Block assessment cannot treat below-threshold income as undisclosed income merely because no return was filed

Income below the taxable limit for a previous year within the block period cannot be treated as undisclosed income merely because no return was filed, where there was no statutory obligation to file one. Sections 158BB(1)(c) and 158BB(1)(ca) require block income to be computed from search material and then adjusted by the total income of the relevant previous years; read together, clause (c)(B) covers income not exceeding the maximum amount not chargeable to tax, while clause (ca) treats other such cases as nil. The interpretation therefore excludes below-threshold income from block assessment on that ground alone and favours the assessee.

---

---

Issues: Whether, under section 158BB(1)(c) and section 158BB(1)(ca) of the Income-tax Act, 1961, income for a previous year falling within the block period, where it was below the taxable limit and no return under section 139(1) was filed, could still be treated as undisclosed income for block assessment.

Analysis: The provision requires the undisclosed income of the block period to be computed on the basis of search material and then adjusted by the total income of the previous years falling within the block period. Clause (c)(B) applies where the income does not exceed the maximum amount not chargeable to tax, and clause (ca) treats cases not falling under clause (c) as nil. Reading these clauses together, income below the taxable limit for a previous year cannot be included as undisclosed income merely because no return was filed when there was no statutory obligation to file one.

Conclusion: The question was answered in favour of the assessee and against the Revenue.

---