Block assessment principles limit taxation to undisclosed income within the block period, while credible source evidence defeats unexplained investment additions.

Block assessment under Chapter XIV-B can tax only income that qualifies as undisclosed income within the block period, so an FDR acquired before that period cannot be brought to tax merely because it was shown in the block return. The note also applies telescoping and source-of-funds principles: where withdrawals, interest receipts, or other surrounding material credibly explain an FDR investment or cash deposit, the related addition is not sustainable. The discussion further emphasises that an admission in a return does not override the statute or validate an addition unsupported by the relevant period and evidence.

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Issues: (i) Whether the addition of Rs. 1,29,246 comprising the FDR amount of Rs. 1,05,000 and accrued interest of Rs. 24,246 could be sustained in block assessment when the FDRs were acquired before the block period; (ii) Whether the addition of Rs. 50,000 towards investment in an FDR was justified; (iii) Whether the cash deposit of Rs. 20,000 in the bank was unexplained.

Issue (i): Whether the addition of Rs. 1,29,246 comprising the FDR amount of Rs. 1,05,000 and accrued interest of Rs. 24,246 could be sustained in block assessment when the FDRs were acquired before the block period.

Analysis: The FDRs were shown, on the bank certificate relied upon in the remand proceedings, to have been acquired on 11 September 1985, which was prior to the block period. In block assessment under Chapter XIV-B, only income falling within the statutory definition of undisclosed income for the block period can be assessed. An amount outside that period cannot be brought to tax merely because it was included by the assessee in the block return. The lower authorities also failed to follow the earlier remand direction and the applicable principle that an admission in a return does not create a tax liability contrary to statute.

Conclusion: The addition of Rs. 1,29,246 was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether the addition of Rs. 50,000 towards investment in an FDR was justified.

Analysis: The assessee established availability of funds from withdrawals and surrounding financial material, and the record also reflected sufficient wealth available around the relevant time. On the principle of telescoping, available funds and earlier additions could be treated as a source for the impugned investment. The explanation was therefore found acceptable on the evidence.

Conclusion: The addition of Rs. 50,000 was deleted in favour of the assessee.

Issue (iii): Whether the cash deposit of Rs. 20,000 in the bank was unexplained.

Analysis: The assessee showed availability of cash from interest receipts and prior withdrawals sufficient to cover the deposit. The explanations offered before the authorities were supported by the material on record and were held to be adequate to explain the deposit.

Conclusion: The addition of Rs. 20,000 was deleted in favour of the assessee.

Final Conclusion: The additions made in the block assessment were set aside, and the appeal succeeded with consequential relief and costs.

Ratio Decidendi: In block assessment, only income that falls within the statutory definition of undisclosed income for the block period can be assessed, and an item acquired outside that period cannot be taxed merely because it was disclosed in the block return; where the assessee proves a credible source of funds, the addition cannot be sustained.

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