TDS-backed interest cannot be treated as undisclosed income in block assessment, but TDS credit must be claimed in regular proceedings.

Interest on fixed deposits already subjected to tax deduction at source and otherwise reflected in the assessees' regular records could not be assessed again as undisclosed income in block assessment merely because it was not separately shown in the block return; that addition was deleted. Credit of tax deducted at source, however, was held to be outside the scope of block assessment and had to be pursued in the normal assessment proceedings, so the Assessing Officer's refusal to grant such credit in the block regime was sustained.

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Issues: (i) Whether interest income on fixed deposits, from which tax had already been deducted at source, could be treated as undisclosed income in block assessment. (ii) Whether credit of tax deducted at source could be granted in block assessment proceedings.

Issue (i): Whether interest income on fixed deposits, from which tax had already been deducted at source, could be treated as undisclosed income in block assessment.

Analysis: The interest income had been subjected to tax deduction at source by the bank and was reflected in the assessees' regular records and returns. The legal position applied was that income already subjected to tax deduction at source and otherwise disclosed to the Revenue cannot be assessed again as undisclosed income in block assessment merely because it was not separately shown in the block return.

Conclusion: The interest income could not be treated as undisclosed income. This issue was decided in favour of the assessees.

Issue (ii): Whether credit of tax deducted at source could be granted in block assessment proceedings.

Analysis: The claim for TDS credit was held to be a matter to be pursued in the normal assessment proceedings and not in the block assessment regime. No interference was warranted with the Assessing Officer's refusal to grant such credit in the block assessment.

Conclusion: TDS credit was not allowable in the block assessment. This issue was decided against the assessees.

Final Conclusion: The appeals succeeded only to the extent that the interest income taxed as undisclosed income was deleted, while the refusal to grant TDS credit in block assessment was sustained.

Ratio Decidendi: Income on which tax has already been deducted at source and which stands otherwise disclosed cannot be brought to tax as undisclosed income in block assessment, but TDS credit on such income is not to be adjudicated in the block assessment proceedings.

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