Block assessment estimates must rest on relevant material; mechanical projection across the full period was impermissible.

In block assessment under Chapter XIV-B, undisclosed income may be estimated where exact computation is not possible, but the estimate must rest on relevant material and a rational basis. A mechanical projection of a post-1993 income rate across the entire block period was found unjustified because the assessee's income and refund pattern had changed over time and the effect of the Gulf War was not considered. The additions were deleted, and the assessee's position was upheld.

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Issues: Whether the Assessing Officer could estimate undisclosed income for the entire block period by applying the post-1993 rate to the whole period and whether such estimation was arbitrary under Chapter XIV-B of the Income-tax Act, 1961.

Analysis: The assessment under Chapter XIV-B is confined to undisclosed income found as a result of search, and the Assessing Officer is required to make an estimate where precise computation is not available. However, the estimate cannot be made by a mechanical rule of thumb or on an arbitrary basis. On the facts, the Tribunal found that the assessee's professional income and refund pattern had changed over time, the impact of the Gulf war had not been considered, and the post-1993 income rate could not be projected backward for the entire block period. The estimate was therefore held to be without evidentiary basis.

Conclusion: The application of the post-1993 weighted average rate to the entire block period was unjustified, and the deletion of the additions was upheld in favour of the assessee.

Ratio Decidendi: In block assessment, undisclosed income may be estimated, but the estimate must be based on relevant material and a rational basis; a mechanical or arbitrary projection for the whole block period is impermissible.

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