Block assessment of a firm required section 158BD where partner-linked undisclosed income was used against the firm.

In block assessment under Chapter XIV-B, undisclosed income found in a partner's case could not be directly assessed as the firm's undisclosed income. Where the Revenue sought to rely on material from a partner's residence against the firm, the special procedure under section 158BD had to be invoked before proceeding against the firm. Because that procedure was not followed, the block assessment on the firm was unsustainable in law.

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Issues: Whether the undisclosed income of a partner could be treated as the undisclosed income of the firm for block assessment under Chapter XIV-B of the Income-tax Act, 1961, and whether the Assessing Officer was required to invoke section 158BD before proceeding against the firm.

Analysis: A search under section 132 led to issuance of notice under section 158BC to the firm. The issue turned on the statutory scheme governing block assessments under Chapter XIV-B. A firm is a taxable unit under the Act, and if the material found at a partner's residence was sought to be used for assessing the firm's undisclosed income, the special procedure under section 158BD had to be followed. As that procedure was not invoked, the block assessment made on the firm could not be sustained.

Conclusion: The undisclosed income of the partner could not be assessed as the firm's undisclosed income without resort to section 158BD, and the assessment on the firm was bad in law.

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