Block assessment does not bar regular assessment or penalty proceedings where undisclosed income is separately assessed.

Chapter XIV-B was treated as a special procedure limited to assessing undisclosed income found in search, operating in addition to, and not in substitution for, regular assessment. The Explanation inserted to section 158BA by the Finance (No. 2) Act, 1998, was regarded as clarificatory and as removing doubt on that distinction. On that basis, income covered in regular assessment was held outside block assessment, and vice versa. The contention that notice for block assessment under section 158BC divested the Assessing Officer of jurisdiction to complete a regular assessment under section 143 was rejected, and the same reasoning was applied to penalty proceedings under section 271(1)(c), which were held maintainable.

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Issues: Whether the initiation of block assessment proceedings under Chapter XIV-B precluded the Assessing Officer from completing a regular assessment under section 143 and from initiating penalty proceedings under section 271(1)(c) for the same period.

Analysis: Chapter XIV-B was held to create a special procedure confined to assessment of undisclosed income arising from search, distinct from regular assessment. The Explanation inserted to section 158BA by the Finance (No. 2) Act, 1998, was treated as clarificatory and as removing any doubt that block assessment is in addition to, and not in substitution of, regular assessment. It was also noted that income assessed in regular assessment is not to be included in the block assessment, and vice versa. On that basis, the contention that the Assessing Officer lost jurisdiction to complete a regular assessment after notice under section 158BC was rejected; the same reasoning applied to the challenge against penalty proceedings.

Conclusion: The objection to the regular assessment and penalty proceedings was rejected; both proceedings were held to be maintainable notwithstanding the pending block assessment.

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