On February 1, 2025, at 11:00 AM, Finance Minister Nirmala Sitharaman gave the Parliament a presentation of the Union Budget 2025. The FM suggested amending the Income Tax Act’s block assessment provisions in the budget, with a focus on the processes that accompany search and seizure activities. These modifications are intended to improve transparency for taxpayers, decrease litigation, and expedite the assessment process.
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.
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“Undisclosed income” is defined under Section 158B of the Act for the purposes of Chapter XIV-B. The phrase “virtual digital asset” should be added to the aforementioned definition. Section 158BA of the Act stipulates in subsections (2) and (3) that any assessment, reassessment, recomputation, referral, or order pertaining to any assessment year that falls within the block period that is outstanding on the date the search or request is initiated shall be abated.
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Furthermore, the assessment or reassessment pertaining to any assessment year that has been abated under sub-section (2) or sub-section (3) shall be revived if any proceeding initiated under Chapter XIV-B has been annulled in an appeal or any other legal proceeding, according to sub-section (5) of the aforementioned section.
By including the terms “recomputation,” “reference,” or “order” in sub-section (5) of the aforementioned section, it is recommended that the aforementioned sub-sections be brought into alignment. Subsection (4) of Section 158BA of the Act states that if an assessee has an outstanding assessment under Chapter XIV-B in whose case a subsequent search or requisition is made, the assessment must be properly completed. After that, the assessment pertaining to the subsequent search or requisition must be made in accordance with Chapter XIV-B’s provisions. It is suggested that the word “pending” be used instead, since the evaluation is “required to be made,” even though it might not be pending at the time of the next search.
A block period’s total income is calculated using the methods provided in Section 158BB of the Act. In clause (i) of the aforementioned section’s sub-section (1), it is suggested that the term “total income disclosed” be changed to “undisclosed income” that has been declared in return. Additionally, a consequential revision is suggested to reflect this change in sub-section (6) of the aforementioned provision.
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Additionally, clause (iii) of sub-section (1) was proposed to be amended to state that any income declared in the income return filed under section 139 or in response to a notice under sub-section (1) of sections 142 or 148 before the date of the search or requisition would be included in the total income of the block period for which credit would be given when charging the tax for the said period. Additionally, it is suggested that the term “total income” be removed from clauses (ii) and (iii) of subsection (1).
In order to clarify the computation of income related to the previous year that has ended but whose return filing deadline has not passed before the date of the search or requisition, it is also suggested that clause (iv) of sub-section (1) be amended. This would ensure that income related to books of accounts maintained in regular course for the specified period is taxed in accordance with the regular provisions.
Subsection (3) of section 158BB of the Act proposes to tax any income related to any domestic or international transaction under the normal provisions. This applies to the period starting on April 1st of the year prior to the date on which the last authorization was executed and ending on the date on which the last authorization was executed. Since it could be challenging to determine the arm’s length pricing of transactions including part periods, this was supplied.
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It is suggested that the aforementioned subsection be changed to state that money from certain domestic or foreign transactions would not be included in the block period’s income. As a result, it is suggested that the reference to such income be included in the aforementioned subsection rather than the previously presented evidence.
The Act’s Section 158BE stipulates that the block evaluation must be finished within a year from the end of the month in which the last search authorization was carried out. Most of the time, search and seizure procedures are carried out in a series of situations that call for coordinated evaluations and investigations. Nevertheless, the current time limit causes several time barring dates in a single set of cases, making it difficult to bring the cases to a logical conclusion. As a result, it is suggested that the block evaluation be completed within a year from the end of the quarter in which the final search or requisition authorizations were completed. These amendments will take effect from the 1st day of February, 2025
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