Block assessment requires a valid search; absent search authorisation, proceedings must follow the section 158BD route.

A block assessment under section 158BC cannot be initiated against a person who was not subject to a valid search under section 132. Where no search warrant existed against the assessee, but incriminating material was found during the search of another person, the proper course was to proceed under section 158BD and follow the prescribed statutory procedure. Direct notice and assessment under section 158BC in such circumstances was held to be without jurisdiction, and the assessment was declared invalid and void ab initio.

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Issues: Whether block assessment could be made under section 158BC of the Income-tax Act, 1961 against persons in whose case no search warrant had been issued and whose case, if at all, fell within section 158BD of the Act.

Analysis: The jurisdiction to assess undisclosed income under Chapter XIV-B arises from a valid search under section 132 of the Income-tax Act, 1961. Where no search warrant existed against the assessees, but material was found during the search of another person, the proper course was to proceed under section 158BD and thereafter follow the prescribed procedure for assessment. A direct notice and assessment under section 158BC, in the absence of a search authorisation against the assessees, was without jurisdiction. The conclusion was supported by settled law that a valid search is a condition precedent for invoking the special block assessment machinery.

Conclusion: The assessment under section 158BC was invalid and void ab initio, and the questions of law were answered in favour of the assessees and against the revenue.

Ratio Decidendi: A block assessment under section 158BC cannot be sustained against a person not searched under section 132; in such cases, the department must proceed under section 158BD in accordance with the statutory procedure.

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