Computation of Total Undisclosed Income of the Block Period
Introduction
Section 158BB specifies the method for computing total undisclosed income during a block assessment. The Finance Act 2025 introduces a simplified computation mechanism, under which undisclosed income is the aggregate of (a) undisclosed income declared by the assessee and (b) undisclosed income determined by the Assessing Officer. Tax is chargeable at 60% under Section 113.
Computation of total undisclosed income
The total undisclosed income for the block period shall be:
- [A]Undisclosed income declared in the return furnished under Section 158BC;
Plus - [B]Undisclosed income determined by the Assessing Officer based on evidence or information found during search, requisition or proceedings.
The aggregate [C = A + B] is the total undisclosed income of the block period.
As per Section 158BB(7), brought-forward losses or unabsorbed depreciation from periods before the block period cannot be set off against undisclosed income but may be carried forward for future years.
Computation of disclosed income
Section 158BB(1A) prescribes the incomes to be excluded from undisclosed income. Disclosed income for all previous years falling within the block period is computed on the basis of:
- Income determined under Section 143(1).
- Income assessed before the date of search or requisition, including assessments under Sections 143, 144, 147 , 153A, 153C, 158BC, and orders under Section 245D(4).
- Income declared in returns filed before searchunder Section 139 or in response to Section 142(1).
- Income computed on the basis of entries recorded in books or other documents maintained in the normal course, covering:
- Previous year ended, but return not yet due;
- Period from 1st April of the year of search to the day before initiation;
- Period from initiation of search to execution of the last authorisation.
- Income taxable by TDS without mandatory return filing, i.e., under Sections 115A(5), 115G and 194P(1).
Basis for computing total income for each previous year
Section 158BB(1A) provides different bases depending on the status of return filing or assessment:
- Assessed incomewhere an assessment under Sections 143, 144, 147 , 153A, 153C, 158BC or 245D existed before search.
- Returned incomewhere returns were filed but not assessed.
- Income based on books/documentswhere the previous year ended, but the return due date had not expired before the search.
- Income determined for part periodsin the year of search, based on regular books/documents.
- Nil disclosed incomewhere the due date had expired, but the return was not filed; income declared in the Section 158BC return becomes undisclosed.
The Assessing Officer may recompute income determined under Section 158BB(1A)(c) if he forms the opinion that any part of such income is undisclosed.
Cases involving completed or pending assessments
For completed assessments, the assessed total income is treated as disclosed income. If rectification occurs, the rectified income is considered. Where appeals are pending, the returned income forms the basis. If an assessment was set aside but not completed before the search, the returned income is adopted.
Where the return filing is not mandatory
Under Section 158BB(1A)(d), income is treated as disclosed where tax has been deducted, and return filing is not required for:
- Non-residents or foreign companies earning income under Section 115A.
- NRIs with income taxable under Chapter XII-A.
- Resident senior citizens covered by Section 194P.
Special provisions for determining undisclosed income
Section 158BB(4) provides:
- In the case of a firm, income is computed before deducting salary, interest, commission, bonus, or remuneration to partners (other than working partners).
- Sections 68, 69, 69A, 69B and 69C apply to unexplained credits, investments, money and expenditure.
- References to “previous year” in transfer pricing provisions apply to the relevant period within the block period.
International and specified domestic transactions
Under Section 158BB(3):
- Income relating to international or specified domestic transactions for the period up to the date of search is excludedfrom the computation of undisclosed income.
- Such income is assessable separately under other provisions of the Act.
Tax on undisclosed income
Section 158BA(7) mandates that undisclosed income for the block period is taxable at the rate prescribed in Section 113, i.e., 60%, with surcharge, if any, specified under a Central Act.