Block assessment limited to undisclosed search material; surcharge under Section 113 upheld as a curative provision.

Block assessment under Chapter XIV-B is confined to undisclosed income unearthed through search or requisition, so entries already reflected in regular books of account, without incriminating search material, cannot be added in that assessment. Additions based only on materials already on record and further inquiry were therefore excluded from block assessment. On surcharge, the proviso to Section 113 was treated as curative, with the result that surcharge was held leviable on tax computed under Section 113 even for a block period preceding the proviso's insertion.

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Issues: (i) Whether additions based on entries already reflected in the regular books of account, but not supported by materials unearthed in search, could be brought to tax in block assessment under Chapter XIV-B of the Income-tax Act, 1961. (ii) Whether surcharge could be levied on tax computed under Section 113 of the Income-tax Act, 1961 for a block assessment period preceding the insertion of the proviso.

Issue (i): Whether additions based on entries already reflected in the regular books of account, but not supported by materials unearthed in search, could be brought to tax in block assessment under Chapter XIV-B of the Income-tax Act, 1961.

Analysis: Block assessment is confined to undisclosed income found as a result of search or requisition. Income already recorded in the regular books of account may be examined in regular assessment, but it does not become assessable in block assessment unless the assessment is founded on evidence recovered during search. The additions in question rested on materials already on record and further inquiry, not on incriminating material seized in search.

Conclusion: The additions of Rs. 39,78,315 and Rs. 20 lakh were not permissible in block assessment and were liable to be excluded from that assessment.

Issue (ii): Whether surcharge could be levied on tax computed under Section 113 of the Income-tax Act, 1961 for a block assessment period preceding the insertion of the proviso.

Analysis: The proviso to Section 113 was treated as curative in nature. On that basis, surcharge was held applicable to tax determined under Section 113 even for a search conducted before the proviso was inserted.

Conclusion: Surcharge was leviable under Section 113 of the Income-tax Act, 1961, and the challenge to its levy failed.

Final Conclusion: The block assessment was set aside to the extent it included additions not founded on search material, while the levy of surcharge under Section 113 was upheld.

Ratio Decidendi: Block assessment under Chapter XIV-B can be made only on the basis of undisclosed income unearthed through search or requisition, and surcharge is applicable under Section 113 where the proviso is curative in character.

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