Block Assessment in Income Tax: Meaning, Rules & Time Limits

Block assessment helps the income tax authorities to assess the income of different assessment years in a single assessment, thereby unearthing the black money in a shorter time. This assessment is separate from the normal assessment procedures under the Income Tax Act. This article explains in detail, the meaning, features, procedures and time limits for block assessment procedures.

What is Block Assessment in Income Tax?

• Through block assessment, the Income Tax Department evaluates the assessee's undisclosed income over a series of assessment years.
• Block assessment can be conducted by the department only for undisclosed income.

What is Undisclosed Income?

Simply speaking, undisclosed income refers to 

• Money and assets not disclosed in the income tax returns, and the reasons for nondisclosure, are unsatisfactory.
• Excess deduction or exemption claimed; the reasons for the same are unsatisfactory.
• Brought forward losses and unabsorbed depreciation cannot be set off against undisclosed income.

History of Block Assessment

• Former Finance Minister Dr. Manmohan Singh first proposed block assessment in the budget speech of 1995.
• Before this scheme, undisclosed income for different assessment years should be assessed separately.
• To speed up the unearthing of black money, the undisclosed income of different assessment years could be assessed simultaneously in a single assessment. 
• It was abandoned in 2003, when new provisions related to search and seizures were introduced —153A, 153B, and 153C.

Block Concept in Income Tax

Provisions related to block assessment are covered under sections 158B to 158BI of the Income Tax Act. 

• As per the provisions of section 158B, the block period refers to 
  • 6 years preceding the financial year in which the search is initiated (and)
  • The financial year in which the search is initiated.
• Block assessment could be undertaken under search cases after 1st September, 2024.
• As already mentioned, these provisions apply only to undisclosed income. Other income is assessed under the normal assessment provisions of the Income Tax Act.
• The undisclosed income is assessed to tax at 60%.

Key Features of Block Assessment

• Block assessment does not apply to
  • Income already recorded in the books of accounts prior to the search, provided they relate to a financial year for which the due date for filing the ITR has not yet expired.
  • Income is already assessed under sections 143, 142, and 148, for which assessment is completed.
  • Income included under Income Tax Returns already filed.
• Even if a regular assessment is carried out for one of the block years, and undisclosed income is found for that year, the undisclosed income will be subjected to block assessment.
• If regular assessment and block assessment are carried out at the same time, regular income and undisclosed income are assessed separately.
• If a particular income is assessed to tax under this scheme, it will not be assessed under any other provisions of the Act.
• It is the taxpayer's responsibility to prove to the assessing officer that a particular income has already been disclosed in the return of income. (Burden of proof is on the assessee)

Block Assessment Procedure

• The assessing officer may furnish a notice to the assessee, requiring to file a return for a period falling in the block period.
• The taxpayer should file the return within the time limits (ranging from 15 to 45 days) prescribed by the assessing officer.
• Once the return is filed under block assessment, it cannot be revised.
• The assessing officer shall assess the income based on returns filed, and evidences obtained under search and requisition.

Undisclosed Income of Another Person

• If the assessing officer finds undisclosed income of another person in a search operation, he should provide the relevant evidence to the jurisdictional assessing officer of that particular person to whom the undisclosed income relates.
• The jurisdictional assessing officer of that person shall carry out the assessment as specified under the provisions of the block assessment accordingly.

Calculation of Undisclosed Income and Tax

The following illustrative table proves to be handy for calculation of undisclosed income and tax thereon.

*While computing total income, the brought forward losses and unabsorbed depreciation shall be ignored.

Time Limit for Completion of Block Assessment

• Block assessment shall be completed within 2 years from the end of the month in which the search or requisition was concluded.
• The period for which the assessment was stayed by a court shall be excluded from the calculation of this 2-year limit.

Interest and Penalties

• When the returns filed by the taxpayer under the block assessment scheme are filed beyond the time period allowed (15 to 45 days), interest of 1% per month is payable from the due date to the actual filing date.
• When the returns under this scheme are not filed, interest of 1% per month is payable from the due date until the assessment is completed.
• Interest on late return filing, late payment of taxes and advance tax instalments u/s 234A, B, and C cannot be calculated for undisclosed income.
• The penalty for failing to maintain books of accounts and get them audited under sections 271, 271A, and 271B cannot be levied on undisclosed income.
• The assessing officer shall charge penalty equal to the tax on undisclosed income, but it shall not exceed three times the tax on undisclosed income.
• Then no penalty shall be imposed when,
  • If the taxpayer files the return under this scheme, and 
  • The tax on the income as disclosed in the return is paid, and
  • No appeal is filed against the undisclosed income.
• Penalty cannot be imposed without giving the assessee a reasonable opportunity to be heard.

Final Word

The concept of block assessment was removed previously because of cumbersome procedures, the absence of information, and the lack of advanced technology. In contemporary times, there has been a significant advancement in the database and automation of the income tax department, making block assessment a convenient option for assessing undisclosed income of different assessment years.