What will a block assessment actually cost my client, and is there any way to keep the penalty off?
Tax at sixty per cent of the total undisclosed income of the block period under section 113, plus surcharge under the proviso; interest under section 158BFA(1) at one and a half per cent per month where the block return is late or not filed; and a penalty under section 158BFA(2) of a sum 'equal to fifty per cent of tax so leviable' on the undisclosed income determined by the Assessing Officer. The first proviso to section 158BFA(2) gives complete immunity from that penalty, and from penalty under sections 271AAD(1), 271D, 271DA and 271E for the block period, if four conditions are met — the return was furnished under section 158BC(1)(a), the tax on it was paid or the seized money offered for adjustment, evidence of payment accompanied the return, and no appeal is filed against the assessment of the income shown in the return.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-09-01, reported as Income-tax Act 1961, s.113 as amended by the Finance (No. 2) Act 2024 (Act No. 15 of 2024) w.e.f. 1 September 2024 and by the Finance Act 2025 (Act No. 7 of 2025) w.r.e.f. 1 September 2024; s.158BFA substituted w.e.f. 1 September 2024 by s.49 of the Finance (No. 2) Act 2024. It bears on section 113, section 158BFA, section 158BC, section 158BA, section 271AAD, section 271D, section 271DA, section 271E, section 132B, section 246A, section 253, section 263 of the Income Tax Act 1961, in Search, Survey & Block Assessment, Penalty, Assessment & Scrutiny and How Tax Law Is Read matters.
Three things have changed and each is worth money. First, the penalty is no longer a range. The 1995 section 158BFA(2) allowed a penalty of not less than the tax and not more than three times the tax; the substituted sub-section fixes a single figure — fifty per cent of the tax leviable on the undisclosed income determined. The Assessing Officer or the Commissioner (Appeals) 'may direct' the penalty, so the discretion is whether to levy at all, not how much. Second, the immunity in the first proviso is now expressly extended to sections 271AAD(1), 271D, 271DA and 271E for the block period, which is a real prize: the fake-invoice penalty and the cash loan, cash receipt and cash repayment penalties all fall away if the four conditions are met. But the price is that no appeal may be filed against the assessment of the income shown in the return, and the second proviso confines the immunity anyway to the income shown — anything the officer determines in excess of the returned figure is exposed to penalty on that excess. Third, section 113 has been trimmed: the words that tied the surcharge to the Central Act 'applicable in the assessment year relevant to the previous year in which the search is initiated' have been omitted with effect from 1 September 2024, so the surcharge limb no longer carries the year-linkage that CIT v Vatika Township was about. Interest has come down from two per cent to one and a half per cent a month, but the period has been lengthened: it now runs to the date the assessment is completed in every case, whereas the old provision stopped it at the date a late return was filed.
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Not a case. Section 113 now reads: 'The total undisclosed income of the block period, determined under section 158BC, shall be chargeable to tax at the rate of sixty per cent: Provided that the tax chargeable under this section shall be increased by a surcharge, if any, levied by any Central Act.' Section 158BA(7) charges the total undisclosed income of the block period to tax at the rate specified in section 113, and section 158BB(5) charges that tax on the total undisclosed income determined under section 158BB(1). Section 158BFA(1) imposes simple interest at one and one-half per cent of the tax on undisclosed income determined under section 158BC(1)(c) for every month or part of a month from the day after the expiry of the time specified in the section 158BC notice to the date of completion of the assessment, where the block return is not furnished within that time or is not furnished. Section 158BFA(2) empowers the Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under the Chapter, to direct payment of a penalty equal to fifty per cent of the tax leviable on the undisclosed income determined under section 158BC(1)(c). The first proviso bars any order imposing penalty under section 158BFA or under section 271AAD(1), 271D, 271DA or 271E for the block period where the four conditions in clauses (i) to (iv) are satisfied, and the second proviso disapplies that bar to the extent the determined undisclosed income exceeds the income shown in the return, penalty being imposed on the excess. Section 158BFA(3) contains the hearing requirement, the approval requirement for penalties above two lakh rupees, and three limitation rules; section 158BFA(4) contains two exclusions and two rounding provisos; section 158BFA(5) requires a copy of the penalty order to be sent to the Assessing Officer where it is made by another authority.
Statutory position — no holding is asserted; this entry reproduces statutory text. The total undisclosed income of the block period is chargeable at sixty per cent under section 113, increased by surcharge levied by any Central Act. Interest under section 158BFA(1) runs at one and one-half per cent a month to the date of completion of the assessment where the block return is late or not furnished. Penalty under section 158BFA(2) is a sum equal to fifty per cent of the tax leviable on the undisclosed income determined by the Assessing Officer, subject to the immunity in the first proviso and its qualification in the second.
Not a judicial route. The design is a fixed, predictable levy in place of the old discretionary range, coupled with a bargain. The bargain is the first proviso: an assessee who returns his undisclosed income within the period allowed, pays the tax with evidence, and does not litigate the assessment of what he has returned, escapes not only the block penalty but the fake-invoice and cash-transaction penalties for the whole block period. The second proviso keeps the department's position on anything the assessee has not returned. Interest and penalty are separated by function — interest attaches to delay in filing and now runs to completion of the assessment, penalty attaches to the undisclosed income determined. Section 113 itself was cut back so that the surcharge limb no longer identifies the Central Act by reference to the assessment year of the search, which removes from the revived Chapter the drafting that produced the litigation about retrospective surcharge under the 1995 Chapter.
The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that the person shall pay by way of penalty a sum which shall be equal to fifty per cent of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of sub-section (1) of section 158BC:
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Handle my notice → Ask a CA on WhatsAppTax at sixty per cent of the total undisclosed income of the block period under section 113, plus surcharge under the proviso; interest under section 158BFA(1) at one and a half per cent per month where the block return is late or not filed; and a penalty under section 158BFA(2) of a sum 'equal to fifty per cent of tax so leviable' on the undisclosed income determined by the Assessing Officer. The first proviso to section 158BFA(2) gives complete immunity from that penalty, and from penalty under sections 271AAD(1), 271D, 271DA and 271E for the block period, if four conditions are met — the return was furnished under section 158BC(1)(a), the tax on it was paid or the seized money offered for adjustment, evidence of payment accompanied the return, and no appeal is filed against the assessment of the income shown in the return. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 113, section 158BFA, section 158BC, section 158BA, section 271AAD, section 271D, section 271DA, section 271E, section 132B, section 246A, section 253, section 263 of the Income Tax Act 1961. It is reported as Income-tax Act 1961, s.113 as amended by the Finance (No. 2) Act 2024 (Act No. 15 of 2024) w.e.f. 1 September 2024 and by the Finance Act 2025 (Act No. 7 of 2025) w.r.e.f. 1 September 2024; s.158BFA substituted w.e.f. 1 September 2024 by s.49 of the Finance (No. 2) Act 2024. Three things have changed and each is worth money. First, the penalty is no longer a range. The 1995 section 158BFA(2) allowed a penalty of not less than the tax and not more than three times the tax; the substituted sub-section fixes a single figure — fifty per cent of the tax leviable on the undisclosed income determined. The Assessing Officer or the Commissioner (Appeals) 'may direct' the penalty, so the discretion is whether to levy at all, not how much. Second, the immunity in the first proviso is now expressly extended to sections 271AAD(1), 271D, 271DA and 271E for the block period, which is a real prize: the fake-invoice penalty and the cash loan, cash receipt and cash repayment penalties all fall away if the four conditions are met. But the price is that no appeal may be filed against the assessment of the income shown in the return, and the second proviso confines the immunity anyway to the income shown — anything the officer determines in excess of the returned figure is exposed to penalty on that excess. Third, section 113 has been trimmed: the words that tied the surcharge to the Central Act 'applicable in the assessment year relevant to the previous year in which the search is initiated' have been omitted with effect from 1 September 2024, so the surcharge limb no longer carries the year-linkage that CIT v Vatika Township was about. Interest has come down from two per cent to one and a half per cent a month, but the period has been lengthened: it now runs to the date the assessment is completed in every case, whereas the old provision stopped it at the date a late return was filed. If it applies to you, the first step is this: Model the total exposure before deciding how to run the case: sixty per cent tax plus surcharge, plus interest at one and a half per cent a month from the day after the notice period expires to the date of completion, plus fifty per cent of the tax on whatever the officer determines.
Not a case. Section 113 now reads: 'The total undisclosed income of the block period, determined under section 158BC, shall be chargeable to tax at the rate of sixty per cent: Provided that the tax chargeable under this section shall be increased by a surcharge, if any, levied by any Central Act.' Section 158BA(7) charges the total undisclosed income of the block period to tax at the rate specified in section 113, and section 158BB(5) charges that tax on the total undisclosed income determined under section 158BB(1). Section 158BFA(1) imposes simple interest at one and one-half per cent of the tax on undisclosed income determined under section 158BC(1)(c) for every month or part of a month from the day after the expiry of the time specified in the section 158BC notice to the date of completion of the assessment, where the block return is not furnished within that time or is not furnished. Section 158BFA(2) empowers the Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under the Chapter, to direct payment of a penalty equal to fifty per cent of the tax leviable on the undisclosed income determined under section 158BC(1)(c). The first proviso bars any order imposing penalty under section 158BFA or under section 271AAD(1), 271D, 271DA or 271E for the block period where the four conditions in clauses (i) to (iv) are satisfied, and the second proviso disapplies that bar to the extent the determined undisclosed income exceeds the income shown in the return, penalty being imposed on the excess. Section 158BFA(3) contains the hearing requirement, the approval requirement for penalties above two lakh rupees, and three limitation rules; section 158BFA(4) contains two exclusions and two rounding provisos; section 158BFA(5) requires a copy of the penalty order to be sent to the Assessing Officer where it is made by another authority. The matter was decided on 2024-09-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. The total undisclosed income of the block period is chargeable at sixty per cent under section 113, increased by surcharge levied by any Central Act. Interest under section 158BFA(1) runs at one and one-half per cent a month to the date of completion of the assessment where the block return is late or not furnished. Penalty under section 158BFA(2) is a sum equal to fifty per cent of the tax leviable on the undisclosed income determined by the Assessing Officer, subject to the immunity in the first proviso and its qualification in the second.
Not a judicial route. The design is a fixed, predictable levy in place of the old discretionary range, coupled with a bargain. The bargain is the first proviso: an assessee who returns his undisclosed income within the period allowed, pays the tax with evidence, and does not litigate the assessment of what he has returned, escapes not only the block penalty but the fake-invoice and cash-transaction penalties for the whole block period. The second proviso keeps the department's position on anything the assessee has not returned. Interest and penalty are separated by function — interest attaches to delay in filing and now runs to completion of the assessment, penalty attaches to the undisclosed income determined. Section 113 itself was cut back so that the surcharge limb no longer identifies the Central Act by reference to the assessment year of the search, which removes from the revived Chapter the drafting that produced the litigation about retrospective surcharge under the 1995 Chapter. In the words reproduced by the source cited on this page: "The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that the person shall pay by way of penalty a sum which shall be equal to fifty per cent of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of sub-section (1) of section 158BC:"
It was decided by the CBDT Circulars & Instructions on 2024-09-01 and is reported as Income-tax Act 1961, s.113 as amended by the Finance (No. 2) Act 2024 (Act No. 15 of 2024) w.e.f. 1 September 2024 and by the Finance Act 2025 (Act No. 7 of 2025) w.r.e.f. 1 September 2024; s.158BFA substituted w.e.f. 1 September 2024 by s.49 of the Finance (No. 2) Act 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 113, section 158BFA, section 158BC, section 158BA, section 271AAD, section 271D, section 271DA, section 271E, section 132B, section 246A, section 253, section 263, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. The total undisclosed income of the block period is chargeable at sixty per cent under section 113, increased by surcharge levied by any Central Act. Interest under section 158BFA(1) runs at one and one-half per cent a month to the date of completion of the assessment where the block return is late or not furnished. Penalty under section 158BFA(2) is a sum equal to fifty per cent of the tax leviable on the undisclosed income determined by the Assessing Officer, subject to the immunity in the first proviso and its qualification in the second. It arises in Search, Survey & Block Assessment, Penalty, Assessment & Scrutiny and How Tax Law Is Read matters, on section 113, section 158BFA, section 158BC, section 158BA, section 271AAD, section 271D, section 271DA, section 271E, section 132B, section 246A, section 253, section 263 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the client can fund it, take the first proviso to section 158BFA(2) seriously. File the block return within the period allowed, pay the tax on it or offer the seized money for adjustment under section 132B, attach evidence of payment to the return, and then do not appeal against the assessment of the income shown in the return. Weigh that immunity against the appeal. The condition is not that no appeal at all is filed but that no appeal is filed against the assessment of that part of the income which is shown in the return — read the second proviso with it and confirm on the facts which part of the addition you would be conceding. Where the officer determines more than the returned figure, insist that penalty is imposed only on the excess: the second proviso says so in terms. Check the procedural bars in section 158BFA(3): no penalty without a reasonable opportunity of being heard; no penalty above two lakh rupees by a Deputy or Assistant Commissioner or Director without the previous approval of an Additional or Joint Commissioner or Director; and the three separate limitation rules in clauses (c), (d) and (e). Do not assume any of the section 271AAA or section 271AAB learning applies. Those sections are not mentioned in the first proviso to section 158BFA(2), and the penalty regime for the block period is the one in section 158BFA.
Still good law. In force for a search initiated on or after 1 September 2024. Two of the corroborating URLs above are ARCHIVED versions (section 158BFA stamped Year 2019 (No. 1) and section 113 stamped Year 2015) and are cited only to show the superseded text; they must not be used to state the present law. Validity check could not be completed on an independent route: no decision applying the substituted section 158BFA or the amended section 113 was located, and no judgment reproducing either was found. CIT v Vatika Township, which is already in this library, is authority on the surcharge proviso to section 113 as it stood before the 2024 amendment, and the words it construed have since been omitted. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The brief for this slice described section 158BFA(2) as a penalty of 'up to fifty per cent' of the tax on undisclosed income. The text does not say that. It says 'a sum which shall be equal to fifty per cent of tax so leviable', which fixes the quantum; the discretion left by the word 'may' is whether to direct a penalty at all. I read that sentence twice on separate passes of the departmental page stamped Year 2026 and it came back word for word identical both times, and the archived page stamped Year 2019 (No. 1) prints the superseded 'not less than the amount of tax leviable but which shall not exceed three times' formulation, which shows the change is real. Section 113 was read on a departmental page stamped Year 2025; no Year-2026 page for section 113 was located, and archived pages stamped Year 2015 and Year 2018 both print the longer surcharge proviso, which confirms the omission. The section 113 page carries footnotes recording that the word 'undisclosed' was omitted by Act No. 15 of 2024 with effect from 1 September 2024 and re-inserted by Act No. 7 of 2025 with retrospective effect from the same date, and that the words tying surcharge to the assessment year were omitted by Act No. 15 of 2024. Neither section 113 nor section 158BFA could be corroborated on an independent route; no judgment reproducing either in its substituted form was located. This is a statutory entry and not a decision: 'bench' and 'favours' carry no case values, 'tier' is set to 'cbdt' because the library's fixed tier vocabulary has no value for a statutory entry and the source is the Income-tax Department's own section pages rather than a Board circular, and 'decided_on' is not a date of decision but the date the substituted Chapter XIV-B commences, 1 September 2024. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory text. The total undisclosed income of the block period is chargeable at sixty per cent under section 113, increased by surcharge levied by any Central Act. Interest under section 158BFA(1) runs at one and one-half per cent a month to the date of completion of the assessment where the block return is late or not furnished. Penalty under section 158BFA(2) is a sum equal to fifty per cent of the tax leviable on the undisclosed income determined by the Assessing Officer, subject to the immunity in the first proviso and its qualification in the second.
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