s.158BC — Procedure for block assessment
The machinery of a block assessment: the notice calling for a return of undisclosed income, the sixty day period, the prior approval, and the proviso that now requires a notice under section 143(2) to be issued once the block return is in.
Substituted for searches initiated, and requisitions made, on or after 1 September 2024, when Chapter XIV-B was revived. The commencement is taken from the operative words of clause (1)(a) itself, which apply the section to searches initiated, and requisitions made, on or after that date. The substituted section is materially stronger than its predecessor on the scrutiny notice: the old clause (b) applied sections 142, 143(2) and (3), 144 and 145 "so far as may be" and said nothing positive about issuing a notice, whereas the new section both widens that list and adds a free standing command in the first proviso to clause (a). The counterpart in the Income-tax Act, 2025 is section 294, which applies to searches initiated on or after 1 April 2026; searches from 1 September 2024 to 31 March 2026 remain under this section.
Income-tax Act, 1961
s.158BC
Income-tax Act, 2025
s.294
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 158BC of the Income-tax Act, 1961 sets out the procedure for a block assessment where a search has been initiated under section 132, or a requisition made under section 132A, on or after 1 September 2024. Clause (1)(a) requires the Assessing Officer to issue a notice requiring the person to furnish, within a period not exceeding sixty days specified in the notice, a return of his undisclosed income for the block period in the prescribed form. Five provisos follow. The first is the one that matters most on a live file: the 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". The second removes the section 139 deeming for a return furnished beyond the period allowed. The third dispenses with any notice under section 148 for proceedings under the Chapter. The fourth bars a revised return. The fifth allows a further thirty days only where four cumulative conditions are met, concerning the due date for the immediately preceding previous year, liability to audit under section 44AB, the accounts being unaudited when the notice issued, and a written request. Clause (1)(b) requires the Assessing Officer to determine the total undisclosed income in the manner laid down in section 158BB and provides that sections 142, 143(2), 143(3), 144, 145, 145A and 145B "shall, so far as may be, apply". Clause (1)(c) requires an order of assessment or reassessment determining the tax, and excludes section 144C from it. Clause (1)(d) deals with seized assets under section 132B. Sub-section (2) switches off section 143(1) for a return furnished under the section. Sub-section (3) requires prior approval of the Additional Commissioner, Additional Director, Joint Commissioner or Joint Director before the clause (1)(a) notice is issued. The counterpart in the Income-tax Act, 2025 is section 294.
What the provision does
Prescribes every procedural step of a block assessment, from the notice to the order, and now states in terms that a scrutiny notice shall follow the block return. It does not define undisclosed income or how it is to be computed, which is section 158BB's work; it does not fix the time for completing the assessment, which is section 158BE; it does not provide the rate, which is section 113; and it does not displace the jurisprudence on incriminating material and satisfaction, which was developed around sections 153A and 153C and whose application to a single consolidated block order is untested.
Threshold questions
- Whether the search was initiated, or the requisition made, on or after 1 September 2024, since an earlier search falls under a different scheme
- Whether the notice under clause (1)(a) specified a period, and whether that period exceeded sixty days
- Whether prior approval under sub-section (3) was obtained before the notice was issued rather than afterwards
- Whether a notice under section 143(2) was issued after the block return, as the first proviso to clause (1)(a) requires
- Whether the block return was furnished within the period allowed, since a late return loses the section 139 deeming under the second proviso
- Where an extension of thirty days was sought or refused, whether all four conditions in the fifth proviso were satisfied
In practice
The recurring disputes.
Whether the scrutiny notice is now beyond argument in a block assessment
The assessee's case is that the first proviso to clause (1)(a) is an unqualified statutory command, that it is not governed by the words "so far as may be" which appear only in clause (b), and that the Supreme Court's reasoning in ACIT v. Hotel Blue Moon applies with greater force to a provision that says the notice "shall thereafter be issued" than it did to one that merely incorporated section 143(2) by reference. The Revenue's answer is the qualification in Hotel Blue Moon itself: at paragraph 15 the Court said that if the undisclosed income returned is accepted there is no reason to issue a notice, because the notice belongs to an assessment under section 143(3). On that reading the proviso presupposes an enquiry and does not command a notice where none is needed. The assessee replies that sub-section (2), which switches off section 143(1) for a block return, leaves no route by which such a return is simply processed and accepted. No decision exists on any of this, and none can for some years unless a writ reaches the point first.
Issue or service, where the section now says both
The first proviso says the section 143(2) notice "shall thereafter be issued", while section 143(2) and its proviso say "serve" and "served" and fix a service deadline. The Revenue's case is that the proviso prescribes the step and section 143(2) prescribes how it is taken, so the service deadline continues to apply and nothing turns on the different verb. The assessee's case is that where Parliament has used "issued" in the commanding provision, compliance is measured by issue, so a notice issued within time but served late satisfies the proviso while still being bad under the section 143(2) proviso, which produces two different answers on the same facts. The point has no analogue under the old Chapter XIV-B and has not been litigated.
Whether prior approval under sub-section (3) is a condition of jurisdiction
Sub-section (3) requires the Assessing Officer, "before issuance of notice under clause (a) of sub-section (1)", to take prior approval of an Additional or Joint Commissioner or Director. The assessee's case is that the words fix the sequence, so an approval obtained after the notice is no approval and the notice falls with it, and it presses the same objection to a mechanical or after the event approval that is routinely taken about the prior approval under section 153D. The Revenue's case is that this approval is an internal supervisory step rather than a condition of the officer's jurisdiction, and it will point to section 522 of the Income-tax Act, 2025, which declares approvals for assessment, reassessment or recomputation to be administrative and supervisory and not invalid for insufficiency of reasons or defects in form, authentication or communication. Whether that characterisation can be read back into the 1961 Act, and whether it would survive a case of no approval at all as opposed to a defective one, are both open.