-2024/>date of access