Section 297 Income Tax Act 2025: Is Interest or Penalty Payable on Undisclosed Income?
Section 297 provides a targeted exemption from specified interest and penalty provisions when undisclosed income is assessed or reassessed for a block period following a search or requisition. It does not cancel the tax on undisclosed income or the special consequences prescribed elsewhere for block assessments.
What does Section 297 provide?
The statutory provision states:
Interest under sections 423, 424 or 425 or penalty under section 439 shall not be levied or imposed upon the assessee for the undisclosed income assessed or reassessed for the block period.
The exclusion is specific to the listed provisions and to undisclosed income assessed or reassessed for the block period. It should not be interpreted as a general immunity from all interest, penalties, tax demands or prosecution.
How does the exemption operate?
Where a block assessment determines undisclosed income, the Assessing Officer cannot apply the ordinary interest provisions listed in Section 297, or the under-reporting and misreporting penalty under Section 439, to that block-period undisclosed income. The income remains chargeable to tax under the applicable block assessment provisions.
Importantly, Section 298 separately provides for interest and penalty in certain block assessment cases. Thus, a taxpayer should not assume that no interest or penalty can ever arise merely because Section 297 applies.
Relevant statutory concepts
Which provisions are excluded by Section 297?
| Provision | Subject | Effect under Section 297 |
|---|---|---|
| Section 423 | Interest for default in furnishing return of income | Not levied on the relevant block-period undisclosed income |
| Section 424 | Interest for default in payment of advance tax | Not levied on the relevant block-period undisclosed income |
| Section 425 | Interest for deferment of advance tax | Not levied on the relevant block-period undisclosed income |
| Section 439 | Penalty for under-reporting or misreporting of income | Not imposed on the relevant block-period undisclosed income |
How does Section 297 relate to the earlier law?
Section 297 broadly corresponds to Section 158BF of the Income-tax Act, 1961. The official Income Tax Department's section mapping identifies Section 158BF as the predecessor provision. Earlier case law may assist with interpretation, but the applicable statutory scheme, dates and facts must be checked before relying on it.
Practical illustrations
Example 1: Ordinary advance-tax interest
Following a search, an assessee's undisclosed income is assessed for a block period. Interest under Section 424 or 425 cannot be imposed on that undisclosed income merely by applying the ordinary advance-tax interest rules. The applicable tax and any special liability under Section 298 require separate consideration.
Example 2: Late block assessment return
An assessee receives a notice under Section 294 and does not file the required return within the specified time. Although Section 297 excludes the listed ordinary interest provisions, Section 298 may independently impose interest. The notice, statutory deadline and applicable calculation must be examined.
Example 3: Regular income outside the block assessment
A taxpayer has both regular income and undisclosed income assessed for a block period. Section 297 does not automatically exempt ordinary interest or penalty applicable to separate regular-income proceedings.
Taxpayer checklist
- Identify the search or requisition date and the applicable block period.
- Examine the Section 294 notice and the block assessment order.
- Separate the tax on undisclosed income from any interest or penalty demand.
- Check whether the demand cites Sections 423, 424, 425, 439 or the special Section 298.
- Review applicable transitional provisions and the available statutory remedy before challenging an incorrect demand.
Frequently asked questions
Does Section 297 exempt undisclosed income from tax?
No. It excludes only the specified ordinary interest and penalty provisions. The block assessment tax liability remains governed by the relevant charging and assessment provisions.
Can interest still be charged for a late block assessment return?
Yes, where the conditions of Section 298 are met. Section 297 does not provide a blanket exemption from the special interest provisions for block assessments.
Does Section 297 prevent all penalties?
No. It excludes the penalty under Section 439 for the specified undisclosed income, but does not automatically disapply other statutory penalties or consequences.
Which earlier provision corresponds to Section 297?
Section 158BF of the Income-tax Act, 1961, is the corresponding earlier provision, according to the official section mapping.
Statutory references and official resources
Updated: 11 November 2026. This article is general legal information; individual cases require examination of the relevant orders, statutory text and applicable amendments.