Section 294 Income Tax Act 2025: What Is the Block Assessment Procedure?

Section 294 prescribes the procedure for assessing undisclosed income following an income-tax search or requisition. It governs the notice, return deadline, special audit extension, scrutiny, assessment order and prior approval.

When does Section 294 apply?

Section 294 applies where a search is initiated under Section 247 or a requisition is made under Section 248. The Assessing Officer follows the special procedure to assess or reassess the total undisclosed income of the block period, rather than treating the case as an ordinary reassessment. Section 292 provides the basis for block assessment, Section 293 governs computation and Section 301 defines important expressions.

Section 294(1)(a): Notice and time to file a block return

The Assessing Officer must issue a notice requiring the person to furnish a return of undisclosed income for the block period, in the prescribed form and manner of verification. The time specified in the notice cannot exceed 60 days, subject to the special extension described below.

• Section 294(1)(a)(i): A return furnished in time is treated as a return under Section 263, and a notice under Section 270(8) must thereafter be issued.
• Clause (ii): A return filed after the period allowed in the notice is not deemed to be a return under Section 263 for this purpose.
• Clause (iii): No separate notice under Section 280 is required for proceedings under this special Part.
• Clause (iv): A person furnishing the block return cannot file a revised return under this clause.

Section 294(1)(a)(v): When can the return deadline be extended by 30 days?

The time allowed may be extended by a further 30 days only where all the following conditions are satisfied:

1. The due date for filing the return for the tax year immediately preceding the search or requisition year had not expired before the search or requisition.
2. The assessee was liable for tax audit under Section 63 for that tax year.
3. The books maintained in the normal course for that tax year had not been audited when the Section 294 notice was issued.
4. The assessee makes a written request for more time to have those accounts audited.

The extension is conditional and should not be assumed merely because an audit is pending. Retain evidence of the written request and the applicable audit requirements.

Section 294(1)(b) to (d): How is the assessment completed?

Computation and inquiry - clause (b)

The Assessing Officer determines the total undisclosed income under Section 293. The provisions of Sections 268, 270(8), 270(10), 271, 276, 277 and 278 apply, so far as may be, to the block assessment process.

Assessment or reassessment order - clause (c)

After determining undisclosed income, the Assessing Officer passes an assessment or reassessment order and determines the tax payable. Section 275 does not apply to that order. The separate completion time limits under Section 296 must also be considered.

Seized or requisitioned assets - clause (d)

Assets seized under Section 247 or requisitioned under Section 248 are dealt with under Section 250. A block assessment notice does not itself determine the final treatment of those assets.

Section 294(2): Ordinary processing rule

Section 270(1) does not apply to a return furnished under Section 294. This distinguishes the special block return from the ordinary return-processing mechanism.

Section 294(3): Is prior approval necessary?

Yes. Before issuing the notice under Section 294(1)(a), the Assessing Officer must obtain prior approval from the Additional Commissioner, Additional Director, Joint Commissioner or Joint Director. This approval is required at the notice stage. Separately, Section 299 contains requirements concerning the authority competent to pass the block assessment order and approval for that order.

Relevant statutory definitions

Practical example

Assume a search is initiated and the Assessing Officer issues a Section 294 notice allowing 45 days to furnish the prescribed block return. The taxpayer must ordinarily comply within those 45 days, not automatically within 60 days. If the taxpayer satisfies all four statutory audit-extension conditions and makes a written request, the allowed time may be extended by a further 30 days. After the return and required scrutiny notice, the Assessing Officer examines evidence, determines undisclosed income under Section 293 and passes the order in accordance with Sections 294, 296 and 299.

This example illustrates procedure only; actual deadlines, tax consequences and validity depend on the notices, records and applicable law.

Frequently asked questions

Is a return mandatory after a Section 294 notice?

The notice requires a return of undisclosed income in the prescribed form and within the period specified. Failure or delay can have consequences under the special block-assessment provisions, including Section 298.

Can the block return be revised?

No. Section 294(1)(a)(iv) expressly bars a revised return under that clause.

Is a separate Section 280 reassessment notice necessary?

No. Section 294(1)(a)(iii) expressly dispenses with that notice for proceedings under the special block-assessment Part.

Can the Assessing Officer issue the notice without approval?

Section 294(3) requires prior approval of one of the specified senior authorities before the notice under Section 294(1)(a) is issued.

What is the corresponding provision under the 1961 Act?

Section 158BC of the Income-tax Act, 1961 is broadly comparable. The actual wording and applicable transitional regime must be examined for any specific case.

Official law and related provisions

Updated: 11 November 2026. General legal information; verify the current Act, rules, notices and facts before taking action.