Block assessment cannot rest on third-party seized papers when no incriminating material or undisclosed income is found in search.

Block assessment proceedings are confined to undisclosed income found as a result of search or requisition, and cannot be initiated on the basis of later enquiries where no incriminating material is found in the assessee's search. Material seized in another person's case may be used only in the manner permitted for assessment of undisclosed income in that other person's case, not as the sole basis for a direct block assessment against the assessee. On the facts recorded, the alleged salary entries were already reflected in the employer's books and were below the taxable limit, so no undisclosed income existed. The block assessment was therefore without jurisdiction and its cancellation was upheld.

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Issues: Whether the assessment made under block assessment provisions was valid when no incriminating material or undisclosed income was found in the search and whether the Assessing Officer could issue notice under the block assessment provisions on the basis of papers seized in another person's case.

Analysis: The assessment record showed that the search yielded no documents or material from which the assessee's undisclosed income could be computed. The assessment was nevertheless founded on papers seized in the case of another person and on statements recorded during search. The Tribunal held that block assessment proceedings are confined to undisclosed income found as a result of search or requisition and cannot be initiated on the basis of subsequent enquiries. It further held that material seized in another person's case can be used only in the manner contemplated by the provisions governing assessment of undisclosed income in the case of another person, and not for making a direct block assessment against the assessee. On the facts found, even the salary entries referred to were reflected in the employer's books and were below the taxable limit, leaving no undisclosed income to be assessed.

Conclusion: The block assessment was held to be without jurisdiction and the cancellation of the assessment was upheld in favour of the assessee.

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