Block assessment income cannot include non-taxable income or ignore eligible deductions and salary-related statutory relief.

Income in a block year that remained below the taxable limit, and for which no return was required, could not be treated as undisclosed income merely because no return was filed. Eligible deductions and rebates under Chapter VI-A, sections 80L and 88, had to be considered in block income computation subject to verification of supporting evidence. Salary-related statutory deductions, including standard deduction and the deduction under section 16(iii), also required examination and could not be denied solely due to an employer-side provident fund discrepancy. The matter was remanded for fresh adjudication and lawful relief where admissible.

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Issues: (i) Whether income falling below the taxable limit in a block year, for which no return was filed, could be treated as undisclosed income in block assessment; (ii) whether deductions under Chapter VI-A and rebates under sections 80L and 88 were allowable while computing block income; (iii) whether standard deduction under section 16(i) and deduction under section 16(iii) were to be allowed in respect of salary income.

Issue (i): Whether income falling below the taxable limit in a block year, for which no return was filed, could be treated as undisclosed income in block assessment.

Analysis: Income for a block year that remained below the maximum amount not chargeable to tax did not require filing of a return. Such income could not, for that reason alone, be treated as undisclosed income for block assessment. The Assessing Officer was required to verify the relevant years and exclude income that was not taxable in the first place.

Conclusion: This issue was decided in favour of the assessee.

Issue (ii): Whether deductions under Chapter VI-A and rebates under sections 80L and 88 were allowable while computing block income.

Analysis: The computation of block income had to take into account eligible deductions and rebates supported by evidence. The supporting documents were to be verified, and the allowable deductions and rebates were to be given effect in accordance with law after affording opportunity of hearing.

Conclusion: This issue was decided in favour of the assessee, subject to verification.

Issue (iii): Whether standard deduction under section 16(i) and deduction under section 16(iii) were to be allowed in respect of salary income.

Analysis: The existence of salary-related documents and employer deductions was sufficient to require examination of the claim. A discrepancy in provident fund deduction by the employer was not, by itself, a valid ground to deny the statutory deductions attached to salary income. The claim was to be considered and allowed according to law.

Conclusion: This issue was decided in favour of the assessee, subject to verification.

Final Conclusion: The matter was sent back for fresh adjudication on the identified claims, with directions to verify the evidence and grant lawful tax relief where admissible.

Ratio Decidendi: Income that was not chargeable to tax in a block year and for which no return was required could not be treated as undisclosed income, and eligible statutory deductions and rebates had to be considered in computing block income.

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