TaxTMI 
TaxTMI 
Relief from Interest and Penalty in Search Assessments : Clause 297 of the Income Tax Bill, 2025 Vs. Section 158BF of the Income-tax Act, 1961
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....sts of revenue collection with principles of fairness and equity for the assessee. The legal landscape surrounding search assessments has evolved in response to legislative reforms, judicial pronouncements, and policy considerations. This commentary undertakes a detailed legal analysis of Clause 297, explores its objectives, practical implications, and compares it with the corresponding provision in the existing legal regime, Section 158BF, to highlight continuities, departures, and potential legal consequences. 2. Objective and Purpose Legislative Intent The primary objective behind Clause 297 and its predecessor, Section 158BF, is to provide relief to assessees from the imposition of certain interests and penalties in respect of undisc....
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....e 297 of the Income Tax Bill, 2025 3.1 Text of Clause 297 Interest u/s 423, 424 or 425 or penalty u/s 439 shall not be levied or imposed upon the assessee for the undisclosed income assessed or reassessed for the block period. 3.2 Breakdown of Key Provisions * Exemption from Interest: Clause 297 specifies that no interest u/ss 423, 424, or 425 is to be levied on the assessee in respect of undisclosed income assessed or reassessed for the block period. These sections, while renumbered in the 2025 Bill, are analogous to the existing sections 234A (interest for default in furnishing return), 234B (interest for default in payment of advance tax), and 234C (interest for deferment of advance tax) under the Income-tax Act, 1961. * Exemption....
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....of certain items. * Overlap with Other Penalty Provisions: Clause 297 only exempts penalty u/s 439. If other penalty provisions exist for procedural defaults or other infractions, their applicability in the context of search assessments may require clarification. * Scope of "Assessed or Reassessed": The phrase "assessed or reassessed" ensures that relief is available both in the initial block assessment and in subsequent reassessment proceedings, but may invite litigation if the nature of reassessment is disputed. 4. Practical Implications 4.1 Impact on Assessees The exemption from interest and penalty offers significant relief to assessees subject to search assessments. It reduces the financial burden by limiting the consequences to....
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....e new legislative framework (sections 423, 424, 425, and 439 in place of 234A, 234B, 234C, and 270A respectively). 5.2 Evolution of the Provision Section 158BF has itself undergone amendments over time. The original provision referred to penalty u/s 271(1)(c), 271A, or 271B, but was later updated to refer to section 270A, reflecting changes in the penalty regime. Clause 297 continues this approach, aligning with the current structure of the penalty and interest sections in the new Bill. 5.3 Scope and Coverage * Interest: Both provisions exempt the assessee from interest for delay in filing return, default in payment of advance tax, and deferment of advance tax for undisclosed income assessed in a search case. * Penalty: Both provisio....
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....ansition from the 1961 Act to the 2025 Bill may give rise to transitional issues, particularly in cases where search proceedings straddle the old and new regimes. Legislative guidance or clarificatory circulars may be required to address such scenarios and ensure consistent application. 6. Practical Implications for Stakeholders 6.1 For Assessees * Provides certainty and reduces exposure to additional financial liabilities in search cases. * Encourages cooperation and disclosure during search proceedings. * Requires careful classification of income to ensure that only "undisclosed income" for the block period is claimed as exempt from interest and penalty. 6.2 For Tax Practitioners * Necessitates vigilance in advising clients on ....