Block assessment requires search-linked evidence; estimated trading additions and valuation-based investment additions were deleted.

Undisclosed income in block assessment under Chapter XIV-B must be computed only on the basis of evidence found as a result of search and material relatable to that evidence. Ad hoc trading additions based on rejection of books and section 145(1) could not be brought to tax because no incriminating search material supported the estimated increase in trading results. An unexplained investment addition based only on a valuation report also failed, as higher valuation by itself did not prove extra payment or search-linked undisclosed income. Both additions were deleted.

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Issues: (i) Whether ad hoc trading additions made by invoking section 145(1) could be brought to tax in block assessment under Chapter XIV-B in the absence of incriminating material found during search; (ii) Whether the addition made as unexplained investment in property on the basis of a valuation report could be sustained as undisclosed income in block assessment.

Issue (i): Whether ad hoc trading additions made by invoking section 145(1) could be brought to tax in block assessment under Chapter XIV-B in the absence of incriminating material found during search.

Analysis: The computation of undisclosed income under section 158BB is confined to evidence found as a result of search and materials or information relatable to such evidence. Block assessment is a special procedure distinct from regular assessment and is not a substitute for estimating income or rejecting books in the manner applicable to regular assessment. Since no incriminating material bearing on the trading results was found in search, the estimated additions made only by rejecting the books and applying section 145(1) did not fall within the scope of block assessment.

Conclusion: The trading additions were not sustainable in block assessment and were deleted, in favour of the assessee.

Issue (ii): Whether the addition made as unexplained investment in property on the basis of a valuation report could be sustained as undisclosed income in block assessment.

Analysis: The higher valuation adopted by the valuation officer, by itself, did not establish that any extra investment was made by the assessee. No material discovered in search showed payment over and above the recorded consideration. In the absence of search-linked evidence, the addition could not be treated as undisclosed income for block assessment under Chapter XIV-B.

Conclusion: The addition for unexplained investment in property was not sustainable and was deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded to the extent that additions based on estimates and valuation evidence, unconnected with search material, were excluded from the block assessment, while the remaining grounds were not pressed.

Ratio Decidendi: Undisclosed income in block assessment under Chapter XIV-B can be computed only on the basis of evidence found as a result of search and material relatable to such evidence, and not on estimates, book rejection, or valuation-based inference unconnected with search material.

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