Undisclosed income in block assessment excludes exempt section 10 income, but partner share income needs disclosure by the assessee.

Under Chapter XIVB, share income from a partnership firm does not escape block assessment merely because it was disclosed in the firm's return; the disclosure obligation remains with the partner-assessee, so such income may still be treated as undisclosed in the partner's hands. By contrast, income exempt under section 10 and outside the computation of total income cannot fall within section 158B(b), because undisclosed income is limited to income required to be included in total income and chargeable to tax. On that basis, the block assessment based on exempt share income was unsustainable to that extent, and the appeal succeeded accordingly.

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Issues: (i) Whether share income from a partnership firm, already reflected in the firm's return, can be treated as undisclosed income in the assessee's hands under Chapter XIVB; (ii) Whether income exempt under section 10 and not forming part of total income can be treated as undisclosed income under section 158B(b) of the Income-tax Act, 1961.

Issue (i): Whether share income from a partnership firm, already reflected in the firm's return, can be treated as undisclosed income in the assessee's hands under Chapter XIVB.

Analysis: The definition of undisclosed income under section 158B(b) applies to income that has not been disclosed by the assessee in the manner required under the Act. Mere disclosure by the firm of the partner's share income does not amount to disclosure by the partner-assessee for the purposes of block assessment. The relevant disclosure obligation remains that of the assessee whose income is sought to be assessed.

Conclusion: Standing alone, disclosure of share income in the firm's return does not exclude it from the ambit of undisclosed income in the assessee's block assessment.

Issue (ii): Whether income exempt under section 10 and not forming part of total income can be treated as undisclosed income under section 158B(b) of the Income-tax Act, 1961.

Analysis: Undisclosed income for Chapter XIVB purposes is confined to income that is required to be computed as part of total income and is assessable or chargeable to tax. Income which is exempt under section 10 and does not enter the computation of total income cannot be brought within section 158B(b), even if not separately returned by the assessee. On that reasoning, the non-filing of a return cannot convert exempt income into undisclosed income.

Conclusion: Income exempt under section 10 and not forming part of total income cannot be treated as undisclosed income under section 158B(b).

Final Conclusion: The block assessment based on non-disclosure of the assessee's exempt share income was held unsustainable in law, and the appeal succeeded to that extent.

Ratio Decidendi: For Chapter XIVB, only income that is required to be included in computing total income and is assessable or chargeable to tax can constitute undisclosed income; exempt income outside total income falls outside section 158B(b).

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