B.—Special procedure for assessment of search cases

Assessment of income pertaining to the block period.

292(1)

Irrespective of any other provision of this Act, where on or after the commencement of this Act, in the case of any person, search is initiated or requisition is made, then, the Assessing Officer shall proceed to assess or reassess the total income of the block period as per this Chapter.

292(2)

The assessment or reassessment or recomputation proceedings under the provisions of this Act (other than this Chapter), if any, pertaining to any tax year falling in the block period, pending on the date of initiation of search, or the date of making of requisition, shall abate and shall be deemed to have been abated on such date.

292(3)

If any reference has been made under section 166(1) or order has been passed under section 166(6), the assessment or reassessment or recomputation proceedings, referred to in sub-section (2) together with such reference or order shall abate on the date referred to in sub-section (2).

292(4)

If any assessment under the provisions of this Chapter is required to be made in the case of an assessee, in whose case a search is initiated or a requisition is made subsequently––

• (a) such pending assessment shall be duly completed;
• (b) assessment in respect of such subsequent search or requisition shall be made thereafter under the provisions of this Chapter; and
• (c) if the period available for assessment in clause (b) is less than three months, such period shall be extended to three months from the end of the month in which the assessment, as referred to in clause (a) was completed.

292(5)

Irrespective of anything contained in any other provision of this Act, if any proceeding initiated or completed under this Chapter has been annulled in an appeal or any other legal proceeding, then––

• (a) the assessment or reassessment or recomputation or reference or order which has abated under sub-section (2) or (3), shall revive with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner;
• (b) the revival, as referred to in clause (a) shall cease to have effect, if such order of annulment is set aside.

292(6)

The income (other than undisclosed income) of the tax year in which the last of the authorisations for a search is executed or a requisition is made, shall be assessed separately as per other provisions of this Act.

292(7)

The total income pertaining to the block period, as referred to in section 293(5) shall be charged to tax at the rate specified in section 192, irrespective of the tax year or years to which such income pertains.

Explanation

Section Summary:

This section outlines the special procedure for assessing income in cases where a search or requisition has been initiated under the Income Tax Act. It focuses on the assessment of income for the "block period," which is the period covering the financial years relevant to the search or requisition. The section ensures that any pending assessments or reassessments for the block period are abated (halted) and replaced by a consolidated assessment under this special procedure.

Key Changes:

1. Consolidated Assessment for Block Period: Unlike the previous system, where assessments were done year-by-year, this section mandates a consolidated assessment for the entire block period following a search or requisition.
2. Abatement of Pending Proceedings: Any ongoing assessment, reassessment, or recomputation proceedings for the block period are abated (halted) upon the initiation of a search or requisition.
3. Revival of Abated Proceedings: If the special assessment under this section is annulled (canceled) in an appeal or legal proceeding, the abated proceedings revive.
4. Separate Assessment for Current Year: Income for the year in which the search or requisition is executed is assessed separately under normal provisions, not as part of the block period.

Practical Implications:

1. For Taxpayers: Taxpayers subject to a search or requisition will face a consolidated assessment for the block period, which may simplify or complicate compliance depending on the nature of their income and records.
2. For Businesses: Businesses must ensure that their records are accurate and complete for the entire block period, as discrepancies discovered during a search could lead to significant tax liabilities.
3. For Assessing Officers: Officers must follow the special procedure for block period assessments, ensuring that pending proceedings are abated and that the consolidated assessment is completed within the specified timeframe.

Critical Concepts:

1. Block Period: The period covering the financial years relevant to the search or requisition. It includes the years for which income is being reassessed due to the search.
2. Abatement: The halting or suspension of ongoing assessment, reassessment, or recomputation proceedings upon the initiation of a search or requisition.
3. Annulled Proceedings: If the special assessment is canceled in an appeal or legal proceeding, the previously abated proceedings revive, and the Assessing Officer must continue with them.

Compliance Steps:

1. Maintain Comprehensive Records: Taxpayers should ensure that all financial records for the block period are accurate and complete.
2. Respond to Notices: If a search or requisition is initiated, taxpayers must cooperate with the Assessing Officer and provide all necessary documentation.
3. Monitor Pending Proceedings: If any assessments were pending before the search, taxpayers should be aware that these will be abated and replaced by the special assessment.

Examples:

1. Scenario 1: A taxpayer is under assessment for the financial years 2018-19 and 2019-20. A search is initiated in 2023, and the Assessing Officer identifies undisclosed income for 2017-18 to 2020-21. The pending assessments for 2018-19 and 2019-20 are abated, and a consolidated assessment is made for the block period (2017-18 to 2020-21).
2. Scenario 2: A business undergoes a search in 2023, and the Assessing Officer completes the special assessment for the block period. However, the taxpayer appeals the assessment, and it is annulled. The previously abated assessments for 2018-19 and 2019-20 revive, and the Assessing Officer must continue with those proceedings.

This section ensures a streamlined approach to assessing income in search cases, balancing the need for thorough investigation with procedural efficiency.