Issue No. 289 / May 19th, 2025

Dear Patrons,

An amendment introduced in the Finance Act 2025, brought in much-needed clarity regarding the computation of "total undisclosed income" under Section 158BB for block period assessments. This amendment, effective retrospectively from September 1, 2024, ensures that block assessments in search cases target only undisclosed income, not disclosed income.

The Finance Act 2024 had raised concerns by using the term "total income" in relation to search assessments, potentially exposing disclosed income to penalties. The 2025 amendment addresses these concerns by replacing "total income" with "total undisclosed income", thereby narrowing the scope and ensuring that only hidden or unreported income is assessed. Additionally, this revision introduces Form ITR-B, to further streamline the process.

In this context, the Taxsutra Database Team is pleased to present an insight containing hand-picked rulings delivered by the SC, HCs and ITATs that inter alia delve into the first principles of “total undisclosed income”, inter alia throwing light on whether block assessment additions under Chapter XIV-B are restricted to evaluating surrendered undisclosed income, based solely on advance tax payments or evidence discovered during a search—and not through regular assessments or speculative inquiries.

Explore this exclusive insight from the Taxsutra Database Team and stay updated on crucial changes impacting block assessments!

“Key Judicial Rulings on ‘Total Undisclosed Income’ in Block Assessments”.

1) SC while discussing the general principles of retrospectivity, also examined Chapter XIVB of the Income Tax Act. SC clarified that Chapter XIVB, introduced to combat tax evasion, establishes a distinct and self-contained mechanism for assessing total undisclosed income discovered during search operations over a specified "block period." This income is taxed at a flat rate of 60% under Section 113, irrespective of the year it was earned, as stipulated by Section 158BA(2). SC emphasized that Chapter XIVB operates independently of the regular assessment provisions. It further held that the proviso to Section 113, which increased the tax liability, could not be applied retrospectively, underscoring that such amendments require explicit legislative intent……….. Click here to read and download SC Judgment copy

2) SC: Incriminating material showing undisclosed income 'foundation' for Sec.153A/153C. SC holds that for completed or unabated assessments, the Revenue has no jurisdiction under Section 153A in the absence of any incriminating material found during a search under Section 132 or requisition under Section 132A; SC expounds, “The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under Sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.”; SC delves into the scheme of Section 153A and observes that the legislative intent seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the Revenue would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period……….Click here to read and download SC Judgment copy

3) SC: Payment of advance tax does not amount to disclosure of total income unless a return is filed before the due date or the date of search. AO computed the total undisclosed income from AY 1993–94 up to the date of the search, and under Section 158BB(1)(c), treated the disclosed income for AY 1995–96 as NIL, due to non-filing of returns, despite advance tax payments. While the ITAT and HC accepted that advance tax indicated disclosure, the Supreme Court ruled otherwise, holding filing a return under Section 139 is a mandatory act of disclosure, even if advance tax is paid. Current income, the basis for advance tax, is only an estimate, not the final assessable total income. SC held that advance tax and TDS, being based on estimated income, do not amount to disclosure of total income. Only a valid return under Section 139 constitutes proper disclosure. The Court also clarified that search assessment provisions apply if income was not disclosed or would not have been disclosed, and that advance tax is irrelevant if the search occurs after the return's due date.……….Click here to read and download SC Judgment copy

4) SC: Survey material from connected parties admissible in block assessment if linked to search findings. SC ruled that evidence found during a survey at the premises of a connected party (the builder) can be used in the block assessment of an assessee if it relates to the evidence found during the search at the assessee’s premises. Consequently, the unaccounted Rs. 95.16 lakh cash payment made by the assessee to the builder was rightly treated as undisclosed income, and the SC upheld the Assessing Officer’s block assessment by setting aside the HC order.……….Click here to read and download SC Judgment copy

5) SC: Brought forward losses allowed against undisclosed income in search assessments. SC held that, in the computation of undisclosed income for block assessments arising from search and seizure proceedings, the set-off of brought forward losses and unabsorbed depreciation is permissible, as provided under Section 158BB(4) read with Explanation (a) of the Income Tax Act. Accordingly, the set-off of inter se losses and unabsorbed depreciation between years within the block period is permissible for the purpose of computing undisclosed income. ..……….Click here to read and download SC Judgment copy

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6) HC: Upholds retrospective relief under amended section 158BB(1)(c), subject to documentary proof. HC held that the assessee may claim a reduction of rs. 69,298 from total undisclosed income under the retrospective amendment to Section 158BB(1)(c) (via the Finance Act, 2002, effective from 1 July 1995), but only if assessee can prove the amount is supported by entries in books of account or documents maintained before the date of the search. The Tribunal's earlier decision was valid under the unamended law, and the AO must now verify compliance with the new conditions. The Court also rejected the Revenue’s argument that the retrospective amendment does not apply to assessment years before 1995-96.……….Click here to read and download HC Judgment copy

7) HC: Block assessments deal only with income found in search, not regular returns. HC ruled that block assessments under Chapter XIV-B and regular assessments serve distinct and independent purposes. Block assessments are confined to total undisclosed income discovered during search operations and are taxed at a flat rate of 60%, while regular assessments pertain to the total income declared by the assessee. HC noted that Chapter XIV-B sets out a special procedure for assessing income uncovered during a search conducted under Section 132. Such searches are authorized when authorities have reason to believe that income-related assets have not been disclosed. Following a search, the authorized officer may seize relevant materials and is required to forward them to the appropriate Assessing Officer, particularly for searches conducted after June 30, 1995; Income discovered through this process is taxed exclusively under the block assessment provisions at a 60% rate and is not subject to the standard assessment procedures, such as the set-off of losses. HC clarified that block and regular assessments are mutually independent: a regular assessment may proceed regardless of whether a block assessment is pending or completed. While regular assessments are concerned with ‘total income’ reported under Section 139, block assessments are limited to income uncovered during a search. Importantly, this...……….Click here to read and download HC Judgment copy

8) HC: Rules against assessee, rejects Tribunal's 'fallacy' on undisclosed vs disclosed income. HC strikes down Tribunal order that no addition could be made in the block assessment proceedings in the case of assessees for want of undisclosed income; Rejects Tribunal’s fallacious view that “undisclosed income” relating to substantial bank account deposits became “disclosed” when Revenue became aware of the undisclosed income as bank accounts and entries therein had come to their information and knowledge; Tribunal ignored the attending circumstances that no tax returns were filed by individual assessee for the block period, claim that money belonged to a political party and not to the assessee was not verified and search undertaken revealed several incriminating evidence relating to undisclosed income u/s 158B(b); Observation that the block assessment is in addition to regular assessment is correct, but the finding that any addition required to be made in the regular assessment cannot be added in the block assessment as a universal affirmative proposition is incorrect; Remands matter back to Tribunal for examination of the case on certain merits, grants liberty to Tribunal to make additions by resort to Sec 147 in case additions cannot be made in block assessment proceedings. .……….Click here to read and download HC Judgment copy

Note: HC judgment is affirmed by SC in, [TS-5123-SC-2016-O]

9) HC: No need to prove concealment year-wise under chapter XIV-B. HC clarified that evidence of concealment isn't required for each year in a block period to make a block assessment, and under Section 153A, the IT Department can assess or reassess prior years as per the set procedure. HC notes that, that during a search under Section 132, it was found that only 80% of sales were recorded, and this practice of suppression was consistently followed throughout the block period. The Assessing Officer correctly applied a uniform 20% suppression rate based on oral and documentary evidence. The Tribunal and appellate authority erred in applying varied rates without justification. Under Chapter XIV-B, proof of concealment is not required for each year individually, and the presumption of uniform concealment stands unless rebutted—which the assessee failed to do.……….Click here to read and download HC Judgment copy

10) HC: Chapter XIV-B inapplicable without complete requisition under section 132A. HC ruled that Chapter XIV-B of the Income Tax Act applies only when requisitioned materials under Section 132A are fully received by the Income Tax Department. Notes that, in this case, since the search was conducted by the Central Excise Department and the requisition under Section 132A was not fully executed (as not all documents were handed over), the conditions for invoking Chapter XIV-B were not satisfied. HC emphasized that a requisition is only deemed complete when the Income Tax Department actually receives the requested materials. HC held that Chapter XIV-B applies only when all requisitioned materials are received by the Assessing Officer. Since in this case, the requisition was incomplete, Chapter XIV-B proceedings were inapplicable. However, reassessment under Section 148 was held to be within jurisdiction, but any evidence from the incomplete requisition could not be used. .……….Click here to read and download HC Judgment copy

11) HC sets aside the ITAT order confirming assessment orders under Section 153A for the entire block period, i.e from AYs 2002-03 to 2008-09, based on the seized records even though the incriminating material seized during the search operation only have bearing on the income for AY 2008-09; Opines that since the incriminating material pertains only to the AY 2008-09, and there was no incriminating material against the Assessees for the rest of the block period, ITAT’s finding confirming the estimation of income for all the relevant AYs based on the incriminating material for only one AY is not legally sustainable; Observes that Section 153A(b) clearly indicates that, based on the material obtained during the search, the Revenue who gets the jurisdiction to re-open the assessments, can do so in respect of the individual AYs comprised in the block period of six years only if the material obtained during the search under Section 132, or any part thereof, relates to the AY in question.……….Click here to read and download HC Judgment copy

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12) HC: No obligation on IT Department to gather year-wise evidence for section 153A proceedings. HC holds, no requirement under the provisions of the Act requiring the IT department to collect information and evidence for each and every year in order to initiate proceedings u/s 153A of the Act; Notes that IT department u/s 153A can assess or reassess in accordance with the assessment or reassessments contemplated u/s 153A. HC rejects assessee argument that the information gathered either during pre-search enquiry or during the course of search cannot be made use so far as six previous assessment years, is unsustainable. .……….Click here to read and download HC Judgment copy

13) HC: Advance tax payment not enough to exclude income from block assessment. HC upheld the ITAT’s finding that Rs. 34.25 lakhs constituted undisclosed income under Section 158BC, as the assessee’s claim of a waiver was unsubstantiated and contradicted by seized documents. HC relied on the SC judgment in A.R. Enterprises, reaffirming that only income disclosed in a return filed prior to the search can be excluded from block assessment, and that mere payment of advance tax is not sufficient. Since the assessee filed returns only after the enforcement action and failed to refute the evidence of Rs. 34.25 lakhs in unaccounted income, the Tribunal’s decision was upheld and the appeal was dismissed. .……….Click here to read and download HC Judgment copy

14) HC: Undisclosed Income can be assessed without self-incriminating admission under section 158BB. HC held that the ITAT erred in rejecting a block assessment that was based on credible evidence seized during a search. Under Sections 158BC and 158BD, read with Section 158BB, the Assessing Officer (AO) is empowered to rely not only on documents seized from the assessee but also on related evidence obtained from third parties - such as a film distributor - if it pertains to the assessee’s undisclosed income. Notes that, the ITAT’s dismissal of such corroborated material was deemed perverse and contrary to the statutory framework laid down under Chapter XIV-B of the Income Tax Act. While the HC agreed that the ITAT’s findings on profit estimation and disallowance of expenditure did not warrant interference, it found the deletion of additions based on reliable seized documents and sworn statements to be legally untenable. The Court clarified that under Section 158BB, additions in block assessments may be made solely on the basis of evidence gathered during the search, and do not require explicit admission by the assessee. Requiring such records, often clandestine in nature to specifically name the assessee or be confirmed by them is inconsistent with the legislative intent. Accordingly, a portion of the previously deleted income was restored to the block assessment..……….Click here to read and download HC Judgment copy

15) ITAT: Quashes addition in block assessment due to lack of search-based evidence. The assessee surrendered total undisclosed income of Rs. 2.5 lakh during a post-search statement, but only rs. 1.45 lakh was disclosed in the block return, with the AO adding the Rs. 1.04 lakh difference. The ITAT held that since no material was found during the search to prove unexplained expenditures (e.g., on marriage or household items), the addition was invalid. Block assessments must be based solely on evidence found during the search, not on statements or assumptions. The ITAT reversed the CIT(A)'s order and directed deletion of the Rs. 1.04 lakh addition..……….Click here to read and download ITAT Order copy

16) ITAT: Set-off permitted for losses within block period, not for carried-forward losses.  ITAT held that the assessee's claim for set-off of losses within the block period was valid. It concluded that losses determined for certain years within the block period must be allowed to be set off against undisclosed income computed for other years in the same block. However, brought-forward losses under Chapter VI and unabsorbed depreciation under Section 32(2) from earlier regular assessments cannot be adjusted in block assessments. The case involved a search and seizure operation under Section 132 of the Income Tax Act, which triggered the special assessment procedure under Chapter XIV-B for undisclosed income. The block period comprised the ten assessment years preceding the year of the search, including the period up to the date the search commenced. During the block assessment, the Assessing Officer (AO) computed undisclosed income for certain years and also assessed losses for others. The assessee contended that losses for AYs 1989-90, 1993-94, 1994-95, and 1995-96 should be set off against positive income for other years within the block. The Revenue opposed this, arguing such set-offs were impermissible. ITAT rejected the Revenue's restrictive interpretation, holding that there is no statutory bar on intra-block set-off of losses. It drew an analogy with regular assessments, where the tax liability for the entire financial year is determined by aggregating all incomes and losses. Section 158BB, it noted, supports such aggregation of incomes and losses across the block period, aligning with standard tax computation principles. The prohibition applies only to carry-forward losses and unabsorbed depreciation from prior years, not to losses...……….Click here to read and download ITAT Order copy

17) ITAT: Chapter VIA deductions can't be ignored in section 158BB computation. ITAT held that income under Section 158BB(1) must be computed after allowing deductions under Chapter VI-A, in line with legislative intent and to prevent double taxation. It further ruled that income already recorded in the regular books of accounts and filed within the prescribed due date cannot be considered undisclosed income under Section 158BA(3). Consequently, an amount of Rs. 34.38 lakh was excluded from the block assessment. However, the claim regarding the wrongful reassessment of Rs. 15 lakh was rejected, as that amount had already been allowed as a deduction in the total income assessment...……….Click here to read and download ITAT Order copy