Block assessment additions must rest on seized material; disclosed assets, supported liabilities, and explained stock values cannot be reclassified as undisclosed income.

Block assessment under Chapter XIV-B must rest on seized material, and assets or liabilities already disclosed or otherwise supported by evidence cannot be treated as undisclosed income merely because regular reassessment was not pursued. Investments in immovable properties declared under a voluntary disclosure scheme could not be brought to block assessment; depreciation remained allowable where vehicles were taken at cost; stock-in-trade could not be revalued above the assessee's cost in the absence of contrary material; jewellery and silver articles attributed to family members or earlier disclosed were not addable; sundry creditors supported by seized records were deductible; and an estimated addition for insufficient drawings, made without seized evidence, was unsustainable.

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Issues: (i) whether investments in immovable properties already declared under the Voluntary Disclosure Scheme could be assessed as undisclosed income in block assessment; (ii) whether depreciation was allowable while computing undisclosed income under the investment method for vehicles; (iii) whether stock-in-trade was to be valued at the cost shown by the assessee or at the higher value adopted during search; (iv) whether jewellery and silver articles belonging to family members and items disclosed under the Voluntary Disclosure Scheme were liable to be added as undisclosed income; (v) whether sundry creditors supported by seized material were deductible in computing undisclosed income; and (vi) whether an addition for insufficient drawings could be made without reference to seized material.

Issue (i): whether investments in immovable properties already declared under the Voluntary Disclosure Scheme could be assessed as undisclosed income in block assessment

Analysis: The immovable properties had been declared before the search, and the Department's non-acceptance of the full declaration was only because the tax was not fully paid in time. The proper course was to proceed under regular assessment or reassessment for the portion not covered by the certificate. Block assessment under Chapter XIV-B is a separate code and cannot be used to make good a failure to reopen under the regular provisions when the assets were already disclosed.

Conclusion: The addition was rightly deleted and the finding is in favour of the assessee.

Issue (ii): whether depreciation was allowable while computing undisclosed income under the investment method for vehicles

Analysis: Depreciation is a statutory deduction and a non-cash allowance. Even when income is computed by the investment method, if vehicles are taken at cost, depreciation must be separately allowed. If written down value is adopted, depreciation is already embedded in that figure.

Conclusion: The relief granted by the first appellate authority was correct and is in favour of the assessee.

Issue (iii): whether stock-in-trade was to be valued at the cost shown by the assessee or at the higher value adopted during search

Analysis: The search valuation was accepted at the time of search, but the assessee explained that it was based on selling price and not cost. Stock is ordinarily valued at cost or market price, whichever is lower. In the absence of any material contradicting the cost valuation adopted by the assessee, the higher figure could not be sustained.

Conclusion: The deletion of the addition was upheld and is in favour of the assessee.

Issue (iv): whether jewellery and silver articles belonging to family members and items disclosed under the Voluntary Disclosure Scheme were liable to be added as undisclosed income

Analysis: Relief was given for jewellery and silver articles attributable to the assessee's mother, spouse, and items already declared under the Voluntary Disclosure Scheme. The accepted quantities were consistent with customary family possession, and the Department did not dislodge the explanation by contrary material.

Conclusion: The appellate relief on jewellery and silver articles was upheld and is in favour of the assessee.

Issue (v): whether sundry creditors supported by seized material were deductible in computing undisclosed income

Analysis: Since the undisclosed income had been computed by the investment method, ascertained liabilities and loans had to be deducted. The assessee linked the creditors to seized material, and the Revenue did not produce material to rebut the claim or to show that the seized records were being selectively ignored.

Conclusion: The deduction of sundry creditors was rightly allowed and is in favour of the assessee.

Issue (vi): whether an addition for insufficient drawings could be made without reference to seized material

Analysis: The addition was made only on estimate and not on the basis of seized material. Block assessment has to rest on seized evidence, and an estimated addition without such material could not be sustained.

Conclusion: The deletion of the addition for insufficient drawings was justified and is in favour of the assessee.

Final Conclusion: No addition sustained by the first appellate authority was disturbed, and the Revenue's challenge failed in full.

Ratio Decidendi: In block assessment, additions must be founded on seized material, and assets or liabilities already disclosed or otherwise supported by material cannot be recharacterized as undisclosed income merely because a regular reassessment route was not pursued.

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