Block assessment jurisdiction depends on a lawful search against the person proceeded against; participation cannot create authority.

Block assessment under Chapter XIV-B can be initiated only where the statutory search procedure is lawfully attracted to the person proceeded against; participation in the proceedings does not cure want of jurisdiction. On that basis, the assessment against a person not covered by the search warrant was quashed. The separate addition for alleged undisclosed income also failed because it was made without proper enquiry, rested on a protective basis, and lacked sufficient material to support the claimed discrepancy in the balance sheet. The assessment was therefore set aside and the addition deleted.

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Issues: (i) Whether block assessment proceedings under Chapter XIV-B could be initiated against a person who was not the subject of the search warrant; (ii) Whether the addition of undisclosed income of Rs. 12.60 lakhs could be sustained on the merits.

Issue (i): Whether block assessment proceedings under Chapter XIV-B could be initiated against a person who was not the subject of the search warrant.

Analysis: Section 158BA(1) is a machinery provision for assessment of undisclosed income following a search under section 132, but the authority to proceed under Chapter XIV-B arises from a search directed against the person concerned. The fact that the assessee participated in the proceedings did not confer jurisdiction where none existed in law. Where material pertaining to another person is found in a search, the proper course is to proceed under the special procedure applicable to such other person, not to invoke section 158BC against a person not searched.

Conclusion: The block assessment proceedings against the assessee were without jurisdiction and were rightly quashed.

Issue (ii): Whether the addition of undisclosed income of Rs. 12.60 lakhs could be sustained on the merits.

Analysis: The addition was made without proper enquiry and rested only on a protective basis. No sufficient material was brought on record to support the alleged discrepancy in the balance sheet or to justify the addition as undisclosed income.

Conclusion: The addition could not be sustained and its deletion was justified.

Final Conclusion: The departmental challenge failed, and the assessee succeeded both on jurisdiction and on merits, resulting in quashing of the assessment and deletion of the addition.

Ratio Decidendi: Block assessment under Chapter XIV-B can be made only where the statutory search procedure is lawfully attracted to the person proceeded against, and participation in the proceedings does not create jurisdiction where the statute does not confer it.

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