Section 158B of ITA, 1961 : Section 158B: Definitions

Explanation using Example

Imagine a business owner, Mr. Sharma, who has been running a successful electronics store for the past 10 years. On July 5, 2022, authorities conduct a search under section 132 of the Income-tax Act, 1961 at his business premises. During the search, they discover a hidden safe containing cash and several pieces of unaccounted jewellery.

The Income Tax Department decides to assess the undisclosed income found in the safe. According to Section 158B(a) of the Income-tax Act, the "block period" for Mr. Sharma's case would include the six assessment years preceding the financial year 2022-23, plus the period from April 1, 2022, to July 5, 2022, the date of the search. This means the department will investigate and assess any undisclosed income from April 1, 2016, to July 5, 2022.

Under Section 158B(b), the cash and jewellery found in the safe are considered "undisclosed income" because they represent wealth that Mr. Sharma did not reveal in his tax filings and that should have been disclosed under the Income-tax Act. Additionally, if Mr. Sharma had claimed any false expenses or deductions in his books of account during this block period, those would also be treated as undisclosed income.

The Income Tax Department will now calculate tax and penalties based on the undisclosed income discovered for the defined block period.