Section 158BB of ITA, 1961 : Section 158Bb: Computation Of Undisclosed Income Of The Block Period

Explanation using Example

Imagine a business owner, Mr. Sharma, who has not declared all of his income to the Income Tax Department. One day, the authorities conduct a search of Mr. Sharma's premises and find evidence of undisclosed income, such as receipts for sales that were never recorded in the official books.

Under Section 158BB of the Income-tax Act, 1961, the Assessing Officer will determine Mr. Sharma's undisclosed income for the block period (the period under scrutiny, usually 6 years prior to the search year). They will do this by examining the evidence found during the search and any other relevant information.

The Assessing Officer will calculate the undisclosed income as follows:

• If Mr. Sharma had previously filed tax returns, but the assessments were not completed before the search, the undisclosed income will be based on the income declared in those returns.
• If Mr. Sharma had not filed returns at all, and the deadline had passed, the undisclosed income will be assumed to be nil, unless the books reveal entries of income not exceeding the non-taxable limit or a loss.
• If some income or transactions were recorded in the books before the search but the year had not ended, these will be considered in the undisclosed income for that year.

It's important to note that in determining the undisclosed income, losses from previous years or unabsorbed depreciation cannot be set off against the undisclosed income found in the block assessment. However, Mr. Sharma can still carry these forward for set off in regular assessments.

Finally, the burden of proof lies with Mr. Sharma to show that any income found by the officers was already declared in his tax returns before the search.