Section 158BC

Section 158BC — the law in short

What the courts have decided on section 158BC, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• N.K. Proteins Ltd v DCIT Supreme CourtHelps departmentValidity unconfirmed
  Can the whole of a bogus purchase be added, rather than a percentage?
  On this line of authority, yes. The special leave petitions were dismissed, upholding the High Court, and the effect reported is that the 25% restriction was rejected and the entire fictitious purchase amount fell to be added.
• CIT v Vatika Township P Ltd Supreme CourtHelps taxpayer
  An amendment adds a new levy. Does it reach back to earlier years?
  Not unless the statute says so. Legislation is presumed not to operate retrospectively, and that presumption applies with full force where the amendment imposes a new burden. Only clarificatory or beneficial amendments may be read back.
• CIT v Mukundray K. Shah Supreme CourtHelps departmentValidity unconfirmed
  The company and I have a mutual, open and current account with money moving both ways. Is the deemed dividend the closing debit balance, the highest debit balance during the year, or something else? And can the Department tax money that reached me through a firm rather than directly?
  Neither the closing balance nor the peak. The Supreme Court, adopting the Bombay High Court's reasoning in P.K. Badiani, held that the position must be ascertained at the date of each payment: every debit is examined individually, it is a loan only to the extent it exceeds the company's existing debt to the shareholder, and it is taxable only to the extent of accumulated profits existing on that date. The Court also upheld the taxing of money routed to the shareholder through partnership firms used as conduits, as a payment for his individual benefit.
• Manish Maheshwari v ACIT Supreme CourtHelps taxpayer
  What has to happen before a search at someone else's premises can be used against you?
  Three things, in order: satisfaction recorded that the undisclosed income is yours, the seized material handed to your Assessing Officer, and only then proceedings begun against you. They are conditions precedent, not formalities.
• ACIT v Hotel Blue Moon Supreme CourtCuts both ways
  Is a notice under s.143(2) a jurisdictional precondition, or merely a procedural step the Assessing Officer can skip?
  The Revenue argued that in a block assessment under Chapter XIV-B the words 'so far as may be' in s.158BC(b) made the s.143(2) notice optional. The Supreme Court rejected this and held that where the Assessing Officer repudiates the return and proceeds to enquire, the s.143(2) notice must be issued within the prescribed time. Omission to issue it is not a curable procedural irregularity.
• Saroj Kumar Sahoo v National Faceless Assessment Centre High CourtHelps departmentValidity unconfirmed
  My scrutiny assessment was still running when they searched me in November 2024. Section 158BA(2) says a pending assessment abates. Can I have the assessment order quashed in a writ on that ground alone?
  Not on that ground alone. The Orissa High Court accepted that a search initiated on or after 1 September 2024 puts the case in the revived block assessment regime of Chapter XIV-B and that s.158BA(2) abates a pending assessment for any year in the block period, but it refused to quash the order because nothing on the record showed that the search had unearthed any undisclosed income of this petitioner, and it relegated him to his appeal.
• Kamal Nayan Singh v DCIT High CourtHelps taxpayerValidity unconfirmed
  I filed my section 254(2) application in 2014 when four years were allowed. The Tribunal dismissed it in 2017 applying the new six months. Can it do that?
  No, on the Jharkhand High Court's view. The Tribunal must apply the law prevailing on the date the miscellaneous application was FILED, not the law prevailing on the date it happens to hear it. An application filed before 1 June 2016, within the then four-year period, cannot be thrown out by applying the six-month period substituted by the Finance Act 2016.
• CIT v Harjeev Aggarwal High CourtCuts both ways
  The department is taxing me on what I admitted in my statement during the search. Can an addition rest on that statement alone?
  No. The Delhi High Court held that a statement recorded under section 132(4) is not itself "evidence found as a result of search" for the purposes of section 158BB(1). It is information, and it can support a block assessment only so far as it is relatable to incriminating material actually unearthed in the search. A standalone admission, with no document or asset behind it, cannot trigger a block assessment. On the facts, though, the Court found there was such material - a diary of unaccounted sales and books that did not record admittedly cash payments - so the addition of Rs.74 lakh was restored.
• Indus Finance Corporation Ltd v CIT High CourtHelps departmentValidity unconfirmed
  The appeal has been decided against me. Can I now file a section 154 application raising the point I dropped in that appeal?
  No. Section 154(1A) permits rectification only in relation to a matter OTHER than one considered and decided in appeal or revision, and the Madras High Court held that what is excluded from rectification is what has already been the subject matter of appeal. A point that was raised in the appeal and then abandoned is a new plea dressed up as a rectification, not a mistake apparent from the record, and a section 154 application is not a second chance at a plea you gave up.
• Ashok Chaddha v Income Tax Officer High CourtHelps department
  My post-search assessment under section 153A was completed without any notice under section 143(2). Does Hotel Blue Moon make that fatal?
  No. The Delhi High Court held that there is no specific provision in the Act requiring an assessment under section 153A to be preceded by a notice under section 143(2). Hotel Blue Moon turned on clause (b) of section 158BC, which expressly applies sub-sections (2) and (3) of section 143 to a block assessment; section 153A contains no such provision. The words 'so far as may be' in clause (a) of section 153A(1) cannot be stretched to make a section 143(2) notice mandatory, because a specific notice is already required under that clause calling for the return. In any event the two detailed questionnaires issued here served the purpose. The appeal was dismissed.
• CIT v Ratanlal Vyaparilal Jain High CourtHelps taxpayer
  Does the jewellery instruction explain the source of the gold, or only stop the department seizing it?
  It explains the source, to the extent of the quantities in it. The Gujarat High Court held that the Board's circular proceeds on recognised customs prevailing in Hindu society, so possession of jewellery within those quantities is taken to be explained unless the Revenue shows otherwise.
• CIT v S.K. Katyal High CourtHelps taxpayer
  The last panchnama only records the seals being broken and my keys being handed back. Does that date start the limitation clock?
  No. The panchnama that fixes limitation is the one that records the conclusion of a search, and a document drawn up only to give effect to the revocation of a s.132(3) restraint order records no search at all. The Delhi High Court agreed with the Tribunal that such a panchnama is "merely a release order", so the search had concluded on the earlier date and the block assessment was out of time.
• D. Komalakshi v Dy. CIT — no money, no appeal: the section 249(4) bar bites even where the whole search and the block assessment are challenged High CourtHelps departmentValidity unconfirmed
  My client wants to challenge the search itself and the jurisdiction to make a block assessment. He has filed a block return but has no funds to pay the tax on the returned undisclosed income. Can the Commissioner (Appeals) refuse to admit the appeal?
  Yes. Where a return has been filed, s.249(4)(a) makes payment of the tax due on the returned income a condition of admission, and a challenge to the search or to the jurisdiction under s.158BC does not displace it. The Karnataka High Court upheld the Commissioner (Appeals) and the Tribunal in refusing to admit the appeals, answering the questions of law against the assessees — but, on the assessees' counsel undertaking that they would pay, gave them four weeks to make good the admitted tax and directed that if they did, the Commissioner (Appeals) must hear the appeals on merits uninfluenced by the earlier proceedings.
• ACIT v Md. Illyas Hussain — the section reads "issue", not "serve": the Revenue's side of the section 143(2) point in a block assessment ITATHelps departmentValidity unconfirmed
  The Commissioner (Appeals) annulled the block assessment because no section 143(2) notice was served. Can the department save it by showing the notice was issued?
  The Patna Tribunal held that it could. It read section 158BC as requiring only the ISSUE of a notice under section 143(2) and not its service, found on the record that a notice had been issued on 20 August 1999 and received at the assessee's address, and added that in any event the assessee's block return, filed after the time allowed, was an invalid return so that no section 143(2) notice was required at all. It set aside the annulment and restored the appeal to the Commissioner (Appeals) to be decided on the merits.
• Sonaj And Company v DCIT — a belated block return under the 1995 Chapter is still a valid return, and the 2024 amendment proves it ITATHelps taxpayerValidity unconfirmed
  The block return was filed after the time given in the section 158BC notice and the notice under section 143(2) came more than twelve months later. The department says the return was non est. Is it?
  For a search governed by the 1995 Chapter XIV-B, no. The Pune Tribunal held that there was no provision in the erstwhile section 158BC making a block return filed beyond the time specified in the notice non est, so the belated return was a valid return, the notice under section 143(2) had to issue within twelve months of the end of the month in which it was filed, and a notice issued later made the block assessment null and void. The Tribunal reached that conclusion partly BECAUSE the amended section 158BC, applicable from 1 September 2024, now says expressly that a return furnished beyond the period allowed shall not be deemed to be a return under section 139 — a provision it treated as absent from the earlier law.
• T.S. Kumarasamy v Assistant Commissioner of Income-Tax ITATCuts both ways
  In my block assessment the officer said my seized books were unreliable, and then taxed the loan entries in those same books as undisclosed income. Can he have it both ways?
  No. The Chennai Bench deleted the addition of Rs 1.68 crores. An officer who doubts the veracity of the accounts cannot at the same time rely on entries in them to make an addition; that is blowing hot and cold in the same breath. Section 132(4A) requires the contents of books found in a search to be presumed true, so it is not open to the officer to say the loan entries are false, and loans recorded in the books are not undisclosed income within section 158B(b). The estimate that half the remaining creditors were bogus, drawn from an enquiry with four out of 43 whose report was never put to the assessee, was arbitrary. The Rs 50 lakhs admitted on oath, however, could not be retracted.
• Statutory position — section 158BB: how the block figure is built, what is kept out of it, and why Abhisar Buildwell does not simply carry across CBDT Circulars & InstructionsCuts both ways
  The block assessment adds amounts for which nothing was found in the search. Can I take the Abhisar Buildwell point that there must be incriminating material?
  Not in the form in which that case decides it, because Abhisar Buildwell construes section 153A and section 158BB is worded differently. Section 158BB(1) makes the total undisclosed income of the block period the aggregate of only two things — what the assessee declares as undisclosed income in his section 158BC return, and what the Assessing Officer determines under section 158BB(2); and section 158BB(2) requires that determination to be made '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'.
• Statutory position — section 158BC: the sixty-day notice, the two approvals, and the traps that kill a block assessment CBDT Circulars & InstructionsCuts both ways
  My client has a section 158BC notice for a March 2025 search. How long has he got, what happens if he files late, and is there a section 153D approval to attack?
  The notice must give a period not exceeding sixty days for the block return, and that period can be extended by a further thirty days only in the narrow audit case described in the fifth proviso. If the return goes in after the period allowed, the second proviso says in terms that it 'shall not be deemed to be a return under section 139' — so a late block return is non est, with consequences that run all the way to the notice under section 143(2). There is no section 153D approval in a block assessment; the approvals are elsewhere — section 158BC(3) requires the prior approval of the Additional or Joint Commissioner or Director BEFORE the section 158BC notice is issued, and section 158BG requires the previous approval of the same rank BEFORE the assessment order is passed.
• Statutory position — section 158BE: the block assessment is barred twelve months from the end of the QUARTER, not the month CBDT Circulars & InstructionsCuts both ways
  The last panchnama in my client's search is dated 9 April 2025. By when must the block assessment order be passed?
  Twelve months from the end of the QUARTER in which the last of the authorisations was executed — so, on those facts, from the end of the quarter ending 30 June 2025, which gives 30 June 2026, subject to the exclusions and extensions in the section. The old Chapter ran the period from the end of the MONTH; the substituted section 158BE runs it from the end of the quarter, which can add up to nearly three months to the department's time.
• Statutory position — the block charge: sixty per cent under section 113, interest at one and a half per cent, and a flat fifty per cent penalty under section 158BFA(2) CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — section 158BD: the person who was not searched, and the two things that have changed for him CBDT Circulars & InstructionsCuts both ways
  Material seized in someone else's search has been passed to my client's Assessing Officer, who has issued a section 158BC notice. What is my client's block period, and from when does the department's time run?
  Your client's block period is not computed from his own affairs at all — it is the block period of the searched person. Where there is one specified person relevant to him, the first proviso to section 158BD makes his block period the same as that person's; where there is more than one, it is that of the specified person whose block period ends on the later date. Time for the department runs under section 158BE(3): twelve months from the end of the quarter in which the section 158BC notice was issued to your client.
• Statutory position — section 158BA(2) to (6): what abates on a search, what revives if the block order falls, and why the search year is assessed twice CBDT Circulars & InstructionsCuts both ways
  A search took place in November 2024 while my client's scrutiny assessment for an earlier year was pending. What happens to that assessment, and what happens if the block assessment is later annulled?
  The pending assessment abates. Section 158BA(2)(a) provides that any assessment, reassessment or recomputation under provisions other than Chapter XIV-B, pertaining to any assessment year falling in the block period and pending on the date of initiation of the search or the making of the requisition, shall abate and be deemed to have abated on that date. If the block proceeding or the block order is later annulled in appeal or other legal proceedings, section 158BA(5) revives the abated proceeding from the date the Principal Commissioner or Commissioner receives the order of annulment — and the revival itself ceases if the annulment is set aside.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.