Search-based block assessment requires seized evidence; departmental valuation reports alone cannot justify additions for unexplained construction investment.

In a block assessment arising from search, additions for undisclosed income must be founded on material found during the search or information gathered from it; a departmental valuation report, by itself, is not seized material and cannot independently support an addition for unexplained construction investment. Where a kabzanama shows receipt of cash by an erstwhile owner and the assessee is not a party to it, that document cannot, without further evidence, be treated as proof of cash payment by the assessee to the plot owner. The assessment additions based on such material were therefore unsustainable.

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Issues: (i) Whether, in a block assessment arising from search, an addition for alleged unexplained investment in construction could be sustained on the basis of a departmental valuation report in the absence of seized material. (ii) Whether the alleged cash payment of Rs. 2,60,000 said to be reflected in the kabzanama could be treated as payment by the assessee to the owner of the plot.

Issue (i): Whether, in a block assessment arising from search, an addition for alleged unexplained investment in construction could be sustained on the basis of a departmental valuation report in the absence of seized material.

Analysis: The assessment was made in consequence of search proceedings under Chapter XIV-B, where the scope of assessment is confined to material found or information gathered from the search. The departmental valuation cell's estimate of the cost of construction was not itself seized material and could not independently form the basis of an addition as undisclosed income. In the absence of search material showing further expenditure, reliance on the valuation report was impermissible for making the addition.

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

Issue (ii): Whether the alleged cash payment of Rs. 2,60,000 said to be reflected in the kabzanama could be treated as payment by the assessee to the owner of the plot.

Analysis: The finding recorded was that the kabzanama was an agreement with the vendor for discharge of liabilities towards the Kanpur Development Authority and other departments, and that the assessee was not a party to it. The document showed receipt of cash by the erstwhile owner, not payment by the assessee, and no material established that the assessee had made the cash payment in question.

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

Final Conclusion: The additions made in the search-based assessment were unsustainable, and the appeal filed by the Revenue failed.

Ratio Decidendi: In a block assessment under Chapter XIV-B, additions must rest on material found during the search, and a departmental valuation report by itself cannot be used to assess undisclosed income absent supporting seized evidence.

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