Section 294 Procedure for block assessment

Income-tax Act, 2025

At a Glance

The document is Clause 294 of the Income Tax Bill, 2025 (Old Version): a proposed special procedure for block assessment in search/requisition cases. It matters because it prescribes the notice, return and consequential assessment procedure in high-risk search cases, affecting taxpayers subject to searches and the assessing authority. Who is affected: taxpayers subject to search/ requisition and the Income-tax Department. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 294, Income Tax Bill, 2025 (Old Version). Context: procedure to be followed where a search has been initiated or requisition made. Coverage: issuance of notice requiring a return for the block period, treatment of such return, procedural cross-references for assessment and penalties, treatment of seized/requisitioned assets, and prior approval before issuing notice. Definitions or further explanations: Not stated in the document.

Statutory Provision Mode

Text & Scope

• Clause 294 addresses situations where a search is initiated or requisition made. The Assessing Officer (AO) must issue a notice requiring the person to furnish, within the period specified (not exceeding sixty days), a return "in the form and verified in the manner, as prescribed," setting forth the total income, including undisclosed income, for the block period. The return is to be treated as if furnished u/s 263 and thereafter a notice u/s 270(8) shall be issued. Returns furnished beyond the period are declared not to be returns u/s 259. No notice u/s 280 is required. A person who furnishes such return is not entitled to file a revised return.
• The AO shall proceed to determine the total income including the undisclosed income for the block period per section 293, and specified provisions (sections 268, 270(8), 270(10), 271, 276, 287 and 288) shall, so far as may be, apply. On such determination, the AO shall pass an order of assessment or reassessment and determine tax payable, with the proviso that section 275 shall not apply; additionally, where the order is made pursuant to section 295, the block period for that assessment shall be the same as that determined in respect of the person in whose case the search was initiated. Assets seized u/s 247 or requisitioned u/s 248 shall be dealt with per section 250. Section 270(1) shall not apply to the return furnished under this section. Prior approval of senior specified officers is required before issuing the notice.

Interpretation

Legislative intent as indicated by the text: to create a distinct, expedited procedure for block assessment following searches/requisitions, by compelling a targeted return within a strict timeframe, limiting revision rights, and specifying which procedural and penal provisions apply. The treatment of such returns "as if" u/s 263 suggests an intent to subject such returns to a particular return regime while ensuring downstream procedure u/s 270(8). The prohibition on revision and on section 270(1) suggests an intent to fix the record and limit post-disclosure tinkering. The requirement for prior supervisory approval indicates a policy of internal checks before initiating the block return procedure.

Exceptions/Provisos

Carve-outs and conditions in the Clause: (i) Section 275 does not apply to orders passed under this Clause; (ii) where assessment/reassessment is u/s 295, block period alignment rule applies (Bill only); (iii) returns filed after the specified period are not deemed returns u/s 259; (iv) section 270(1) does not apply to such returns. Additional procedural limitations: no revised return permitted; no section 280 notice required. Any thresholds, time limits beyond the sixty-day specification: Not stated in the document beyond the sixty-day maximum and the immediate treatment described.

Illustrations

• Example 1: A search of A's premises leads the AO to issue a clause 294 notice requiring a return within sixty days setting out A's total income including undisclosed income for the block period; A files the return on day 45. The AO treats the return as if u/s 263 and issues notice u/s 270(8) and proceeds under the specified sections to determine tax. (Consistent with text.)
• Example 2: B files a return in response to a clause 294 notice after the sixty-day period. Under the Clause, that late return "shall not be deemed to be a return u/s 259" (textual provision), and thus would be excluded from the returns regime referenced. (Consistent with text.)
• Example 3: C is assessed pursuant to section 295 as part of connected proceedings initiated by a search in D's case; the AO sets the block period for C to be the same as for D. (Consistent with clause (c)(ii) in the Bill.)

Interplay

Interaction with other sections mentioned: the Clause expressly imports section 263 procedures for deeming the return, requires issuance of notice u/s 270(8), and prescribes that several other specified sections "shall, so far as may be, apply" (268, 270(8), 270(10), 271, 276, 287, 288). The Clause excludes application of section 275 to resulting orders and excludes section 270(1) from application to the special return. The Clause further references sections 247, 248 and 250 for treatment of seized/requisitioned assets and section 295 for block-period alignment. Any rules, notifications or circulars beyond these sections: Not stated in the document.

Differences between the two provisions and practical impact of each change

• Content of the return required: The Bill (Clause 294 - Old Version) requires the assessee to furnish "a return ... setting forth his total income, including the undisclosed income, for the block period." The Act (Section 294) requires a return "setting forth his undisclosed income, for the block period."
  • Practical impact: The Bill's wording would have required a composite disclosure of total income plus undisclosed income, potentially generating fuller self-contained disclosures for assessment. The Act narrows the disclosure requirement to undisclosed income only, which may limit the scope of what the assessee must put on record via the special return and could shift emphasis to determination of undisclosed amounts by the AO using other material.
• Provision for extension (30 days) and conditional grounds: The Act contains an express sub-clause permitting a further extension of 30 days where four specific conditions (A-D) are satisfied (relating to due date not having expired, audit liability u/s 63, accounts not audited, and written request for extension to get accounts audited). The Bill does not contain this extension provision.
  • Practical impact: The Act's explicit extension mechanism gives assessees an administrative safeguard to arrange an audit and furnish audited accounts, reducing risk of procedural non-compliance. The absence of this in the Bill would have imposed a stricter sixty-day deadline with no specified statutory extension, increasing compliance pressure and potential disputes over timeliness.
• Cross-references to other sections (applicable provisions): The Bill lists the provisions to be applied "so far as may be" as sections 268, 270(8), 270(10), 271, 276, 287 and 288. The Act lists sections 268, 270(8), 270(10), 271, 276, 277 and 278.
  • Practical impact: Different cross-references change which penalty, prosecution or procedural provisions are available. The Bill's inclusion of sections 287 and 288 (and omission of 277/278) would have applied different penal/process provisions than the Act's choice of 277 and 278. This affects potential penalties, prosecution exposure, and consequential procedural steps; taxpayers and authorities will need to re-evaluate the risk/relief profile as per the final list.
• Returns filed beyond the time allowed - cross-reference discrepancy: The Bill states that any return beyond the period "shall not be deemed to be a return u/s 259" (anomalous reference). The Act states that any return beyond the period "shall not be deemed to be a return u/s 263."
  • Practical impact:The Bill appears to contain an incorrect cross-reference (section 259) which would create ambiguity and possible challenge; the Act corrects this to section 263. The correct cross-reference determines which statutory regime governs validity of late returns in search/block cases, hence critical to procedural consequences.
• Additional provision in Bill regarding block period alignment where order pursuant to section 295: The Bill contains an additional sub-clause (c)(ii) providing that where assessment/reassessment is made pursuant to section 295, "the block period for such assessment or reassessment shall be the same as that determined in respect of the person in whose case search was initiated..." The Act lacks an equivalent clause.
  • Practical impact:The Bill's clause would have ensured synchronized block periods across related assessments triggered by the same search, clarifying temporal reach of linked proceedings. Its omission in the Act leaves uncertainty whether block periods in consequential proceedings automatically mirror the original searched person's block period; this may affect limitations and taxable periods in follow-on assessments.
• Minor language and chapter/part references: The Bill refers to "as prescribed" and to proceedings "under this Chapter"; the Act uses "as may be prescribed" and "under this part."
  • Practical impact: Largely stylistic; however, "as may be prescribed" can be read as preserved legislative discretion. The chapter/part wording difference is terminological and unlikely to have substantive legal effect but should be noted for drafting clarity.
• Common features preserved: Both versions require prior approval of an Additional Commissioner/Additional Director/Joint Commissioner/Joint Director before issuance of the notice; both disallow revision of a return filed under the provision; both state no notice u/s 280 is required for proceeding.
  • Practical impact: These consistent elements preserve administrative checks and constrain assessee's ability to revise disclosures made under the special procedure.

Practical Implications

• Compliance risks: Filing within the sixty-day window is mandatory; late filings are expressly rendered not to be returns under the cross-referenced provision (section 259 in the Bill), exposing taxpayers to adverse procedural consequences. The inability to file revised returns increases the stakes of initial disclosure entries.
• Record-keeping: Taxpayers facing search/requisition should be prepared to compile and submit a full return of total income and undisclosed income for the block period within sixty days, along with supporting documents. Maintenance of contemporaneous books and auditable records will be crucial.
• Audit/assessment strategy: The AO will apply the specified sections to determine undisclosed income, and the exclusion of section 275 indicates penalties under that section will not attach to these orders, though other penalties/prosecutions under the listed sections may apply.
• Approval requirement: Prior approval by senior officers before issuing the notice imposes an internal control in the Department's process; taxpayers should monitor exercise of that supervisory check.
• Interconnected assessments: Whether block periods of consequential assessments must align (per clause (c)(ii)) may affect limitation and evidence strategies in linked cases; practitioners should note the Bill's explicit alignment provision.

Key Takeaways

• Clause 294 prescribes a targeted return procedure in search/requisition cases with a strict sixty-day deadline and no right to revise the return.
• The return is to be treated "as if" u/s 263 and triggers a notice u/s 270(8); section 270(1) does not apply.
• Certain penal/procedural sections are specified to apply "so far as may be" (268, 270(8), 270(10), 271, 276, 287, 288), while section 275 is excluded.
• Clause contains a special alignment rule for block periods where assessment follows section 295.
• Seized or requisitioned assets are to be dealt with u/s 250; prior approval of senior officers is required before issuing the notice.
• The Bill's reference to section 259 for late returns appears anomalous and would create ambiguity in application.
• Practical compliance: rapid assembly of records, attention to timelines, and careful drafting of the initial return are essential.

Full Text:

Section 294 Procedure for block assessment