Block assessment must rest on seized search material alone; valuation reports cannot support additions beyond what was found in search.

Block assessment under Chapter XIV-B must be confined to undisclosed income evidenced by material found during search or requisition. Where the seized record consisted only of a construction agreement and a letter to a financial institution, additions could not be enlarged through a DVO valuation report or other material not recovered in search. The assessment therefore could not rest on extraneous valuation exercise or further additions made by the Assessing Officer beyond the seized documents, and the additions were held unsustainable.

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Issues: Whether additions in block assessment under Chapter XIV-B of the Income-tax Act, 1961 could be sustained only on the basis of material found during search, and whether a valuation report or other material not seized in search could be used to enhance undisclosed income.

Analysis: Chapter XIV-B authorises assessment of undisclosed income unearthed as a result of search and its scope is confined to evidence found during search or requisition. The seized material in this case consisted only of two documents, namely the construction agreement and the letter to the financial institution. Beyond these documents, there was no material found in search to justify the addition. The assessment was nevertheless enlarged on the basis of the DVO valuation and further additions made by the Assessing Officer on his own, which went beyond the seized material. On the governing principle, undisclosed income in block assessment must be determined from search material and not from extraneous valuation exercise.

Conclusion: The addition was unsustainable because it was not founded on material seized in search. The questions of law were answered against the Revenue and in favour of the assessee.

Ratio Decidendi: A block assessment under Chapter XIV-B can be made only on the basis of evidence found as a result of search or requisition, and additions cannot be sustained on the strength of a valuation report or other material not emanating from the search.

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