Block assessment of undisclosed income upheld where returns were filed after search and Section 158BD satisfaction needed no prior hearing.

Income is treated as disclosed for Chapter XIV-B only when it is shown in a return filed before the search or requisition; belated returns do not remove salary or interest from partners from block assessment where the statutory conditions are otherwise met. Recording prima facie satisfaction under Section 158BD does not require a prior hearing before notice is issued, because the section contemplates satisfaction based on search materials. Where seized materials relate to the assessees and the returns were filed after the search, the block assessment as undisclosed income is sustainable on the statutory scheme of Sections 158BB(1)(ca) and 158BD.

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Issues: (i) Whether salary and interest paid to partners formed undisclosed income in the hands of the individual partners for block assessment purposes; (ii) Whether recording satisfaction under Section 158BD required an opportunity of hearing; (iii) Whether the materials seized justified the block assessment as undisclosed income.

Issue (i): Whether salary and interest paid to partners formed undisclosed income in the hands of the individual partners for block assessment purposes.

Analysis: Income is disclosed for the purpose of Chapter XIV-B only when it is stated in a return filed before the search or requisition. Where the returns were filed after the search, the income could not be treated as disclosed income merely because it related to salary or interest from the firm. The computation under Section 158BB(1)(ca) applied to the case, and the belated returns did not take the income out of the block assessment regime.

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

Issue (ii): Whether recording satisfaction under Section 158BD required an opportunity of hearing.

Analysis: The statutory scheme of Section 158BD contemplates prima facie satisfaction on the basis of search materials before issuing notice. No separate prior hearing is required before recording such satisfaction. The absence of an opportunity at that stage did not invalidate the proceedings.

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

Issue (iii): Whether the materials seized justified the block assessment as undisclosed income.

Analysis: The search revealed materials relating to the assessees, the returns had been filed long after the search, and no advance tax or TDS circumstance displaced the statutory position. On the facts, the case fell within Section 158BB(1)(ca) read with Section 158BD, and the block assessment was sustainable.

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

Final Conclusion: The block assessments were upheld in law and on facts, and the tax case appeals were rejected.

Ratio Decidendi: For Chapter XIV-B, income is not disclosed unless it is shown in a return filed before the search or requisition, and notice under Section 158BD may validly proceed on prima facie satisfaction based on search materials without a prior hearing.

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