The Supreme Court held that interest under Section 158BFA(1) of the Income Tax Act is leviable for delay in filing the return of income for the block period pursuant to notice issued under Section 158BD, even where no separate notice under Section 158BC was issued prior to the amendment introduced by the Finance Act, 2002. The Court observed that Chapter XIV-B of the Act constitutes a self-contained code governing block assessments arising from search and seizure proceedings, and that the levy of interest under Section 158BFA(1) is compensatory in nature, linked solely to the delay in filing the block return and not to the payment of tax. However, with respect to levy of surcharge under the proviso to Section 113, the Court held, following the Constitution Bench judgment in CIT v. Vatika Township Pvt. Ltd., that such surcharge is prospective in operation and cannot be applied to block assessments for periods prior to the insertion of the proviso. Accordingly, while the levy of interest under Section 158BFA(1) was upheld, the levy of surcharge under Section 113 was set aside as unsustainable in law.

SOURCE LINK

https://api.sci.gov.in/supremecourt/2010/37682/37682_2010_4_1501_40962_Judgement_13-Jan-2023.pdf

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