Block assessment additions must rest on search-linked evidence; post-search valuation alone cannot justify an enhanced undisclosed investment.

In block assessment proceedings, an additional ground challenging jurisdiction under section 158BD was not admitted at the second appellate stage because it required fresh factual inquiry, had not been raised before lower authorities, and the existing record did not show a jurisdictional defect. The Tribunal also held that block additions must be based on evidence found in search or requisition and material relatable to that evidence; a post-search Departmental Valuation Officer report, by itself, cannot justify an enhanced undisclosed investment addition. On the facts, the addition was confined to the declared purchase investment of Rs. 4,00,000 and the balance valuation-based addition was deleted.

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Issues: (i) Whether the additional ground challenging the validity of the block assessment proceedings under section 158BD of the Income-tax Act, 1961 could be admitted at the second appellate stage. (ii) Whether the addition of Rs. 15,20,000 towards unexplained investment in the property could be sustained, or whether the addition should be restricted to the declared purchase investment of Rs. 4,00,000.

Issue (i): Whether the additional ground challenging the validity of the block assessment proceedings under section 158BD of the Income-tax Act, 1961 could be admitted at the second appellate stage.

Analysis: The additional ground required investigation of facts not brought on record and was not raised before the lower authorities. The record indicated that requisitioned material and satisfaction in the case of the searched person were discernible, and the assessee had not discharged the burden of showing any jurisdictional defect on the existing record. The Tribunal also noted that the objection was not raised at the earliest stage and that a defect in notice would not by itself render the block assessment void.

Conclusion: The additional ground was not admitted and was rejected.

Issue (ii): Whether the addition of Rs. 15,20,000 towards unexplained investment in the property could be sustained, or whether the addition should be restricted to the declared purchase investment of Rs. 4,00,000.

Analysis: The assessment could validly rest on evidence and material found in search and on post-search enquiries relatable to that material, but a later valuation report of the Departmental Valuation Officer obtained after the search could not, by itself, be treated as evidence found during search or requisition for block assessment purposes. The assessee failed to satisfactorily prove the source of the purchase investment beyond the declared amount, and the explanation based on an unregistered will and inherited cash was not accepted. However, no material from search or post-search enquiry justified enhancement of the investment to Rs. 15,20,000.

Conclusion: The addition was restricted to Rs. 4,00,000 and the balance addition was deleted.

Final Conclusion: The block assessment was upheld only to the extent of the unexplained purchase investment of Rs. 4,00,000, while the valuation-based enhancement was set aside, resulting in partial relief to the assessee.

Ratio Decidendi: In block assessment proceedings, addition must be founded on evidence found in search or requisition and material relatable to that evidence, and a post-search valuation report cannot independently justify an enhanced undisclosed investment addition.

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