Block assessment requires seized evidence, not speculative estimates; admissible depreciation remains claimable under the Act.

In block assessment under Chapter XIV-B, undisclosed income must be based on seized evidence or material relatable to such evidence, and not on independent or speculative estimation. Additions based on a computer printout were deleted where the entry was accepted as an error on surrounding facts. Admissible depreciation could still be claimed in block assessment because the Act applies unless expressly excluded. Estimated income for a broken period, and an estimated unexplained construction cost, were both rejected for want of seized material supporting those computations. The assessee succeeded on the principal issues, and the Revenue's challenge failed.

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Issues: (i) Whether the addition of Rs. 45,19,238 based on a computer printout was sustainable when the assessee claimed that the entry was an error; (ii) Whether depreciation legally admissible under the Act could be claimed in block assessment notwithstanding a lower claim in the regular return; (iii) Whether undisclosed income for the broken period could be estimated on the basis of receipts for the remaining period of the year in the absence of seized material for that period; (iv) Whether the Assessing Officer could estimate the cost of construction and treat the difference as undisclosed income in block assessment without seized material supporting such estimation.

Issue (i): Whether the addition of Rs. 45,19,238 based on a computer printout was sustainable when the assessee claimed that the entry was an error.

Analysis: The disputed receipt was reflected in seized computer records, but the appellate authority and the Tribunal found that the Assessing Officer had not given a reasoned basis for changing the pre-assessment view and had not effectively verified whether the entry was an error. They also accepted the surrounding circumstances and the actual bill produced by the assessee as supporting the explanation that the amount was a mistaken entry.

Conclusion: The addition was not restored and the issue was decided in favour of the assessee.

Issue (ii): Whether depreciation legally admissible under the Act could be claimed in block assessment notwithstanding a lower claim in the regular return.

Analysis: Chapter XIV-B requires computation of undisclosed income in accordance with the Act, and section 158BH makes other provisions of the Act applicable unless otherwise provided. Section 158BB also contemplates computation according to the Act, subject to the specific restrictions in its Explanation. On that scheme, there is no embargo on allowing depreciation that is otherwise legally admissible merely because a lower amount was claimed in the regular return.

Conclusion: The assessee was entitled to claim admissible depreciation in block assessment, and the issue was decided against the Revenue.

Issue (iii): Whether undisclosed income for the broken period could be estimated on the basis of receipts for the remaining period of the year in the absence of seized material for that period.

Analysis: Block assessment under Chapter XIV-B is confined to undisclosed income determined on the basis of evidence found in search and materials or information relatable to such evidence. No seized material was found for the period in question, and the estimation made by the Assessing Officer rested only on probability and on receipts of the later period. Such an approach exceeded the statutory basis for block assessment.

Conclusion: The estimate for the broken period was not sustained, and the issue was decided in favour of the assessee.

Issue (iv): Whether the Assessing Officer could estimate the cost of construction and treat the difference as undisclosed income in block assessment without seized material supporting such estimation.

Analysis: The assessment was founded on the Officer's own estimate using CPWD rates and a broad valuation exercise, rather than on seized material or evidence found in search. Chapter XIV-B does not permit determination of undisclosed income by such independent estimation divorced from search material. The statement under section 132(4) did not justify the further addition made on estimated construction cost.

Conclusion: The addition on account of unexplained cost of construction was deleted, and the issue was decided in favour of the assessee.

Final Conclusion: The judgment sustains the assessee on the principal issues relating to block assessment while rejecting the Revenue's challenge on the remaining issue, and the appeal was dismissed.

Ratio Decidendi: In block assessment under Chapter XIV-B, undisclosed income must be determined on the basis of seized evidence and materials relatable to that evidence, and not by independent or speculative estimation divorced from such material; at the same time, other provisions of the Act, including admissible depreciation, continue to apply unless expressly excluded.

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