Block assessment cannot tax income already disclosed in regular returns, and penalty based on such additions falls away.

Income already disclosed in regular returns and accepted in scrutiny assessments cannot be reassessed as undisclosed income in block proceedings under Chapter XIV-B merely because post-search material doubts its genuineness. Block assessment is confined to undisclosed income found as a result of search, and retrospective widening of the definition of undisclosed income does not authorise addition of previously disclosed income. The proper remedy, if any, is regular reassessment, not block assessment. On that basis, the additions were held without jurisdiction and deleted, and the penalty founded only on those additions could not survive.

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Issues: Whether income already disclosed in regular returns and accepted in scrutiny assessments could be brought to tax as undisclosed income in block assessment under Chapter XIV-B, and whether the consequential penalty could survive.

Analysis: The income brought to tax in the block assessment was the very same agricultural receipts that had been shown in the regular returns for the relevant years and, in several years, had been accepted in assessments under section 143(3) of the Income-tax Act, 1961. The governing principle applied was that block assessment is confined to undisclosed income found as a result of search and cannot be used to reassess income already disclosed in the return of income. Retrospective enlargement of the definition of undisclosed income in section 158B(b) did not permit the Assessing Officer to treat already disclosed income as undisclosed merely because post-search material suggested that the claim was not acceptable. The proper course, if any, was regular reassessment and not addition in block assessment.

Conclusion: The additions made in block assessment were without jurisdiction and were deleted. The penalty imposed solely on the basis of those additions also could not survive.

Ratio Decidendi: Income already disclosed in regular returns and not unearthed as undisclosed income in search proceedings cannot be assessed again in block assessment under section 158BC, even if post-search inquiry casts doubt on its genuineness.

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