Block assessment limits undisclosed income to search-linked evidence; regular books and post-search enquiries cannot justify additions.
In block assessment under Chapter XIV-B, only undisclosed income supported by evidence found during search, or material directly relatable to that evidence, can be assessed; additions based solely on regular books, legal interpretation of exemptions, or post-search enquiries fall outside the block assessment and were deleted. Interest under section 158BFA(1) was treated as mandatory simple interest with no discretion to waive or reduce it and was sustained. Surcharge was also held to follow the applicable charging framework and was not deleted. The result was mixed, with major additions removed for lack of search-linked evidence but interest and surcharge upheld.
Issues: (i) whether additions made in block assessment could be sustained when they were based on regular books of account or post-search enquiries and not on evidence found as a result of search; (ii) whether interest under section 158BFA(1) was leviable; (iii) whether surcharge was chargeable.
Issue (i): whether additions made in block assessment could be sustained when they were based on regular books of account or post-search enquiries and not on evidence found as a result of search.
Analysis: The block assessment under Chapter XIV-B is confined to undisclosed income computed on the basis of evidence found during search, together with material relatable to that evidence. Additions which merely arise from regular audited books, legal interpretation of exemption provisions, or enquiries made after search, without any nexus to seized material, cannot be brought to tax in block assessment. On that test, the disallowance linked to educational receipts, the alleged bogus milk purchases, and the addition under section 40A(3) were all unsupported by search evidence.
Conclusion: The additions were not sustainable in block assessment and were deleted in favour of the assessee.
Issue (ii): whether interest under section 158BFA(1) was leviable.
Analysis: The provision makes the assessee liable to simple interest in mandatory terms and does not confer discretion to reduce or waive it.
Conclusion: Interest under section 158BFA(1) was upheld against the assessee.
Issue (iii): whether surcharge was chargeable.
Analysis: The surcharge component was held to follow from the applicable charging framework and was not deleted.
Conclusion: Surcharge was upheld in favour of the Revenue.
Final Conclusion: The major block-assessment additions were deleted for want of search-linked evidence, while interest and surcharge were sustained, resulting in a mixed outcome with overall relief to the assessee.
Ratio Decidendi: In block assessment, only undisclosed income having a direct nexus with evidence found in search, or material relatable to that evidence, can be assessed; items drawn solely from regular records or post-search enquiries fall outside Chapter XIV-B.