Block assessment after an income tax search: 2025 Act and Chapter XIV-B

A search ends with a panchnama, the record of the search drawn up at the premises. The next step is a notice asking for one return of undisclosed income covering more than six years. That notice starts a block assessment. For a search initiated on or after 1 April 2026 it is issued under section 294 of the Income-tax Act, 2025. For a search initiated between 1 September 2024 and 31 March 2026 it is issued under section 158BC of the Income-tax Act, 1961. Below, “the 2025 Act” is the Income-tax Act, 2025 and “the 1961 Act” is the Income-tax Act, 1961. Where two section numbers are given together in brackets, the first is from the 2025 Act and the second from the 1961 Act.

The two texts follow the same design. The differences are in the table under Where the two Acts differ.

Block assessment is not new. Chapter XIV-B of the 1961 Act governed searches from 1 July 1995 to 31 May 2003 (the old Chapter XIV-B). The Finance (No. 2) Act, 2024 substituted a new Chapter XIV-B for searches from 1 September 2024, the Finance Act, 2025 rewrote much of it with effect from the same date, and the 2025 Act carries it forward as sections 292 to 301, two of which the Finance Act, 2026 has already amended. The Orissa High Court has ruled on one question under the current chapter, abatement, in Saroj Kumar Sahoo v. National Faceless Assessment Centre (W.P.(C) No. 30861 of 2025, 18 February 2026). Other questions have to be argued from the words of the current provisions and from decisions on the old chapter, which was worded differently on several of the points those decisions turn on.

Key points

• A search initiated on or after 1 April 2026 is assessed under sections 292 to 301 of the Income-tax Act, 2025. A search initiated from 1 September 2024 to 31 March 2026 stays under sections 158B to 158BH of the 1961 Act, by section 536(2)(v) of the 2025 Act.
• The block is the six years before the year of search plus the part of the search year up to the last panchnama. It cannot be extended to ten years.
• Only undisclosed income is assessed in the block. It is taxed at 60 per cent, cess at four per cent is treated as payable on it, and interest under sections 234A, 234B and 234C (sections 423, 424 and 425 of the 2025 Act) is not charged. Whether surcharge applies is unsettled.
• The block excludes income already assessed, income returned before the search, and income recorded in regular books kept before the search for years whose return was not yet due.
• Assessments pending for block years abate, that is, come to an end without an order, on the day the search is initiated (for a 2025 Act search this is the firm’s reading where the pending proceeding is under the 1961 Act). Assessments started afterwards and before the block order abate too, except for the year in which the search concludes (the 1961 Act words the exception differently).
• The notice under section 294 or section 158BC gives not more than sixty days for the block return, with one conditional extension of thirty days. The return cannot be revised.
• Both Acts now direct that a notice under section 143(2) (section 270(8) of the 2025 Act) be issued after the block return is filed.
• Undisclosed income may be computed on search evidence, survey evidence and other material available to the Assessing Officer. How far material unconnected with the search can be used is unsettled.
• A person who was not searched can be assessed for the same block if the Assessing Officer of the person searched is satisfied that undisclosed income relates to him and hands over the material.
• The block order is due within twelve months from the end of the quarter in which the search concluded under the 1961 Act, and within eighteen months from the end of the quarter in which the search was initiated under the 2025 Act.
• Penalty under section 298 or section 158BFA(2) is 50 per cent of the tax on undisclosed income determined by the Assessing Officer. It is not imposed on income declared in the block return if the tax is paid, proof of payment is filed with the return and that income is not appealed.
• Approval is required before the notice and again before the order. Both Acts now deem approvals in assessment proceedings to be administrative and supervisory, so an approval that was given cannot be attacked for brief reasons or defects of form.

For what to do on a file, go to the checklist for a live file.

Which regime governs which search

Since 1 June 2003 four schemes have governed search assessments. The date on which the search was initiated, or the requisition made, selects among them; the date of the assessment order is irrelevant. (A requisition under section 132A, or section 248 of the 2025 Act, is the Department calling for books or assets already in the custody of another authority. The same provisions apply to it as to a search.)

Search initiated or requisition made	Scheme	Provisions
After 31 May 2003 and on or before 31 March 2021	Separate assessment for each of six years, later up to ten	Sections 153A, 153B, 153C and 153D of the 1961 Act
From 1 April 2021 to 31 August 2024	Reassessment	Sections 147 to 151 of the 1961 Act as they stood before the Finance (No. 2) Act, 2024, preserved by section 152(3)
From 1 September 2024 to 31 March 2026	Block assessment	Chapter XIV-B of the 1961 Act, sections 158B to 158BH
On or after 1 April 2026	Block assessment	Sections 292 to 301 of the 2025 Act

Section 153A(1) applies where a search is initiated “after the 31st day of May, 2003 but on or before the 31st day of March, 2021”, and section 153C(3) excludes searches initiated on or after 1 April 2021. Section 152(3), inserted with effect from 1 September 2024, deals with a search or requisition, and a survey other than one under section 133A(2A), carried out “on or after the 1st day of April, 2021 but before the 1st day of September, 2024”. It keeps them under sections 147 to 151 as they stood before the Finance (No. 2) Act, 2024 (see the reassessment route for searches). Section 158BA(1) applies “where on or after the 1st day of September, 2024, a search is initiated under section 132”. Section 292(1) of the 2025 Act applies where a search is initiated or requisition made “on or after the commencement of this Act”, which is 1 April 2026.

Section 536(2)(v) of the 2025 Act settles which Act applies to a search already under way on that date:

where a search has been initiated under section 132 or requisition is made under section 132A prior to the commencement of this Act, the provisions of repealed Income-tax Act, shall continue to apply to any proceedings connected in respect of such search or requisition, as the case may be, as if this Act has not been enacted.

A search that began on 30 March 2026 and ended on 4 April 2026 is therefore a 1961 Act block assessment from the first notice to the last appeal. A search that began on 2 April 2026 is a 2025 Act block assessment, even though every completed year in its block is a previous year under the 1961 Act.

The substituted chapter originally had a section 158BI declaring that it did not apply to earlier searches. The Finance Act, 2025 omitted it with effect from 1 September 2024. The omission changes nothing, because sections 158BA(1), 158BC(1)(a) and 158BFA(1) and the proviso to section 158BG each carry the date.

The earlier regimes are covered in the section 153C article, on satisfaction and section 153D approval, and in the companion piece on limitation.

The block period

Section 301(a) of the 2025 Act defines the block period as the aggregate of two periods: the six tax years preceding the tax year in which the search was initiated or the requisition made, and the period from 1 April of that tax year to the date of execution of the last of the authorisations. (The authorisation is the search warrant.) Section 158B(a) of the 1961 Act says the same in the language of previous years and assessment years.

Two searches are used as examples below.

Search under the 2025 Act. Initiated on 12 November 2026; last panchnama drawn on 15 November 2026. The block is tax years 2020-21 to 2025-26 (these are financial years, not assessment years) and the period from 1 April 2026 to 15 November 2026.

Search under the 1961 Act. Initiated on 20 December 2025; last panchnama drawn on 3 January 2026. The block is previous years 2019-20 to 2024-25 (assessment years 2020-21 to 2025-26) and the period from 1 April 2025 to 3 January 2026. Section 158B(a) speaks of “previous years relevant to six assessment years preceding the previous year in which the search was initiated”; the words are awkward, and they are read here as the six previous years immediately before the search year, which is what section 301(a) expressly says for the 2025 Act.

The block is closed at six years. Section 153A reached back up to ten years where income of fifty lakh rupees or more, represented in the form of an asset, had escaped assessment. Neither Act has an equivalent for a block assessment. An earlier year can be reached only through the reassessment provisions, on their own conditions and limitation.

The block ends when the last authorisation is executed, and both Acts say when that is. In a search it is “on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued”. Section 301(d)(i) of the 2025 Act adds words that the Explanation to section 158B does not have: the last panchnama counts “irrespective of whether or not any seizure is recorded in such panchnama”. In a requisition it is the actual receipt of the books, documents or assets by the Authorised Officer.

Which document is “the last panchnama” was litigated under the old chapter, where limitation ran from the same event. In CIT v. S.K. Katyal (Delhi High Court, ITA 1198/2008, 12 November 2008) the search took place on 17 November 2000 and a second panchnama was drawn about a month and a half later, when a restraint was lifted. Nothing was seized on the second date. The Court accepted that a panchnama “may document the search proceedings, with or without any seizure”. It held that the panchnama the provision refers to “is a panchnama which documents the conclusion of a search” (paragraph 16) and “must be one which, in fact and not just in form, records the conclusion of search” (paragraph 27).

Its summary at paragraph 26 is the passage to cite: a search must normally be continuous; a hiatus must be explained; recording that a search is “temporarily suspended” does not by that fact continue it; and a panchnama drawn on a date does not prove that a search was conducted or concluded on that date.

The Supreme Court in VLS Finance Ltd. v. CIT (Civil Appeal No. 2667 of 2007, 28 April 2016) counted limitation from a later panchnama, but on the facts of that case, where the later visits had never been challenged, and said it was deciding the point without going into the legal niceties.

How the added words in section 301(d)(i) affect Katyal is open. The Revenue will read them as reversing that decision where a panchnama drawn on the lifting of a restraint records no seizure. The better reading is that Katyal stands. The provision still requires “the conclusion of search as recorded in” the panchnama; Katyal turned on the absence of any search on the second date, and had already accepted that a panchnama of search need not record a seizure.

Who draws the panchnama, and what it has to record, is covered in the article on the stages after a search.

A requisition case uses two dates. The block ends on the actual receipt of the books or assets. Abatement runs from the earlier “date of making of requisition” (section 292(2); section 158BA(2) says “making of requisition”). Limitation under the 2025 Act runs from the end of the quarter in which the requisition “was made” (section 296(1)). Section 158BE(1) of the 1961 Act says “executed or made, as the case may be”, which is naturally read in the same way, though the Explanation to section 158B treats the authorisation in a requisition case as executed on actual receipt and the Revenue may rely on that.

What counts as undisclosed income

The definition is inclusive. Section 301(e) of the 2025 Act, which is identical in substance to section 158B(b) of the 1961 Act:

“undisclosed income” includes any money, bullion, jewellery, virtual digital asset 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, virtual digital asset, 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, or any expense, exemption, deduction or allowance claimed under this Act which is found to be incorrect, in respect of the block period.

Income or property that has not been disclosed. This is the ordinary case: cash, jewellery, an investment or a receipt that appears in no return and no regular book.

Income or property that “would not have been disclosed”. This limb reaches the search year and any earlier year whose return was not yet due, where nothing had yet fallen to be disclosed. It asks what the assessee would have done. In CIT v. Harjeev Aggarwal (Delhi High Court, ITA 8/2004, 10 March 2016), on the same words in the old chapter, the Court applied the Supreme Court’s decision in A.R. Enterprises, quoted at paragraph 34, and treated it as a question of likelihood to be answered from the surrounding circumstances. There they included payment in cash without explanation, the absence of any record of the payment at the time of search, and the assessee’s own admission (paragraph 35). An assessee who relies on the protection for the search year has to show that the transaction was recorded in books or other documents maintained in the normal course before the search (paragraphs 30 and 31). A salaried person or investor who keeps no books will have to rely on other documents kept in the ordinary way, such as bank statements and contract notes.

A claim “found to be incorrect”. On the words of this limb a deduction claimed in a filed return and later found to be wrong is undisclosed income of the block, taxed at 60 per cent. The old chapter’s definition, as reproduced in Harjeev Aggarwal (paragraph 14), had a narrower limb: “any expense, deduction or allowance claimed under this Act which is found to be false”. The present limb adds “exemption” and replaces “false” with “incorrect”. How far the present limb goes is argued under Can a claim disclosed in a return be undisclosed income? among the open questions. A file should be prepared on the footing that the Assessing Officer will use it.

“Virtual digital asset” was not in the definition as substituted in 2024. Section 48 of the Finance Act, 2025 inserted the words into section 158B(b) with effect from 1 February 2025, while every other amendment that Act made to the chapter took effect from 1 September 2024. For a search initiated between those dates the definition did not name virtual digital assets when the search took place. This rarely helps the assessee. The definition is inclusive and already covered an “other valuable article or thing” and income based on entries in “other documents or transactions”. It is applied when income is determined, which will be after 1 February 2025. Section 158BD, as substituted with effect from 1 September 2024, names virtual digital assets among the things to be handed over. The point is worth taking only where the order rests on the named category and on nothing else.

Section 120 of the 2025 Act and section 79A of the 1961 Act, which bar set-off of losses against undisclosed income found in a search, requisition or survey, are separate provisions. Section 120(2) borrows the section 301 definition. Section 79A has a narrower definition, built on what was found in the search and was not recorded or disclosed before it.

What happens to pending assessments: abatement and revival

Section 292(2) of the 2025 Act and section 158BA(2) of the 1961 Act bring ordinary proceedings for block years to an end. The statutory word is “abate”, which means that the proceeding comes to an end without an order.

Section 292(2) abates proceedings “under the provisions of this Act”. Whether that reaches a proceeding pending under the 1961 Act is taken up under Which Act decides the income of years before 1 April 2026 in a 2025 Act block?.

Proceedings pending when the search begins. Any assessment, reassessment or recomputation pertaining to a year in the block and pending on the date of initiation of the search “shall abate and shall be deemed to have been abated” on that date (clause (a)). Section 292(2)(a) uses the word “proceedings”. Neither Act mentions rectification, which is therefore not abated.

Proceedings started after the search. Any such proceeding for which a notice is issued after the search is initiated and before the block order is made abates on the date of that notice (clause (b)). This clause was not in the chapter as substituted in 2024 (the 2024 text). The Finance Act, 2025 added it with effect from 1 September 2024, and it prevents an officer from running a parallel assessment of a block year at normal rates after the search.

The excepted year. Clause (b) has one exception, and the two Acts word it differently. Section 292(2)(b) excepts “the tax year in which last of the authorisations for a search is executed”, which is the year in which the search concludes. Section 158BA(2)(b) excepts “the assessment year in which the last of the authorisations for a search is executed”, where sub-section (6) of the same section speaks of “the assessment year relevant to the previous year in which” it is executed. In the 1961 Act example the last panchnama of 3 January 2026 falls in assessment year 2025-26, which is the assessment year for previous year 2024-25, the year before the search year. Whether the 1961 exception means that year or the search year is taken up under Which year is excepted from abatement under the 1961 Act?.

Transfer pricing. A pending reference to the Transfer Pricing Officer, who determines the arm’s length price in transfer pricing cases, or an order already passed by him, abates with the assessment. Under section 158BA(3) it abates on the date of initiation of the search. Under section 292(3) it abates “on the date referred to in sub-section (2)”, which includes the date of a notice issued after the search.

What does not abate. Completed assessments stand. Appeals pending against them continue. The income assessed in a completed assessment is excluded from the block; see What is excluded from the block below.

What becomes of the issues in an abated scrutiny. They cannot be assessed in a regular assessment of that year while the block assessment is pending. The block reaches only undisclosed income. An ordinary disallowance that the scrutiny would have made can enter the block only if it is a claim “found to be incorrect” within the third limb of the definition. This is one reason the Revenue will press that limb. After the block order is made, the block provisions do not stop a fresh notice for that year; whether one can then issue depends on the conditions and time limits of the scrutiny and reassessment provisions.

Revival. If the block proceedings or the block order are annulled in appeal or other legal proceedings, the abated assessment, reassessment, recomputation, reference or order “shall revive” from the date the annulment order is received by the Principal Commissioner or Commissioner. The revival ceases if the annulment is itself set aside (section 292(5); section 158BA(5)). The revived assessment then has a time limit. Under the 2025 Act it is one year from the end of the month of revival (section 286, Table, Sl. No. 6). Under the 1961 Act it is that one year or the period otherwise available under section 153 or section 158BE, whichever is later (section 153(8)). Anyone who gets a block order quashed on jurisdiction should expect the old scrutiny to come back. If the block order simply finds no undisclosed income, the abated scrutiny stays abated.

A second search. Where a block assessment from an earlier search is still to be made when a later search takes place, the earlier one is completed first. If less than three months then remain for the later one, its period is extended to three months from the end of the month in which the earlier assessment was completed (section 292(4); section 158BA(4)).

The search year. The income of the year in which the last authorisation is executed, other than undisclosed income, is “assessed separately” under the ordinary provisions (section 292(6); section 158BA(6)). Its regular income is assessed at ordinary rates, and only its undisclosed income goes into the block. The year before it has no such provision. Its regular income is excluded from the block if it was returned before the search (section 293(2)(b); section 158BB(1A)(b)) or, where the return was not yet due when the search began, if it is computed from books kept in the normal course before the search (section 293(2)(c); section 158BB(1A)(c)). Under the 2025 Act a scrutiny of that year started after the search and before the block order abates under section 292(2)(b). Under the literal words of the 1961 Act that year is the excepted year, and such a scrutiny continues.

What Saroj Kumar Sahoo decides

The petitioner’s scrutiny assessment for assessment year 2022-23 had been set aside by the High Court on 9 May 2024 for want of a personal hearing and was pending again when a search was conducted from 26 to 28 November 2024. The faceless assessment unit went on to pass an order under section 143(3) on 17 March 2025 raising a demand of over forty-five crore rupees. He argued that the proceeding had abated on 26 November 2024 and that the order was without jurisdiction.

The Division Bench accepted the first half of that argument. A proceeding restored by an order quashing an assessment for breach of natural justice is pending (paragraphs 5.5 and 5.6). Assessment year 2022-23 fell within the block. At paragraph 7.8 the Court held that section 158BA “leaves no scope for ambiguity” that pending proceedings for a year in the block abate, and at paragraph 7.10 it found force in the submission that the pending assessment “would stand abated by operation of law”.

It then refused relief. Paragraph 7.11 adds that the “other conditionalities” of the chapter must be satisfied. The warrant and the panchnama named six companies and not the petitioner as an individual (paragraphs 8.16 and 8.24). The scrutiny assessment was of income disclosed in his return, and nothing showed that it contained undisclosed income found in the search (paragraph 8.28). Reading the chapter as a whole, the Court said at paragraph 8.15 that to decide whether an assessment abates “it is required that a computation is required to be made”, and that the abatement “is, thus, confined to undisclosed income in view of amendment carried in the Finance Act, 2025”. At paragraph 8.7 it distinguished PCIT v. Abhisar Buildwell on the ground that section 153A dealt with total income while section 158BA is confined to total undisclosed income.

The Court declined to exercise writ jurisdiction on what it regarded as disputed questions of fact, said the points were to be agitated before “the competent authority vested with power under the statute”, and noted that the petitioner had not taken the plea of abatement before the Assessing Officer (paragraphs 8.29 to 8.31). The petition was dismissed (paragraphs 9.2, 9.3 and 10).

The Department gave its counsel no instructions, and the pleaded facts went uncontroverted (paragraphs 4 and 7). Section 158BA(2), as the Court reproduced it at paragraph 6, is the single sentence of the 2024 text, without clause (b). The submission that an abated assessment revives if no incriminating material is found is recorded at paragraphs 4.2 and 8.1 as counsel’s argument; the Court did not adopt it, and the statute provides for revival only on annulment. The finding that the petitioner was not shown to be a person searched was enough to dispose of the case.

How total undisclosed income is computed: section 293 and section 158BB

Section 293 of the 2025 Act and section 158BB of the 1961 Act give the aggregate, the exclusions and the material that may be used.

Total undisclosed income of the block is the undisclosed income declared in the block return plus the undisclosed income determined by the Assessing Officer (section 293(1); section 158BB(1)). No year-by-year total income enters the calculation. That is the result of section 50 of the Finance Act, 2025. As substituted in 2024 the chapter assessed “total income” of the block, built up from returned and assessed income of each year, and charged tax on that total less the disclosed components. The Finance Act, 2025 rewrote section 158BB and recast the references to total income elsewhere in the chapter, all with effect from 1 September 2024. A 2024 print of the chapter is not the law for any search.

Section 158BB(2) requires undisclosed income to be “computed in accordance with the provisions of this Act”. Section 293(4) does not repeat those words, and the ordinary computation provisions come in under the 2025 Act through section 300, which applies all other provisions of the Act save as otherwise provided. Under both Acts what is assessed is income computed under the heads, with the deductions the Act allows, and not a gross receipt, except where a deeming provision makes the sum itself the income.

What is excluded from the block

Section 293(2) and section 158BB(1A) list four classes of income that “shall not be included” in total undisclosed income.

Clause	What is excluded	Sections named
(a)	Income already determined on processing or assessed in an earlier order, before the search was initiated	2025 Act: 270(1), 270(10), 271, 279, 294(1)(c). 1961 Act: 143, 144, 147, 153A, 153C, 158BC, 245D(4)
(b)	Income declared in a return filed before the search was initiated, and not within clause (a)	2025 Act: 263, or a return in response to a notice under 268(1). 1961 Act: 139, or a return in response to a notice under 142(1)
(c)	Income computed by the assessee from regular books for years and periods whose return was not yet due	None named
(d)	Income of certain non-residents and senior citizens who are relieved from filing a return	2025 Act: 207(8), 216, 393(1) Table Sl. No. 8(iii). 1961 Act: 115A(5), 115G, 194P(1)

Section 293(2)(a) and (b) name the 1961 Act provisions beside those of the 2025 Act, since the completed years of a 2025 Act block will for some time be years assessed and returned under the 1961 Act. Section 158BB(1A)(a) expressly includes income “determined under sub-section (1) of section 143”, so an intimation, the result of the automated processing of a return, counts. Under the old chapter Harjeev Aggarwal observed that an intimation under section 143(1) could not be construed as an assessment (paragraph 32).

Clause (c) deals with the search year and the year before it, in three parts:

• a year that has ended, where the return was not yet due when the search began: income computed from entries “as recorded in the books of account and other documents maintained in the normal course before the date of initiation of search”;
• the period from 1 April of the search year to the day before the search: income computed from books maintained for that period on or before that day;
• the period from the start of the search to the execution of the last authorisation: income computed from books maintained on or before that last date.

The clause is not final: where the Assessing Officer is of the opinion that any part of the income so computed is undisclosed, “he may recompute such income” (section 293(3); proviso to section 158BB(1A)(c)).

Clause (a) protects income “determined” or “assessed”. It does not expressly protect a deduction or exemption that was allowed in arriving at that income, which is where the third limb of the definition operates.

A year for which the return was due and was not filed before the search, and which was not assessed before the search, has no exclusion at all. Clause (a) needs an assessment made before the search, clause (b) a return filed before it, and clause (c) applies only where the due date had not expired. The whole income of such a year is exposed in the block, however fully it was recorded in the books. The old chapter, as reproduced in Lingamurthy, took the income of such a year “as nil” in its computation. The Supreme Court’s statement in A.R. Enterprises, quoted in Harjeev Aggarwal at paragraph 34, that “the only way of disclosing income, on the part of an assessee, is through filing of a return” stands against an argument that recording in the books is disclosure.

Three situations that the exclusions do not cover are discussed under Gaps in the exclusions.

The material on which undisclosed income is determined

Section 293(4) of the 2025 Act:

The undisclosed income falling within the block period, shall be computed on the basis of following:—

(a) evidence found as a result of search or survey or requisition; (b) any other material or information as are either available with the Assessing Officer or comes to his notice during the course of proceedings under Part B.

Part B is the 2025 Act’s name for the block provisions. Section 158BB(2) of the 1961 Act puts the two sources in one sentence joined by “and”. Undisclosed income is computed on the basis of “evidence found as a result of search or survey or requisition of books of account or other documents and any other material or information as are either available with the Assessing Officer or come to his notice during the course of proceedings under this Chapter”.

The old chapter read differently. Its computation provision, as quoted in Harjeev Aggarwal at paragraph 15, required undisclosed income to be computed on evidence found as a result of search or requisition “and such other materials or information as are available with the Assessing Officer and relatable to such evidence”. The current texts name survey evidence, admit other material that is merely “available with the Assessing Officer” or comes to his notice during the proceedings, and do not have the words “relatable to such evidence”.

CIT v. Ravi Kant Jain (Delhi High Court, 15 March 2001) held that block assessment “is not intended to be a substitute for regular assessment” and that its scope “is limited in that sense to materials unearthed during search” (paragraph 8). The Court reached that from the scheme, and stated the computation basis without any “relatable” qualifier: evidence found as a result of search “and such other materials or information as are available with the Assessing Officer”. It relied on the declaration then in section 158BA that a block assessment was “in addition to the regular assessment” of each year. The assessee succeeded because it was admitted that the addition, a re-characterisation of income already returned under another head, was not based on any search material (paragraph 9).

ACIT v. Hotel Blue Moon (Supreme Court, Civil Appeal No. 1198 of 2010, 2 February 2010) repeated that description at paragraph 12, adding that “Search is the sine qua non for the Block assessment”. The only question before the Court was the notice under section 143(2); paragraph 12 is its account of the scheme.

Harjeev Aggarwal is the decision that turns on the words now dropped. The Court held that statements recorded during a search are not “evidence found as a result of search”. They are “information”, usable if “relatable to the evidence or material found during search”, and “on a standalone basis without reference to any other material discovered during search” they do not empower a block assessment (paragraph 20). The first step rests on words that are still in both Acts; the second depends on the words “relatable to such evidence”, which have been dropped. The Revenue also won that case: the Court found a diary of unrecorded sales and purchases, and books that did not record cash payments the assessee admitted making (paragraph 28), and answered the questions against him (paragraphs 38 and 39).

Sun Aero Ltd. v. PCIT (Delhi High Court, ITA 527/2017, 8 July 2026) quashed a block order of 2002 made under the old chapter. One of its two grounds was that the material relied on had been collected during the assessment and “cannot be said to be a material found during search”; the Court followed Hotel Blue Moon and noted that the assessment had already been made under section 143(3) (paragraphs 31 to 33).

A block assessment needs a search and is an assessment of undisclosed income “as a result of search”. That comes from the structure of the chapter: section 292(1) and section 158BA(1) are triggered by a search, both sections have that heading, and Saroj Kumar Sahoo reads the current chapter in that way at paragraphs 8.28 and 9.1. How far the further limit stated in Ravi Kant Jain and Hotel Blue Moon, that only search material may be used, survives is discussed under Can a block addition rest on material not found in the search?.

The evidentiary questions that arise on seized loose papers and third-party statements are the same as under the earlier regimes and are worked through in the article on seized cash books and extrapolation and the article on cross-examination.

Deeming provisions, method of accounting, transfer pricing, firms and losses

Unexplained credits, investments and expenditure. The deeming provisions apply “so far as may be”, with the year in those sections read as the relevant year of the block: sections 102 to 105 of the 2025 Act by section 293(6)(b), and sections 68, 69, 69A, 69B and 69C of the 1961 Act by section 158BB(4)(b). An unexplained credit found in a block year is therefore undisclosed income of the block. Each list stops one section short of the range taxed outside the block: the 1961 Act list does not include section 69D and the 2025 Act list does not include section 106.

Method of accounting. Sections 276, 277 and 278 of the 2025 Act, and section 145, section 145A and section 145B of the 1961 Act, apply to the block inquiry through section 294 and section 158BC. Rejection of books and an estimate are therefore available in a block assessment, on the conditions those sections lay down.

Transfer pricing. Income relating to an international or specified domestic transaction that pertains to the period from 1 April of the year in which the last authorisation was executed to the date of that execution is not considered in the block and is taken in the ordinary assessment (section 293(5); section 158BB(3)). For the six completed years the reference to the Transfer Pricing Officer applies within the block (section 293(6)(c); section 158BB(4)(c)), and a reference extends the time limit by twelve months.

Firms. Undisclosed income of a firm for each year is determined before allowing salary, interest, commission, bonus or remuneration to a partner who is not a working partner (section 293(6)(a); section 158BB(4)(a)).

Losses from before the block. Brought forward losses and unabsorbed depreciation from years before the first year of the block “shall not be set off against the undisclosed income determined in the block assessment”. They are not lost: they may be carried forward for set-off in the year after the block ends, for the remaining period, counting the block years (section 293(8) and (9); section 158BB(7)).

Losses of the block years themselves. Under the old chapter the Supreme Court held in E.K. Lingamurthy v. Settlement Commissioner (IT & WT) (Civil Appeal Nos. 382-383 of 2009, 22 January 2009) that set-off of a loss of one block year against income of another block year “is not prohibited”, and remitted the matter for fresh computation. That was said of a computation that aggregated the total income or loss of each year. The present computation aggregates only undisclosed income, and sections 120 and 79A bar set-off of any loss, “whether brought forward or otherwise”, against undisclosed income included in the total income of a year. See Can a loss of a block year be set off against undisclosed income?.

The section 294 or section 158BC notice, the block return and the order

The procedure is in section 294 of the 2025 Act and section 158BC of the 1961 Act.

Approval before the notice. The Assessing Officer, “before issuance of notice”, shall take prior approval of the Additional Commissioner, Additional Director, Joint Commissioner or Joint Director (section 294(3); section 158BC(3)).

The notice. It requires the person to furnish, within the period specified in it, a return in the prescribed form setting forth his undisclosed income for the block period. The period may not exceed sixty days (section 294(1)(a); section 158BC(1)(a)). The Assessing Officer “shall” issue it in respect of every search or requisition, whether or not anything was found. A survey of business premises, made without a search authorisation, does not by itself start a block assessment; it figures only as a source of evidence. No minimum period is prescribed; the old chapter required at least fifteen days. No time limit is prescribed for issuing the notice, though the time limit for the order makes delay costly for the Department. Under the old chapter the Supreme Court described the notice as “the very foundation for jurisdiction” (Hotel Blue Moon, paragraph 13).

The form. For the 1961 Act the return is in Form ITR-B under rule 12AE of the Income-tax Rules, 1962. A company, a political party and a person whose accounts are required to be audited under section 44AB must furnish it electronically under digital signature; others may also use an electronic verification code. Under the 2025 Act the return is in the form prescribed under that Act.

The return is treated as a return under section 263 or section 139. Section 294(1)(a)(i) provides that the block return “shall be considered as if it was a return furnished under section 263 and thereafter notice under section 270(8) shall be issued”. The first proviso to section 158BC(1)(a) says the same of section 139 and section 143(2). A return furnished beyond the period allowed in the notice “shall not be deemed to be a return” under section 263 or section 139. No notice under section 280 or section 148 is required.

No revised return. A person who has furnished the block return “shall not be entitled to furnish a revised return”. The return is the assessee’s only statement of his own figure, and the bar on penalty for income declared in the return, described in the section on penalty, is measured against it. It should not be filed without the working papers behind it.

One extension. The time may be extended “by a further period of thirty days” where all four of these are met (section 294(1)(a)(v); fifth proviso to section 158BC(1)(a)):

1. for the year immediately preceding the year in which the search is initiated, the due date for the return had not expired before the search was initiated;
2. the assessee was liable to audit for that year (section 63 of the 2025 Act; section 44AB of the 1961 Act);
3. the accounts of that year had not been audited when the notice was issued; and
4. the assessee asks in writing for the extension to get them audited.

All four relate to the year before the year of search; the search year is not covered. The sections do not say who grants the extension; the request should go to the Assessing Officer who issued the notice.

If no return is filed, or it is filed late. The Assessing Officer may make a best judgment assessment, that is, an assessment on the material available to him, under section 271 of the 2025 Act or section 144 of the 1961 Act. Interest runs at one and a half per cent a month on the tax on the whole undisclosed income determined, to the date of the order. And the first condition of the penalty bar is not met, or is in doubt.

The inquiry and the order. The Assessing Officer determines total undisclosed income in the manner laid down in section 293 or section 158BB. These provisions “shall, so far as may be, apply”:

• under the 2025 Act: sections 268, 270(8), 270(10), 271, 276, 277 and 278;
• under the 1961 Act: section 142, sub-sections (2) and (3) of section 143, section 144, section 145, section 145A and section 145B.

He then passes an order of assessment or reassessment and determines the tax payable.

No draft order and no intimation. The Dispute Resolution Panel procedure, in which a draft order is issued first, does not apply to the block order (section 294(1)(c), excluding section 275; proviso to section 158BC(1)(c), excluding section 144C). Processing with an intimation does not apply to a block return (section 294(2), excluding section 270(1); section 158BC(2), excluding section 143(1)).

Joint authorisations. An authorisation naming more than one person is not to be read as issued to an association of persons, and “the assessment or reassessment shall be made separately in the name of each of the persons mentioned” (section 525 of the 2025 Act; section 292CC of the 1961 Act).

Seized cash and other assets

Seized assets are dealt with under section 250 of the 2025 Act and section 132B of the 1961 Act, to which section 294(1)(d) and section 158BC(1)(d) refer.

The assets may be applied against existing liabilities under the income-tax law and the other enactments the sections name, the Black Money Act among them, and against the liability determined on completion of the block assessment, including penalty and interest, in respect of which the person is in default. Advance tax is not an existing liability for this purpose. Money seized may be applied in discharge of those liabilities, and the assessee is discharged to that extent. Assets other than money may be sold to meet a liability that remains, and whatever is left after the liabilities are discharged is to be returned forthwith to the person from whose custody it was seized.

Release before the assessment is possible on an application made within thirty days from the end of the month in which the asset was seized. The nature and source of acquisition must be explained to the satisfaction of the Assessing Officer, existing liabilities are recovered first, and the release needs the prior approval of the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner. Assets so found explained are to be released within one hundred and twenty days from the execution of the last authorisation. The thirty day window is short and should be diarised from the date of seizure.

On money retained in excess of what is needed to meet the liabilities, the Central Government pays simple interest at one half per cent a month from the expiry of those one hundred and twenty days to the completion of the assessment.

Rule 12AE(4) makes a claim of credit for tax payments against undisclosed income, other than self-assessment tax for the block, subject to verification by the Assessing Officer. Koshaliya Devi Rastogi v. ACIT (Delhi High Court, W.P.(C) 7448/2025 and connected matters, 6 January 2026) arose from a search of December 2024 in which the section 158BC proceedings were still pending. The Court ordered seized jewellery, bullion and cash to be released on two of the petitioners depositing one crore twenty-five lakh rupees each towards tax. The order was made on the parties’ agreed proposal and records no finding on the merits (paragraph 11).

The notice under section 143(2) or section 270(8) after the block return

After Hotel Blue Moon the Revenue’s answer in search cases was that the decision turned on an incorporation clause. The old chapter applied section 143(2) to a block assessment “so far as may be”, the Supreme Court held that the notice was mandatory all the same, and when section 153A replaced the block scheme without any such clause the Revenue argued, with success in several High Courts, that the requirement had not travelled. That history is in the article on the section 143(2) notice.

The current texts answer that argument for block assessments, because the requirement no longer depends on an incorporation clause alone. The first proviso to section 158BC(1)(a) of the 1961 Act:

Provided that such return shall be considered as if it was a return furnished under the provisions of section 139 and notice under sub-section (2) of section 143 shall thereafter be issued:

Section 294(1)(a)(i) of the 2025 Act:

such return shall be considered as if it was a return furnished under section 263 and thereafter notice under section 270(8) shall be issued;

Neither sentence is qualified by “so far as may be”. Those words appear in the next clause, which separately applies the scrutiny provisions to the inquiry, as the old chapter did. The direction is therefore given twice: once as a free-standing sentence following the deeming of the return, and once by incorporation.

Hotel Blue Moon was decided on the incorporation clause alone. The appeals were the Revenue’s and were dismissed. The Court held at paragraph 15 that if the Assessing Officer “repudiates the return” he “must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2)”, and that omission to issue it “cannot be a procedural irregularity and the same is not curable”. At paragraph 16 it rejected the Revenue’s reading of “so far as may be”: where the Assessing Officer proceeds to make an inquiry in repudiation of the return, “he has necessarily to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143”. (The Court spoke of one year from the filing of the block return; the proviso is now worded differently, as set out below.)

Sun Aero reached the same result in July 2026 for a block order of 2002, relying on the Delhi High Court’s earlier decision in Silver Line, a reassessment case, and quashed the order both for want of the notice and for want of search material (paragraphs 31 to 39).

The time limit for the notice. Under the 1961 Act the limit is inside section 143(2), which section 158BC names, and Hotel Blue Moon holds that the proviso applies with it. The notice may not be served after three months from the end of the financial year in which the return is furnished. If the block return is filed in January 2026, a section 143(2) notice served in July 2026 is out of time. Under the 2025 Act the limit is in a separate sub-section, section 270(9), and section 294 applies only sub-sections (8) and (10). The arguments on whether the limit applies to a 2025 Act block are under Does the three month limit for the notice apply under the 2025 Act?.

A late block return. A late return is not deemed a return under section 263 of the 2025 Act or section 139 of the 1961 Act. The free-standing direction follows from that deeming, so the Revenue will say it has nothing to attach to on a late return. The incorporation clause is not conditioned on a timely return. What a late filer keeps is discussed under Is the notice required where the block return is filed late?.

Section 292BB and section 523. Section 292BB of the 1961 Act and section 523 of the 2025 Act deem a notice to have been validly served where the assessee has cooperated without objecting. They concern service. In PCIT v. Orissa Mining Corporation Ltd. (2026 INSC 1171, 28 October 2026) the Supreme Court held that the deeming can come into play only where a notice is said to have been sent, and has no application where, on the Revenue’s own case, none was issued. The first proviso and section 294(1)(a)(i) both require the notice to be “issued”, so the deeming does not help where none was issued.

What the Revenue retains is the observation in paragraph 15 of Hotel Blue Moon about a block return that is accepted as filed; see Must the notice issue where the block return is accepted?.

Third parties: section 295 and section 158BD

A search regularly produces material about people who were not searched. Section 295 of the 2025 Act and section 158BD of the 1961 Act bring them in. The person searched is called the specified person; the third party is the other person.

The trigger is that the Assessing Officer of the person searched “is satisfied that any undisclosed income belongs to or pertains to or relates to” another person. The money, bullion, jewellery, virtual digital asset, books, documents “or any other material or information relating to the aforesaid undisclosed income” are then handed over to the Assessing Officer having jurisdiction over that other person, who proceeds against him under section 294 or section 158BC. Both approvals apply to that proceeding as they do to the searched person’s.

Satisfaction is still required. The section still opens with the Assessing Officer’s satisfaction, as the old section did, though the old section spoke only of income that “belongs to” the other person. In Manish Maheshwari v. ACIT (Supreme Court, Civil Appeal No. 924 of 2007, 23 February 2007) the Court set out the conditions precedent:

• satisfaction must be recorded that undisclosed income belongs to a person other than the person searched;
• the seized books, documents or assets must be handed over to the Assessing Officer having jurisdiction over that person; and
• that officer must proceed under section 158BC.

None had been met. The Court found “a patent non-application of mind”, described the chapter’s provisions as “drastic in nature”, and set aside the High Court judgments that had upheld the block assessments.

When the note must be recorded. In CIT v. Calcutta Knitwears (Supreme Court, Civil Appeal No. 3958 of 2014, 12 March 2014) the Court held at paragraph 44 that a satisfaction note “is sine qua non and must be prepared by the assessing officer before he transmits the records”, at one of three stages:

• at the time of or along with the initiation of proceedings against the searched person;
• along with those assessment proceedings; or
• “immediately after the assessment proceedings are completed” in his case.

The Delhi High Court applied the third stage in CIT v. Bharat Bhushan Jain (ITA 648/2009 and connected appeals, 8 January 2015). Satisfaction notes recorded after a delay the Court put at ten months to a year and a half from the searched person’s assessment were not contemporaneous, and the Revenue’s appeals were dismissed (paragraphs 4 and 6).

The same decision helps the Revenue. Calcutta Knitwears:

• described section 158BD as a machinery provision to be construed so that the charge does not fail (paragraphs 37 and 38);
• found no embargo on the stage at which satisfaction is reached (paragraph 41);
• held that the limitation provision does not restrict the time for preparing the note (paragraph 42);
• held, of a note dated 15 July 2005 against an assessment of the searched person completed on 30 March 2005, that the High Court was wrong to reject it merely because it followed that assessment (paragraph 43); and
• sent the matters back to the High Courts for fresh decision (paragraph 46).

It also said, for the assessee, that “the existence of cogent and demonstrative material is germane” to the satisfaction (paragraph 41).

The standard is wider than under the old chapter. The old section spoke of undisclosed income that “belongs to” the other person. Section 158BD, in its 2024 form and as substituted by the Finance Act, 2025, and section 295 say “belongs to or pertains to or relates to”, the wider formula that section 153C uses for books and documents. An argument that seized material does not belong to the other person is answered by the text. What remains is that the satisfaction must be about undisclosed income of the other person; a document that merely mentions him is not enough. How that satisfaction was tested under section 153C is set out in the section 153C article, and cases on entry providers and accommodation transactions, such as those in the penny stock article, will be argued on the same lines.

His block. It is the same as that of the specified person, and where more than one specified person is relevant to him, it is the block of the one whose block ends later (section 295(2)(a) and (b); first proviso to section 158BD).

A shorter block, under the 2025 Act only. The Finance Act, 2026 inserted clauses (c) and (d) into section 295(2). Where his undisclosed income pertains only to the period from the tax year immediately preceding the year of search (the “specified year”) to the date of initiation of the search, his block comprises only the specified year and the part of the search year up to the last authorisation. Where it pertains to a single tax year out of the five tax years before the specified year, his block “shall comprise of only that single tax year”. Income spread over two earlier years, or over the specified year and one earlier year, falls within neither clause and attracts the full block. The clauses do not say what happens if the officer, having adopted a short block, later finds income of another year. The 1961 Act has no counterpart: a third party drawn into a search initiated before 1 April 2026 has the full block of the person searched, even where the material concerns one transaction in one year.

His abatement date. For the purposes of abatement the reference to the date of initiation of the search is read as the date on which the seized material or information was received by his own Assessing Officer (section 295(3); second proviso to section 158BD). Assessments pending on that date abate. Assessments completed before it stand. The substituted date is given only for abatement, so income assessed or returned between the search and the receipt of the material is not within the exclusions on their words; see Gaps in the exclusions. Saroj Kumar Sahoo noticed the proviso at paragraphs 8.11 and 8.12 and said that a petitioner relying on section 158BA(2) alone, without pleading that he was a person other than the one searched, had misread the chapter.

His time limit. Twelve months from the end of the quarter in which the notice under section 294 or section 158BC was issued to him (section 296(5); section 158BE(3)). Under the 1961 Act it is thirteen months where his return period was extended. In both Acts a reference to the Transfer Pricing Officer adds twelve months (section 296(6); first proviso to section 158BE(3)). The Finance Act, 2026 did not touch section 296(5): the third party’s limit under the 2025 Act is still twelve months from his notice, not eighteen. The exclusion for handing over seized material applies only to the limit for the person searched. Since no time limit applies to recording satisfaction or issuing the notice, the three stages in Calcutta Knitwears are the only outer limit on a third party’s exposure.

Time limit for the block order: section 296 and section 158BE

The 2025 Act. Section 296(1), as substituted by the Finance Act, 2026 with effect from 1 April 2026:

Irrespective of the provisions of section 286, the order under section 294 shall be passed within eighteen months from the end of the quarter in which the search was initiated or requisition was made.

As enacted, section 296(1) had followed the 1961 Act, with twelve months running from the end of the quarter in which the last authorisation was executed and a separate limb where the return period was extended. The substitution changes the length, changes the starting event, and leaves no separate limb for an extended return.

The 1961 Act. Section 158BE(1) requires the order to be passed “within twelve months from the end of the quarter in which the last of the authorisations for search under section 132, or requisition under section 132A, was executed or made”. The word was “month” in the 2024 text; the Finance Act, 2025 made it “quarter” with effect from 1 September 2024. Where the thirty day extension for the return has been granted, twelve months is read as thirteen. The Finance Act, 2026 did not amend section 158BE.

	Search under the 2025 Act	Search under the 1961 Act
Search initiated	12 November 2026	20 December 2025
Last panchnama	15 November 2026	3 January 2026
Limitation runs from	The end of the quarter of initiation: 31 December 2026	The end of the quarter in which the last authorisation was executed: 31 March 2026
Period	Eighteen months	Twelve months
Order due, before any exclusion	30 June 2028	31 March 2027

Under the 1961 Act a panchnama drawn a few days into a new quarter moves the limitation date by three months, so the Katyal question, whether the last panchnama truly records the conclusion of a search, remains a limitation question for every search up to 31 March 2026. Under the 2025 Act the last panchnama no longer affects limitation.

Both Acts then provide extensions and exclusions.

• Transfer pricing. A reference to the Transfer Pricing Officer extends the period by twelve months (section 296(2); first proviso to section 158BE(1)).
• Handing over. The period from the initiation of the search to the handing over of the seized books and assets to the Assessing Officer having jurisdiction is excluded, up to one hundred and eighty days (section 296(3); section 158BE(2)). If the period then ends in the middle of a month it runs to the end of that month (section 296(4); proviso to section 158BE(2)). The handing over date is a fact in the Department’s record and should be called for.
• Court stay. The period from the grant of a stay on the assessment proceedings to the receipt, by the jurisdictional Principal Commissioner or Commissioner, of the certified copy of the order vacating it is excluded.
• Special audit or inventory valuation. The period from the Assessing Officer’s direction to have the accounts audited or the inventory valued to the last date for furnishing the report is excluded. Where the direction is challenged in court, the exclusion runs to the receipt of the order setting it aside (under the 2025 Act, of its certified copy).
• Other periods. These are also excluded: a reference for exchange of information under a tax treaty, up to one year; reopening or rehearing demanded by the assessee on a change of incumbent; and a reference to the Valuation Officer. So are the proceedings for withdrawal of approval of certain institutions, a reference on an impermissible avoidance arrangement, and an application for an advance ruling (section 296(7); section 158BE(4)).
• The sixty day floor. Under the 2025 Act, if less than sixty days remain after an exclusion under sub-section (3) or (7), the period is extended to sixty days (section 296(8)), and then to the end of the month (section 296(9)). Under the 1961 Act the sixty day floor is in the first proviso to section 158BE(4) and is tied to “the aforesaid period”, that is, the exclusions in sub-section (4); the handing over exclusion in sub-section (2) carries only the end of month rule.

The old chapter excluded “the period during which the assessment proceeding is stayed by an order or injunction of any court”. In VLS Finance the Supreme Court read that to cover a stay of a special audit direction, because the special audit “was an integral step towards assessment proceedings”, although the assessment itself had not been stayed. The current clause still speaks of a stay on the assessment proceedings, so that reading remains available to the Revenue. The exclusion now runs to the receipt of the certified copy of the vacating order, a later date than the order. A court challenge to a special audit direction now has a separate exclusion.

The same kinds of exclusion appear in the general time limit provisions, and how they are counted is worked through for the Valuation Officer in the section 142A article.

The 60 per cent rate, surcharge, cess and interest: section 192 and section 113

The rate. Total undisclosed income of the block is chargeable at 60 per cent (section 192(1) of the 2025 Act; section 113 of the 1961 Act). It is charged as income of the block period, whatever the year to which it relates (section 292(7); section 158BA(7)). Slabs, the basic exemption and the rates for companies and firms play no part.

The surcharge. Section 192(2) says the tax “shall be increased by a surcharge, if any, levied by any Central Act”. The proviso to section 113 is in the same words. Neither fixes a surcharge.

The words come from a proviso added to section 113 with effect from 1 June 2002. As the Supreme Court reproduced it in CIT v. Vatika Township Pvt. Ltd. (Constitution Bench, Civil Appeal No. 8750 of 2014, 15 September 2014), it ended “and applicable in the assessment year relevant to the previous year in which the search is initiated under section 132 or the requisition is made under section 132A”. Section 32 of the Finance (No. 2) Act, 2024 removed those closing words with effect from 1 September 2024. (The same section removed the word “undisclosed” from section 113; the Finance Act, 2025 restored it from the same date.) The section therefore no longer says which year’s Finance Act is to be looked at.

Vatika Township decided that the 2002 proviso was prospective, and overruled CIT v. Suresh N. Gupta (Supreme Court, Civil Appeal No. 32 of 2008, 7 January 2008), which had treated it as clarificatory (paragraph 40). Paragraph 39 is the relevant part today. Before the proviso there were four candidate dates for choosing the Finance Act, and the Court said: “In the absence of a specified date, it was not possible to levy surcharge and there could not have been an assessment without a particular rate of surcharge.” The Court also noted the Finance Act, 2003, which provided that “the amount of income-tax computed in accordance with the provisions of section 113 shall be increased by a surcharge”, and said that this “further makes it clear that such a provision was necessary to provide for surcharge in the cases of block assessments”.

At paragraphs 27 and 28 the Court described the old chapter as “a complete code in itself”. It said that undisclosed income of a block is “not relateable to the previous year” and that its character “becomes quite distinct from” total income. It treated the chapter’s own charging provision, with the fixed rate in section 113, as the source of the charge. It added at paragraph 29 that its conclusion on the proviso stood apart from that discussion.

The current Finance Acts levy surcharge on tax under named sections, and neither section 113 nor section 192 is among them.

Finance Act	Provision	Sections on which surcharge is levied
Finance (No. 2) Act, 2024 and Finance Act, 2025	Provisos to section 2(3)	111A, 112 and 112A; and a list beginning with 115A, which in the 2025 Act runs to 115JC
Finance Act, 2026, for the 1961 Act	Section 2(4)	111A, 112 and 112A; and 115A to 115JC
Finance Act, 2026, for the 2025 Act	Section 3(4)	196, 197 and 198; and 193, 194, 199, 206 to 211, 214, 218 and 334

Section 2(3) of the 2024 and 2025 Finance Acts provides that in cases to which Chapter XII of the 1961 Act applies, which is where section 113 sits, tax is determined as that Chapter provides; section 113 is not named anywhere in section 2. Section 192 sits in Part A of Chapter XIII of the 2025 Act and is within section 3(3) of the Finance Act, 2026, but it is in neither list in section 3(4). See Is surcharge payable on block tax?.

The cess. The Health and Education Cess is four per cent of “the amount of income-tax as specified in” the charging sub-sections, as increased by any applicable surcharge. Those sub-sections include the one for Chapter XII and Chapter XIII cases (section 2(11) of the Finance (No. 2) Act, 2024 and of the Finance Act, 2025; sections 2(6) and 3(15) of the Finance Act, 2026). On undisclosed income of one crore rupees the tax is sixty lakh rupees and the cess two lakh forty thousand rupees, a total of sixty-two lakh forty thousand rupees before any surcharge.

Interest that does not apply. Interest for default in furnishing the return, for default in payment of advance tax and for deferment of advance tax is not levied on undisclosed income assessed for the block (section 297, naming sections 423, 424 and 425; section 158BF, naming sections 234A, 234B and 234C).

Interest for a late or missing block return. A late or missing block return carries simple interest at one and a half per cent for every month or part of a month on the tax on the undisclosed income determined in the order. It runs from the day after the time in the notice expired to the date the assessment is completed (section 298(1); section 158BFA(1)). A return filed forty days late in a case assessed eleven months after the notice period expired carries interest for eleven months. On tax of sixty lakh rupees that is nine lakh ninety thousand rupees.

Interest on a demand not paid within the time allowed by the notice of demand continues to apply; section 297 and section 158BF do not exclude it.

Penalty: section 298 and section 158BFA(2)

What does not apply. The penalty for under-reporting and misreporting of income is not imposed on undisclosed income assessed for the block (section 297, naming section 439; section 158BF, naming section 270A). Section 271AAB, which graded the penalty in search cases by what was admitted and paid, applies under sub-section (1A) only where the search was initiated “but before the 1st day of September, 2024”, words inserted by the Finance Act, 2025. It does not apply to a block assessment.

The block penalty. Section 298(2) of the 2025 Act:

The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Part, may direct that the person shall pay by way of penalty a sum which shall be equal to 50% of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under section 294(1)(c).

Section 158BFA(2) of the 1961 Act is the same in substance. The old chapter’s penalty ranged from the amount of tax to three times that amount. The present penalty may be imposed by the Assessing Officer or by the Commissioner (Appeals), and it is initiated in the course of the block proceedings.

The base is the whole of the undisclosed income determined. Section 298(2) and section 158BFA(2) do not distinguish between income returned and income added. The returned income is protected only by the bar described below.

It is discretionary. The words are “may direct”. On the same words in the old chapter the Bombay High Court held in CIT v. Anju R. Innani (ITA 2347 of 2009, 5 April 2010, paragraph 9) that “the imposition of a penalty is not mandatory merely because it is lawful”. The Gujarat High Court held in CIT v. Becharbhai P. Parmar (Tax Appeal 2538 of 2009, 10 January 2012) that “may” cannot be read as “shall” (paragraph 8.3) and that the penalty is not mandatory (paragraph 9). It so held even though section 273B, the reasonable cause provision, does not mention the block penalty (paragraph 9.1). The test it took from Hindustan Steel (paragraph 8.4) is the one a penalty reply is built on: a penalty “will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation”. With a fixed 50 per cent in place of a range, the discretion is now whether to impose the penalty at all.

Becharbhai also holds that the case law on the concealment penalty does not apply. The Court held at paragraph 12 that “the concept of proving concealment of income can nowhere be traced” in the provision. It accepted that an addition made on estimate may be one ground on which the discretion is exercised, but held that it cannot be the only ground, and that a Tribunal may not delete the penalty by doubting an addition that has become final (paragraphs 13 to 13.2). The Tribunal’s order deleting the penalty was quashed and the matter remanded (paragraph 15).

The bar. No order imposing the block penalty is to be made where all four of these conditions are met (section 298(3); first proviso to section 158BFA(2)):

1. the person has furnished the block return;
2. the tax payable on the basis of that return has been paid or, if the assets seized consist of money, the assessee offers that money to be adjusted against the tax;
3. evidence of tax paid is furnished along with the return; and
4. an appeal is not filed against the assessment of that part of income which is shown in the return.

The conditions are cumulative (Becharbhai, paragraph 8.1). Failing any one of them exposes the whole of the returned income to penalty, and the excess as well.

The bar covers more than the block penalty. In the same circumstances no penalty order is to be made for the block period for false entries in books or for taking or repaying loans, deposits and other sums in cash (sections 444(1), 450, 451 and 453 of the 2025 Act; sections 271AAD(1), 271D, 271DA and 271E of the 1961 Act).

The excess. The bar does not apply “where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return”, and in that case “the penalty shall be imposed” on the excess (section 298(4); second proviso to section 158BFA(2)). On undisclosed income of one crore rupees declared and paid for in the return, and one crore sixty lakh rupees determined, the penalty base is sixty lakh rupees, the tax on it thirty-six lakh rupees, and the penalty eighteen lakh rupees. The Revenue will read “shall be imposed” as leaving no discretion on the excess. Becharbhai was such a case: undisclosed income was determined well above the forty-five lakh rupees returned (paragraph 2.1). The Court described the corresponding proviso as “merely in nature of clarification” (paragraph 8.2) and held the penalty discretionary.

The return. A return filed after the time in the notice is still, on the words, a return furnished in response to the notice. The Revenue may say that a late return is no return for this purpose.

Payment. Tax must be paid on the basis of the return and the evidence must go “along with the return”. Payment a week later does not satisfy the third condition on its terms. Where cash was seized, the offer to adjust it should be made in writing with the return.

No appeal on the returned income. In Anju Innani the assessee declared sixty-five lakh rupees in her block return, which was accepted, and one of her grounds of appeal was that part of the income was capital gain taxable at 20 per cent and not at 60 per cent. A penalty of forty-two lakh ninety thousand rupees was imposed on the returned income. The Bombay High Court held that an appeal against the assessment of income shown in the return “also comprehends an appeal disputing the rate at which the tax has been computed”, so the fourth condition was not met (paragraphs 9 and 10). In the Court’s words, the bar operates where the assessee “accepts the assessment as final and pays the tax thereon”. Whether penalty should then be imposed as a matter of discretion was sent back to the Tribunal (paragraphs 12 and 13). A jurisdictional ground raises the same risk; see Does an appeal on a legal ground forfeit the penalty bar?.

Procedure and limitation. The penalty order requires a reasonable opportunity of being heard. Where the penalty exceeds two lakh rupees and the order is by a Deputy or Assistant Commissioner or Director, it requires the previous approval of the Additional or Joint Commissioner or Director. The time limit is:

• where the assessment is in appeal: the end of the financial year in which the proceedings in which the penalty was initiated are completed, or six months from the end of the financial year in which the appellate order is received by the Principal Commissioner or Commissioner, whichever is later;
• where the assessment is in revision: six months from the end of the financial year in which the revision order is passed;
• in any other case: the end of the financial year in which the proceedings are completed, or six months from the end of the financial year in which the penalty notice is issued, whichever is later.

Time taken in rehearing on a change of incumbent, and a court stay up to the receipt of the certified copy of the vacating order, are excluded, with a sixty day floor and an end of month rule (section 298(5) to (8); section 158BFA(3) and (4)).

The block provisions contain no prosecution provision of their own.

Approval before the notice and before the order

The first approval is before the notice (section 294(3); section 158BC(3)). The second is before the order. Section 299 of the 2025 Act requires the order to be passed by an officer not below the rank of Deputy Commissioner, Assistant Commissioner, Deputy Director or Assistant Director. Sub-section (2) says it “shall be passed with the previous approval of the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director”. Section 158BG of the 1961 Act puts the same requirement as a prohibition: “no such order shall be passed without the previous approval”. A penalty above two lakh rupees needs a third.

Under section 153A the corresponding requirement was section 153D, which required approval for each assessment year’s order. In ACIT v. Serajuddin & Co. (Orissa High Court, 15 March 2023) that approval was held to be mandatory and not to be given mechanically. A block order is one order for the whole block, so an objection to a single approval covering many years is weaker. The principle still applies. An approval required by statute before an order is passed calls for the approving authority to apply its mind to that order.

Kailash Moudgil v. DCIT (ITAT Delhi Special Bench, [2000] 72 ITD 97, 2 December 1999) was decided on the old section 158BG. The Special Bench held that the approval “is only an administrative approval and not a judicial approval” (paragraph 10), that the approving authority need not hear the assessee or record reasons, that absence of reasons “would not invalidate the assessment order”, and that any infirmity could be corrected in appeal (paragraph 31). The same order sets out, from Black’s Law Dictionary, a meaning the assessee can use: “‘Approval’ implies knowledge and exercise of discretion after knowledge” (paragraph 8).

The Finance Act, 2026 then legislated for both Acts. It substituted section 522 of the 2025 Act, sub-section (3) of which reads:

Irrespective of anything contained in this Act, any approval given by an income-tax authority in relation to any assessment, reassessment or recomputation proceedings shall be deemed to be administrative and supervisory in nature and, shall not be invalid by reason of any insufficiency of the reasons recorded or by reason of any defect in the form or manner of its authentication or communication including whether digital signature have been appended to such approval or not, where such approval has been granted electronically.

It also inserted section 292BC into the 1961 Act with effect from 1 April 2021. Section 292BC is in substantially the same terms, and is in addition expressed to be “for the removal of doubts” and to apply notwithstanding “any judgment, order or decree of any Court”. Section 522(3) has no such words and operates from 1 April 2026. Section 292BC applies to every block assessment under the 1961 Act, all of which arise from searches after 1 April 2021.

These provisions remove arguments about brief reasons, unsigned approvals and approvals not communicated. Both speak of an “approval given”. What they leave open is discussed under Are the approvals conditions of jurisdiction?.

Appeal against the block order and the penalty order

The block order is appealable to the Commissioner (Appeals): under section 357(p) of the 2025 Act, “an order passed under section 294(1)(c)”, and under section 246A(1)(ka) of the 1961 Act, inserted with effect from 1 September 2024, an order under section 158BC(1)(c) in respect of a search initiated on or after that date. An order imposing the block penalty is separately appealable to the Commissioner (Appeals) under section 357(q) of the 2025 Act and section 246A(1)(l) of the 1961 Act.

The further appeal lies to the Appellate Tribunal: under section 362(1)(a) of the 2025 Act against any order of the Commissioner (Appeals), and under section 253(1)(a) of the 1961 Act, which from 1 October 2024 names an order of the Commissioner (Appeals) under section 158BFA beside his order under section 250.

The ordinary provisions then apply, because both Acts provide that, save as otherwise provided in the block provisions, all other provisions of the Act apply to a block assessment (section 300; section 158BH). That includes rectification, revision by the Commissioner, and stay of demand.

Where the two Acts differ

The 2025 Act re-enacts the 1961 chapter almost clause for clause. These are the differences that can change the result on a file.

Point	1961 Act (search from 1 September 2024 to 31 March 2026)	2025 Act (search on or after 1 April 2026)
Time limit for the order	Twelve months from the end of the quarter in which the last authorisation was executed; thirteen if the return period was extended (section 158BE(1))	Eighteen months from the end of the quarter in which the search was initiated (section 296(1))
Third party’s time limit	Twelve months from the end of the quarter of his notice; thirteen if his return period was extended (section 158BE(3))	Twelve months from the end of the quarter of his notice (section 296(5))
Sixty day floor after exclusions	Applies after the exclusions in section 158BE(4) only; after the handing over exclusion the period merely runs to the end of the month	Applies after the handing over exclusion as well (section 296(8))
Time limit for the section 143(2) or section 270(8) notice	Three months from the end of the financial year of the return, inside section 143(2), which section 158BC names	The limit is in section 270(9), which section 294 does not name; whether it applies is open
Last panchnama	Counts where it records the conclusion of search (Explanation to section 158B)	Counts “irrespective of whether or not any seizure is recorded” in it (section 301(d)(i))
Third party’s block	Always the block of the person searched (first proviso to section 158BD)	Shortened in the two cases in section 295(2)(c) and (d)
Year excepted from abatement of later proceedings	“the assessment year in which” the last authorisation is executed (section 158BA(2)(b))	“the tax year in which” it is executed (section 292(2)(b))
Abatement of a transfer pricing reference	On the date of initiation of the search (section 158BA(3))	On the date referred to in section 292(2), which includes the date of a later notice (section 292(3))
Basis of computation	“computed in accordance with the provisions of this Act”, on search evidence “and” other material (section 158BB(2)); “and” again in section 158BB(3)	No such opening words; search evidence and other material are in separate clauses (a) and (b) of section 293(4), and are joined by “or” in section 293(5)(a)
Time limit for a revived assessment	One year from the end of the month of revival, or the remaining period under section 153 or section 158BE, whichever is later (section 153(8))	One year from the end of the month of revival (section 286, Table, Sl. No. 6)
Tax charged on	Total undisclosed income determined “in the manner specified in sub-section (1)” (section 158BB(5))	Total undisclosed income determined “in the manner specified in sub-sections (1), (2) and (3)” (section 293(7))
Rate section	No overriding words (section 113)	“Irrespective of anything contained in any other provisions of this Act” (section 192(1))
Rate on unexplained credits and investments outside the block	Section 115BBE	Section 195, at 30 per cent after the Finance Act, 2026
Definition used for the bar on set-off of losses	Section 79A has its own narrower definition	Section 120(2) borrows the section 301 definition
Approval of the order	Prohibition: no order “without the previous approval” (proviso to section 158BG)	Direction: order “shall be passed with the previous approval” (section 299(2))

Open questions, argued both ways

Must the notice issue where the block return is accepted?

For the assessee: the first proviso to section 158BC(1)(a) says the notice “shall thereafter be issued”, and section 294(1)(a)(i) says “thereafter notice under section 270(8) shall be issued”. These are directions. They are not conditioned on the Assessing Officer wishing to depart from the return, and they did not exist when Hotel Blue Moon was decided.

For the Revenue: paragraph 15 of Hotel Blue Moon says the notice is necessary only where it is necessary to check the return, and that where the return conforms to the undisclosed income inferred by the authorities there is no reason to issue it. The Court made that observation with the exclusion of section 143(1) before it, so the absence of a processing route does not answer it. The new sentence, the Revenue will say, records the step that follows where the return is to be examined. It will add that an order adopting the returned figure is in substance in conformity with the Act and is saved by section 522(1) of the 2025 Act or section 292B of the 1961 Act.

Our view: the direction is unconditional on its words and was enacted after the observation in paragraph 15, so the notice is required in every case. An order that determines a rupee more than the return is in any event a repudiation of the return and outside that observation. Where the order adopts the return exactly, the point has value only if something turns on the validity of the order, such as a penalty or interest for a late return.

Is the notice required where the block return is filed late?

For the Revenue: a late return “shall not be deemed to be a return” under section 263 of the 2025 Act or section 139 of the 1961 Act. The free-standing direction to issue the notice follows the deeming and falls with it. Hotel Blue Moon recognised at paragraph 15 that on default the officer may proceed under section 144.

For the assessee: clause (b) of section 158BC(1) and section 294(1)(b) apply section 143(2) or section 270(8) to the inquiry without reference to the deeming. Under the old chapter the block return was not deemed a section 139 return at all, and the Supreme Court still held at paragraph 16 that an officer who inquires in repudiation of a return filed under the notice must follow section 143(2). A late return is still a return actually filed in response to the notice.

Our view: a late filer loses the free-standing direction and keeps the incorporation clause, which is the ground on which Hotel Blue Moon was decided. Where no return at all is filed, the officer may proceed to best judgment and the notice point does not arise.

Does the three month limit for the notice apply under the 2025 Act?

For the Revenue: section 294(1)(a)(i) and (b) name sub-sections (8) and (10) of section 270 and leave out sub-section (9), where the limit sits. Hotel Blue Moon said that where the legislature intended to exclude provisions from the block procedure “it has done so specifically”; here it has chosen what to include. “Thereafter” fixes the order of events and nothing more, and the block has its own time limit.

For the assessee: the block return is considered “as if it was a return furnished under section 263”. The notice issued on it is an ordinary notice under section 270(8), and section 270(9) governs every such notice by its own force. Section 300 applies all other provisions of the Act save as otherwise provided, and nothing in the block provisions provides otherwise.

Our view: the limit applies. A deemed section 263 return carries the consequences of one, and a notice that may issue at any time up to the block order would empty the direction of content. The point is weaker than under the 1961 Act, where the limit is part of the incorporated sub-section, and the objection should be taken in the assessment proceeding as soon as the three months expire.

Can a block addition rest on material not found in the search?

For the Revenue: section 293(4)(b) and section 158BB(2) allow “any other material or information” available with the Assessing Officer or coming to his notice during the proceedings, and name survey evidence beside search evidence. The words “relatable to such evidence” have not been re-enacted. The decisions that confined the old chapter to search material leaned on its declaration that a block assessment was in addition to a continuing regular assessment; regular assessments now abate, so the block is the only assessment those years will have. The third limb of the definition, a claim found to be incorrect, necessarily rests on returns and not on anything seized. In the transfer pricing sub-section the 2025 Act joins the two sources with “or” (section 293(5)(a)). And Harjeev Aggarwal (paragraphs 17 and 18) read the earlier decisions together with the words “relatable to such evidence”, which the Revenue’s own submission in Hotel Blue Moon (paragraph 5) recorded as part of the provision.

For the assessee: Ravi Kant Jain and Hotel Blue Moon stated the limit on a formulation that already allowed “such other materials or information as are available with the Assessing Officer”, with no qualifier. The limit came from the nature of the assessment, which the headings of section 292 and section 158BA still describe as an assessment of undisclosed income “as a result of search”. Section 292(6) and section 158BA(6) send the other income of the search year to an ordinary assessment, which presupposes a boundary. Saroj Kumar Sahoo says the Assessing Officer is clothed with jurisdiction for the block “if any incriminating material is found” (paragraph 9.1). If any material will do, a search becomes a licence to reassess six years and part of a seventh at 60 per cent without the conditions and time limits of the reassessment provisions.

Our view: other material may now be used, but it cannot be used alone. Under the 1961 Act the two sources are joined by “and”, in section 158BB(2) and again in section 158BB(3), which supports reading other material as supplementing what the search, a survey or a requisition produced. The 2025 Act letters them separately in section 293(4) and uses “or” in section 293(5)(a), so under that Act the argument rests on the heading and structure of Part B without that textual support. The question is open under both Acts.

Is a statement recorded during the search enough?

For the assessee: the answer is in Harjeev Aggarwal, paragraphs 20 to 24. A statement is not “evidence found as a result of search”, words that are unchanged; there must be a nexus between the statement and material found; and a statement, particularly one later retracted, cannot be the sole basis of a block assessment.

For the Revenue: the same paragraph 20 classes a statement as “information”, usable if relatable to search material. The present clause admits “any other material or information” without that condition. Naresh Kumar Aggarwal, quoted at paragraph 25 of the same judgment, accepts that a statement which “remains the same” can be the basis for proceeding “even if there is no other material”; it is the retracted statement that needs support. And Harjeev Aggarwal upheld the addition once corroboration was shown.

Our view: one of the two phrases the Court construed survives and the other does not. A bare admission with nothing else remains an unsafe basis for an addition at 60 per cent, but the textual argument for excluding it is weaker than it was, and a statement supported by material from outside the search is now difficult to keep out. The treatment of admissions and retractions generally is in the entry on the section 132(4) statement.

Can a claim disclosed in a return be undisclosed income?

For the Revenue: the third limb is new text. It covers an “expense, exemption, deduction or allowance claimed under this Act which is found to be incorrect”. “Incorrect” has replaced “false”, and “exemption” has been added. The definition before the Court in Ravi Kant Jain (paragraph 4) had no limb for claims at all, and Sun Aero did not construe the definition, so neither decides what a claim “found to be incorrect” covers. No link to concealment or to seized material is required by the words, and the exclusion for assessed income protects the income assessed, not a deduction allowed in computing it.

For the assessee: a claim made in a return is disclosed, and the definition is of undisclosed income. In the words of A.R. Enterprises, quoted in Harjeev Aggarwal at paragraph 34, undisclosed income “signifies income not stated in the return filed”. In Ravi Kant Jain income already returned and re-characterised under another head on a special audit was held to be outside the old chapter, as a change of opinion not based on search material (paragraphs 8 and 9). In Sun Aero an exemption allowed in a scrutiny assessment could not be withdrawn in the block on material gathered after the search (paragraphs 32, 33 and 37). Revision and reassessment exist for errors in completed assessments, with their own conditions and time limits. Taxing a debatable claim at 60 per cent because a search happened to take place is a penal result the heading “as a result of search” does not support.

Our view: the limb reaches a claim shown to be incorrect by what the search, survey or requisition produced, such as a bogus expense or an exemption resting on a sham. It does not turn every disallowance an officer could have made in scrutiny into undisclosed income. For a 2025 Act block there is a further point: the limb speaks of a claim made “under this Act”, and a claim made in a return under the 1961 Act is not literally within it.

Does abatement depend on undisclosed income being found?

For the assessee: section 292(2) and section 158BA(2) operate by date. A proceeding for a block year pending when the search is initiated “shall abate and shall be deemed to have been abated” on that date, when no computation of undisclosed income exists or could exist. Clause (b) abates a later proceeding on the date its notice is issued. Where Parliament wanted a regular assessment to continue it said so, for the excepted year and for the regular income of the search year. Saroj Kumar Sahoo accepts this at paragraphs 7.8 to 7.10.

For the Revenue: the rest of the same judgment points the other way. Paragraph 7.11 makes abatement subject to the other conditions of the chapter, and paragraph 8.15 holds that after the Finance Act, 2025 abatement is confined to undisclosed income and requires a computation. If every pending scrutiny abates and the block reaches only undisclosed income, the ordinary issues in that scrutiny go unassessed while the block is pending; a reading that keeps the regular assessment of disclosed income alive avoids that.

Our view: paragraph 8.15 goes further than the section. Section 158BA(2)(a) abates “the assessment or reassessment or recomputation”; section 292(2)(a) uses the word “proceedings”. Both abate proceedings, not parts of income, and the revival clause would be unnecessary if disclosed income had never left the regular assessment. Paragraph 8.15 was also reached on a text of sub-section (2) that did not include clause (b), which abates a later proceeding on the date of its notice and cannot wait for a computation. The safer reading is the narrower ground of the decision, that abatement operates in the case of the person searched, and for anyone else from the date the material reaches his Assessing Officer. An officer continuing a scrutiny after a search will rely on paragraph 8.15, and the objection should be taken in writing in that proceeding.

Which year is excepted from abatement under the 1961 Act?

For the Revenue: read with sub-section (6), the exception in section 158BA(2)(b) is for the search year, whose regular income sub-section (6) requires to be assessed separately. A literal reading saves the year before the search year and abates a scrutiny of the search year itself, which defeats sub-section (6). The 2025 Act confirms what was meant.

For the assessee: clause (b) says “the assessment year in which” the last authorisation is executed, and sub-section (6), in the same section, says “the assessment year relevant to the previous year in which” it is executed. Different words in the same section are taken to mean different things, and a provision that ends proceedings is read as written. The different wording of section 292(2)(b) shows the draftsman knew how to refer to the search year.

Our view: the purposive reading is likely to prevail, because the literal one leaves the search year’s regular income with no assessment that can be started before the block order. The literal reading is available on a file where a scrutiny notice for the search year was issued before the block order and the assessee wants it to have abated.

Can a loss of a block year be set off against undisclosed income?

For the assessee: section 293(8) and section 158BB(7) bar only losses brought forward from before the first year of the block. The words “prior to the first” year of the block confine the bar in the way Lingamurthy inferred. Section 158BB(2) requires computation “in accordance with the provisions of this Act”. Section 120 and section 79A apply where undisclosed income is included in the total income of a year, and block income is charged as income of the block period, irrespective of the year, which Vatika Township treated as distinct from the total income of any year (paragraph 28). The common case is an unrecorded receipt of a business whose books show a loss for the same year; computing the income of that business under its head is not a set-off at all.

For the Revenue: the aggregate in section 293(1) and section 158BB(1) contains only undisclosed income declared and determined. The total income design, with its rule for ignoring losses, was removed by the Finance Act, 2025. A loss of a block year belongs to the regular assessment of that year and is carried forward there. Section 120(2) borrows the block definition, which shows the two provisions were meant to work together.

Our view: the Revenue has the better of the text as it now stands, since there is no step in the present computation at which a year’s loss enters the aggregate. The argument is stronger under the 1961 Act because of the opening words of section 158BB(2), and should be taken where a block year’s return shows a loss that the regular assessment of that year cannot absorb.

Is surcharge payable on block tax?

For the assessee: section 192(2) and the proviso to section 113 levy nothing; they allow for a surcharge “if any, levied by any Central Act”. The surcharge clauses of the Finance (No. 2) Act, 2024, the Finance Act, 2025 and the Finance Act, 2026 name the sections to which they apply, and neither section 113 nor section 192 is among them. When Parliament surcharged block tax in 2003 it named section 113. Since 1 September 2024 neither Act says which year’s Finance Act governs a block that spans six years and part of a seventh, which is the uncertainty Vatika Township held made a levy impossible. The surcharge in the First Schedule is laid on income-tax computed under the Paragraphs of that Schedule or under sections 111A, 112 and 112A of the 1961 Act (sections 196, 197 and 198 of the 2025 Act); total income fixes its rate and is not its base. And the Constitution Bench treated block income as distinct from total income and as charged by the chapter’s own provision (paragraphs 27 and 28).

For the Revenue: the Finance Act provides that tax in cases under Chapter XII of the 1961 Act and Chapter XIII of the 2025 Act is determined as provided there and with reference to the rates the Finance Act imposes. The general surcharge in the First Schedule attaches by reference to the person’s total income. The surcharge is now uniform in structure from year to year, so the choice of year matters less than it did. The retention of the surcharge words in both sections shows that some surcharge was intended.

Our view: no surcharge is leviable on the present Finance Acts, and the point should be taken wherever surcharge has been added to block tax. The cess is on different words. It attaches to the income-tax specified in the sub-section that covers Chapter XII and Chapter XIII cases, without naming sections, and we treat it as payable. Two objections remain for an assessee who wishes to take them. The first is that neither Act says which year’s Finance Act applies; it has less force for a rate that has been four per cent in each of the Finance Acts concerned. The second is that on the reasoning in Vatika Township the annual Finance Act is not read into the block at all.

Are the approvals conditions of jurisdiction?

For the assessee: both approvals are stated as preconditions. The Assessing Officer “shall take prior approval” before issuing the notice. Under section 158BG no order shall be passed “without the previous approval”, and under section 299(2) the order shall be passed “with the previous approval”. Section 292BC and section 522(3) speak of “any approval given” and cure insufficiency of reasons and defects in form, authentication or communication. They do not say that an order passed without approval, or before it, is valid, and an approval given without the draft order or the record is a failure to approve, which is different from a failure to give reasons. Both provisions are confined to approvals “in relation to any assessment, reassessment or recomputation proceedings”, which does not obviously include the approval of a penalty. Approval, as Kailash Moudgil records, “implies knowledge and exercise of discretion after knowledge”.

For the Revenue: Parliament has declared that such approvals are “administrative and supervisory in nature”, and for the 1961 Act has done so for the removal of doubts and notwithstanding any judgment. Kailash Moudgil held the same of the old section 158BG and treated any infirmity as curable in appeal. An administrative approval is not open to the scrutiny applied in decisions such as Serajuddin, and section 292BC is retrospective to 1 April 2021.

Our view: the new provisions end challenges based on the brevity, form or signing of an approval that was in fact given. They leave three challenges open: that no approval was obtained, that it was obtained after the notice or the order it was to precede, and that nothing was placed before the approving authority. The record of both approvals, with dates and what accompanied the request, should be obtained in every case.

Does an appeal on a legal ground forfeit the penalty bar?

For the Revenue: the fourth condition requires that no appeal be filed “against the assessment of that part of income which is shown in the return”. Anju Innani reads that to include an appeal on the rate of tax, says the assessee “should not contest the assessment in appeal”, and describes the bar as available to one who accepts the assessment as final. A challenge to the validity of the notice or the order attacks the assessment of the returned income along with everything else.

For the assessee: the condition is aimed at an assessee who declares income and then disputes it. An appeal confined to the income determined in excess of the return is outside it. A jurisdictional objection is an objection to the proceeding, and Anju Innani concerned the rate on the declared income itself.

Our view: a ground which, if it succeeds, removes the returned income from assessment is at risk under the fourth condition. If the jurisdictional ground succeeds, no determined income remains on which to compute a penalty. The bar matters only if the ground fails, and by then it has been lost. The choice has to be made before the appeal is filed: either the grounds are confined to the excess, or the assessee takes the jurisdictional point and relies on the discretion in section 298(2) or section 158BFA(2) if it fails. A writ petition on jurisdiction is not an appeal and is not, on the words, within the condition.

Unexplained credits and investments: the block rate or the rate for deemed income?

The block provisions apply the deeming provisions for unexplained credits, investments and expenditure. Outside the block, such income is taxed under its own section: section 115BBE of the 1961 Act, and section 195 of the 2025 Act, whose rate the Finance Act, 2026 reduced from 60 per cent to 30 per cent.

Under the 1961 Act, where the charge under section 115BBE would exceed the block rate, the Revenue may contend that deemed income is taxable under that section whatever the proceeding, and point out that section 113 has no overriding words. The assessee’s answer is that section 158BB(4)(b) applies the deeming sections only “for the purposes of determination of undisclosed income”, that section 158BA(1) opens “Notwithstanding anything in any other provisions of this Act”, and that section 158BA(7) then charges that income “at the rate specified in section 113, as income of the block period”.

Under the 2025 Act the positions reverse. An assessee with an unexplained credit found in a search will want the 30 per cent of section 195, and the Revenue will rely on section 192(1), which taxes total undisclosed income of the block at 60 per cent “Irrespective of anything contained in any other provisions of this Act”.

Our view: the block rate governs under both Acts. Income determined in the block is charged once, under the block’s charging words, and is not part of the total income of any year in which the other section could operate. Vatika Township described the block chapter as a complete code with a rate that “remains static at 60%” (paragraph 27). The result under the 2025 Act is that the same unexplained credit bears 60 per cent if it is found in a search and 30 per cent if it is found in a scrutiny.

When is a search “initiated”?

The choice of regime, the block period, abatement and, under the 2025 Act, limitation all run from the initiation of the search. Both Acts define when the last authorisation is executed, but the block provisions of neither define when a search is initiated.

One reading takes the date of the authorisation, as the first formal act. The other takes the date on which the authorised officers commence the search. The second fits the text better. The exclusions speak of books maintained “before the date of initiation of search”, and treat the period “commencing from the date of initiation of the search” and ending with the last authorisation as a period of the operation. Saroj Kumar Sahoo tested pendency “as on the date of search” and recorded that the search “commenced” on the first day shown in the panchnama (paragraphs 5.6 and 7.11), though the date of the warrant was not in issue there. The first reading would let a warrant signed in one quarter and executed in the next alter the block and the time limit by the Department’s own timing.

The question will arise in two situations. In a group search with several authorisations executed on different days, the date of initiation “in the case of any person” has to be fixed person by person. And where a search begins in one financial year and ends in the next, the block is defined by the year of initiation, but the separate assessment of regular income, the transfer pricing carve-out and the excepted year all attach to the year in which the last authorisation is executed. The provisions do not say how the regular income of the year of initiation and the undisclosed income of the first days of the next year are then to be placed. The search of 30 March to 4 April 2026 mentioned earlier is such a case. It is governed by the 1961 Act and its block runs to 4 April 2026. Section 158BA(6) sends the regular income of the year in which it ended to the other provisions of an Act that does not assess that year.

Our view: initiation is the commencement of the search under the authorisation. The requirements of a valid authorisation are in the entry on section 132.

Which Act decides the income of years before 1 April 2026 in a 2025 Act block?

A search initiated in tax year 2026-27 has a block made up of tax years 2020-21 to 2025-26, every one of which is a previous year under the 1961 Act, and part of 2026-27. Section 536(3) reads a reference to such a tax year as a reference to the corresponding previous year. Section 536(2)(c) keeps the repealed Act, procedure included, for proceedings “in respect of any tax year beginning before the 1st April, 2026”.

For the view that the 2025 Act governs everything: section 292(1) opens “Irrespective of any other provision of this Act”. Section 536(2)(v) saves the old Act only for searches initiated before commencement, which implies that a later search is wholly under the new Act. Section 293(2)(a) and (b) name 1961 Act assessments and returns expressly, so the draftsman provided for old years where he thought it necessary. Section 293(6)(b) applies sections 102 to 105 to “the relevant tax year falling in the block period” without distinction.

For the view that the 1961 Act still decides what was income of an old year: section 301(e) speaks of income not disclosed “for the purposes of this Act” and of claims made “under this Act”. Section 293(4) does not carry the words “in accordance with the provisions of this Act” that section 158BB(2) has. Whether an amount was income of 2022-23, or a deduction of that year was allowable, can only be answered by the law in force for that year. And section 298(3) bars penalties only under sections 444(1), 450, 451 and 453 of the 2025 Act; a cash loan default of an old year is penalised under the 1961 Act, which section 536(2)(d) preserves, and is outside the bar on a literal reading.

The same difficulty affects abatement. Section 292(2) abates proceedings “under the provisions of this Act”, and section 292(3) names references under section 166. For the first years of the 2025 Act every pending scrutiny, reassessment and transfer pricing reference for a completed block year will be a proceeding under the 1961 Act. Read literally these do not abate, and the draftsman named the 1961 Act elsewhere when he meant it (sections 293(2) and 250(1) of the 2025 Act). Against that, section 292(1) overrides the rest of the Act, the exclusion for income assessed before the search assumes that pending assessments end, and a block that could not abate any of its completed years would not work. Revival raises the same question: section 286, Table, Sl. No. 6 gives a time limit for an assessment revived under section 292, while section 153(8) of the 1961 Act speaks only of revival under section 153A(2) or section 158BA(5).

Our view: procedure, time limit, rate and penalty come from the 2025 Act. Whether income arose, or a claim was allowable, in a year before 1 April 2026 is decided by the 1961 Act as it stood for that year. Submissions in such a block will have to cite both Acts, year by year. A client should be told that the wider penalty bar may not protect him against 1961 Act penalties for those years. On abatement we think a court would hold that 1961 Act proceedings for block years abate; the literal argument is available to whichever side it suits, and an officer who continues such a proceeding should be asked in writing to state the provision under which he does so.

Gaps in the exclusions

The words of section 293(2) and section 158BB(1A) do not cover three situations.

A return filed in response to a reassessment notice. Clause (b) covers a return under section 263 of the 2025 Act or section 139 of the 1961 Act and a return in response to a notice under section 268(1) or section 142(1). The 2024 text also listed a return in response to a notice under “section 148”; the Finance Act, 2025 dropped those words and section 293(2)(b) does not have them. The Revenue will say the omission, made by the same Act that rewrote the sub-section, is deliberate, so that income first offered in a reassessment return in a proceeding that has abated is open to the block. The assessee’s answer is that income returned to the Department before the search has been disclosed and falls outside the definition before any exclusion is reached. Our view is that the assessee is right, and that the omission will be relied on all the same.

An order passed after the search began. Clause (a) excludes income assessed “prior to the date of initiation of the search”. Where an assessment that should have abated is completed anyway, or a first block order is passed after a second search has begun, the income assessed in it is not within the clause. The Revenue relies on the words. The assessee’s case is that the same income cannot be charged twice, once in the earlier order and again as income of a block. Our view is that a court would not allow double taxation, but the order that should have abated has to be challenged in its own right, as Saroj Kumar Sahoo shows.

A third party’s assessments between the search and the receipt of the material. For the other person the date of initiation is replaced by the date his Assessing Officer receives the material, but only for abatement. An assessment of his completed in the interval does not abate and is not, on the words, an assessment made before the initiation of the search. Our view is the same: income assessed or returned to the Department before the block proceeding against him began is not undisclosed.

Checklist for a live file

Before the block return is filed:

• Fix the date the search was initiated and the date and contents of the last panchnama. They decide the regime and the block. The time limit runs from the initiation under the 2025 Act and from the last panchnama under the 1961 Act.
• List every assessment, reassessment and recomputation pending for a block year on the date of initiation, and every notice issued for a block year since. Object in writing to any that continues.
• Apply for release of explained assets within thirty days from the end of the month of seizure.
• Check that the notice specifies a period, that the period does not exceed sixty days, and that approval was taken before it was issued. Ask for a copy of the approval.
• If the audit of the year before the year of search was pending when the notice was issued, apply in writing for the thirty day extension and state all four conditions.
• Assemble the excluded income: assessed income, returned income, and income computed from regular books for the years and periods whose return was not yet due. Keep evidence that the books were maintained before the search.
• Decide what is declared. The return cannot be revised, and the bar on penalty is measured against it.
• Pay the tax on the returned income, or ask in the return for seized cash to be adjusted, and attach the evidence to the return.

During the assessment:

• Note the date the block return was furnished and the date a notice under section 143(2) or section 270(8) was issued and served. If none is served within three months from the end of the financial year of the return, record the objection before the order.
• Call for the date on which the seized material was handed over to the Assessing Officer, and compute the last date for the order under the Act that applies, with each exclusion separately evidenced.
• For every proposed addition, identify the material relied on and where it came from: the search, a survey, a requisition, or elsewhere.
• For a third party, call for the satisfaction note, its date, the date the material was received by his Assessing Officer, and the block adopted.
• Keep the regular return and assessment of the search year on a separate track; only its undisclosed income belongs in the block.

After the order:

• Check the rate, whether surcharge has been added and under what provision, and the interest for a late return.
• Ask for the approval of the order: its date, and what was before the approving authority.
• Before framing grounds of appeal, decide whether any ground touches the income shown in the return, and what that does to the penalty bar.
• Diarise the revival of abated proceedings, and its one year limit, if the block order is annulled.

Concordance: 1961 Act and 2025 Act

Subject	1961 Act	2025 Act
Definitions: block period, undisclosed income, last of the authorisations	Section 158B	Section 301
Charge, abatement, revival, search year income	Section 158BA	Section 292
Computation of total undisclosed income	Section 158BB	Section 293
Procedure: notice, return, inquiry, order	Section 158BC	Section 294
Undisclosed income of any other person	Section 158BD	Section 295
Time limit for the block order	Section 158BE	Section 296
Interest and penalty not to be levied	Section 158BF	Section 297
Interest for late return; block penalty	Section 158BFA	Section 298
Competent authority and approval of the order	Section 158BG	Section 299
Application of other provisions	Section 158BH	Section 300
Rate of tax on block income	Section 113	Section 192
No set-off of losses against undisclosed income	Section 79A	Section 120
Appeal to the Commissioner (Appeals): block order; block penalty	Section 246A(1)(ka); section 246A(1)(l)	Section 357(p); section 357(q)
Appeal to the Appellate Tribunal	Section 253	Section 362
Inquiry before assessment	Section 142	Section 268
Processing of return	Section 143(1)	Section 270(1)
Scrutiny notice	Section 143(2)	Section 270(8)
Reassessment notice	Section 148	Section 280
Scrutiny assessment	Section 143(3)	Section 270(10)
Best judgment assessment	Section 144	Section 271
Dispute Resolution Panel	Section 144C	Section 275
Method of accounting	Sections 145, 145A and 145B	Sections 276, 277 and 278
Tax audit	Section 44AB	Section 63
Unexplained credits, investments and expenditure	Sections 68, 69, 69A, 69B and 69C	Sections 102 to 105
Rate of tax on such deemed income outside the block	Section 115BBE	Section 195
Reference to the Transfer Pricing Officer	Section 92CA	Section 166
Search and seizure; requisition	Sections 132 and 132A	Sections 247 and 248
Application of seized assets	Section 132B	Section 250
Return of income	Section 139	Section 263
Time limit for a revived assessment	Section 153(8)	Section 286, Table, Sl. No. 6
Interest for default in return and advance tax	Sections 234A, 234B and 234C	Sections 423, 424 and 425
Penalty for under-reporting and misreporting	Section 270A	Section 439
Penalties covered by the block penalty bar	Sections 271AAD(1), 271D, 271DA and 271E	Sections 444(1), 450, 451 and 453
Joint authorisation; separate assessment of each person	Section 292CC	Section 525
Approvals deemed administrative and supervisory	Section 292BC	Section 522(3)
Notice deemed valid in certain circumstances	Section 292BB	Section 523
Year by year search assessment	Sections 153A and 153C	None; section 536(2)(v) keeps earlier searches under the 1961 Act

This note is general commentary on the law as at 10 November 2026 and is not advice on any matter. The position in a particular case depends on its own facts.