Unexplained investments in block assessment can justify adoption of a higher undisclosed income figure for taxation.

In block assessments under Chapter XIV-A, undisclosed income may be computed by applying the deeming principle for unexplained investments, with regular assessment methodology made applicable through Section 158BH and the special block tax framework under Section 158BA. Where the assessee does not credibly explain the source of investments giving rise to undisclosed income, the amount reasonably supported by the record may be adopted for taxation. On that basis, the higher departmental figure was treated as the proper basis for assessment, and the reduced computation was not accepted.

---

---

Issues: Whether, in a block assessment under Chapter XIV-A of the Income-tax Act, the Tribunal was justified in reducing the tax liability on undisclosed income, and whether the revenue's alternative figure of undisclosed income at Rs. 50,00,000 should be adopted instead of Rs. 32,00,000.

Analysis: The block assessment was governed by Chapter XIV-A, with Section 158BH making the regular assessment methodology applicable, while Section 158BA prescribed the special tax rate for block assessments. The assessment had proceeded on additions based on material and inference, but the computation before the Tribunal was found to be overly reduced without a satisfactory explanation from the assessee as to the source of the investments giving rise to the undisclosed income. Applying the principle underlying Section 69, the Court held that once undisclosed income is noticed, the assessee must explain the source of the corresponding investment, failing which the amount necessary to generate such income can be treated as income. In the absence of a credible explanation, the departmental representative's figure of Rs. 50,00,000 was accepted as the proper starting point.

Conclusion: The Tribunal's determination was modified, and the assessee was held liable to pay tax on undisclosed income of Rs. 50,00,000 instead of Rs. 32,00,000.

Final Conclusion: The appeal succeeded only to the extent of enhancing the undisclosed income assessed for tax purposes, and the revenue obtained partial relief.

Ratio Decidendi: In a block assessment, undisclosed income may be computed by applying the deeming principle governing unexplained investments, and where the assessee fails to explain the source, the higher figure reasonably supported by the record may be adopted for taxation.

---