Block assessment must rest on seized material; valuation reports cannot enlarge unaccounted construction claims.

In block assessment proceedings, undisclosed income and related deductions must be computed on the basis of search material and evidence relatable to the search. A valuation report cannot expand the scope of the assessed undisclosed income or support a higher deduction for alleged unaccounted construction where the seized documents show a lower amount; the construction claim was therefore confined to the figure supported by the seized material. Cash loans traced to unaccounted receipts were also not restricted to a lower peak amount where telescoping against undisclosed construction income had already been allowed, and only separately taxable interest income remained for addition.

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Issues: (i) whether, in block assessment proceedings, deduction toward alleged unaccounted construction could be allowed only to the extent supported by seized material and whether the assessee was entitled to the higher claim based on a valuation report; (ii) whether the cash loans advanced out of unaccounted receipts could be reduced to the peak amount claimed by the assessee or whether the addition and telescoping as made by the Revenue called for interference.

Issue (i): whether, in block assessment proceedings, deduction toward alleged unaccounted construction could be allowed only to the extent supported by seized material and whether the assessee was entitled to the higher claim based on a valuation report.

Analysis: Block assessment under Chapter XIV-B is confined to undisclosed income found as a result of search and to matters emerging from the seized material. A valuation report, by itself, cannot enlarge the scope of undisclosed income computation or justify a deduction beyond what is evidenced by the seized documents. The construction expenditure claimed outside the books was therefore rightly restricted to the amount borne out by Annexure A-1, and the assessee's higher claim lacked support in the search material.

Conclusion: The issue is decided against the assessee and in favour of the Revenue.

Issue (ii): whether the cash loans advanced out of unaccounted receipts could be reduced to the peak amount claimed by the assessee or whether the addition and telescoping as made by the Revenue called for interference.

Analysis: The loans were found from seized material and the interest component was undisputed. Once full telescoping against the undisclosed construction income was allowed, there was no basis to confine the advances to a lower peak figure or to challenge the characterization of the source. The assessee also failed to show any error in the finding that only the separately taxable interest income survived for addition. The ground was therefore untenable.

Conclusion: The issue is decided against the assessee and in favour of the Revenue.

Final Conclusion: The additions made in block assessment were upheld, and no interference was called for in either appeal.

Ratio Decidendi: In block assessment proceedings, undisclosed income and deductions against it must be determined on the basis of search material and material relatable to the search, and claims unsupported by seized evidence cannot be expanded by valuation reports or generalized estimates.

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