Certain interests and penalties not to be levied or imposed.

297. Interest under section 423, 424 or 425 or penalty under section 439 shall not be levied or imposed upon the assessee for the undisclosed income assessed or reassessed for the block period.

Explanation

Section Summary:

Section 297 of the new income tax law in India states that no interest or penalty will be levied on an assessee for undisclosed income that is assessed or reassessed for the block period. This section applies specifically to cases where undisclosed income is identified during a block assessment, which is a special assessment process for a specific period (usually 10 years) in cases of search and seizure operations.

Key Changes:

• Prior Law: Under the previous income tax law, interest under sections 423, 424, or 425 and penalties under section 439 could be imposed on undisclosed income identified during a block assessment.
• New Law: The new law explicitly prohibits the imposition of such interest and penalties for undisclosed income assessed or reassessed during the block period.

Practical Implications:

• Taxpayers: Taxpayers who have undisclosed income identified during a block assessment will no longer face additional financial burdens in the form of interest or penalties. This reduces the overall tax liability for such cases.
• Businesses: Businesses involved in search and seizure cases will benefit from reduced financial stress, as they will not be liable for interest or penalties on undisclosed income for the block period.
• Compliance Processes: The tax authorities will no longer calculate or impose interest or penalties for undisclosed income in block assessments, simplifying the assessment process.

Critical Concepts:

• Block Period: A specific period (usually 10 years) for which income is assessed in cases of search and seizure operations.
• Undisclosed Income: Income that has not been declared or disclosed in the taxpayer's returns but is identified during a search or seizure operation.
• Sections 423, 424, 425: These sections pertain to the calculation of interest on unpaid or underpaid taxes.
• Section 439: This section deals with penalties for non-compliance or concealment of income.

Compliance Steps:

• For Taxpayers: Ensure that all income is disclosed in tax returns to avoid block assessments. If a block assessment occurs, taxpayers should be aware that no interest or penalties will be levied on undisclosed income for the block period.
• For Tax Authorities: When conducting block assessments, tax authorities should ensure that no interest or penalties are imposed on undisclosed income for the block period, in compliance with Section 297.

Examples:

• Scenario 1: A taxpayer undergoes a search operation, and undisclosed income of ₹50 lakh is identified for the block period (10 years). Under the new law, the taxpayer will only be liable to pay tax on the ₹50 lakh, without any additional interest or penalties.
• Scenario 2: A business is reassessed for a block period, and undisclosed income of ₹1 crore is identified. Previously, the business would have faced interest and penalties on this amount. Under the new law, the business will only pay tax on the ₹1 crore, with no additional charges.

This section provides relief to taxpayers by eliminating the financial burden of interest and penalties on undisclosed income during block assessments, making the tax process more straightforward and less punitive.