Block assessment additions need seized-material corroboration; general admissions or affidavits alone cannot fix undisclosed income.

In block assessment, additions could not rest solely on a general search disclosure, a managing director's affidavit, or a section 132(4) statement without corroborating seized material establishing the quantum of undisclosed income. Although Chapter XIV-B could cover false or inflated expenditure claims in principle, the assessed amount still had to be grounded in search evidence, so ad hoc or proportionate estimation was impermissible on the facts. A 25 per cent restriction borrowed from another case was also rejected because the precedent involved a materially different factual setting and no reliable evidentiary basis supported the percentage adopted. The additions were therefore deleted.

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Issues: (i) Whether, in a block assessment, additions could be sustained solely on the basis of a general statement and affidavit of the managing director without corroborating seized material; (ii) whether the disputed expenditure, being recorded in the books but treated as inflated or unsupported, could be brought to tax under Chapter XIV-B and estimated on an ad hoc or proportionate basis; (iii) whether the restriction of the addition by applying the ad hoc 25 per cent approach from another case was justified.

Issue (i): Whether, in a block assessment, additions could be sustained solely on the basis of a general statement and affidavit of the managing director without corroborating seized material.

Analysis: The addition was founded only on a general disclosure made during search and repeated in an affidavit, without specific reference to any seized document, book entry, or other material establishing the quantum of undisclosed income. A statement under section 132(4) of the Income-tax Act, 1961 may indicate the fact of possible inflation or unrecorded expenditure, but it cannot by itself be treated as proof of the exact amount for addition where no supporting evidence is found in search. The material collected during search is the proper basis for a block assessment, and a general or qualified admission, later not confirmed in the return, does not by itself justify the assessed figure.

Conclusion: The addition could not be sustained merely on the statement and affidavit, and the issue was decided in favour of the assessee.

Issue (ii): Whether the disputed expenditure, being recorded in the books but treated as inflated or unsupported, could be brought to tax under Chapter XIV-B and estimated on an ad hoc or proportionate basis.

Analysis: The Revenue's jurisdictional objection was rejected because section 158B(b) of the Income-tax Act, 1961, as amended, brought within the expression "undisclosed income" even false expenditure claims or deductions. However, the power to assess such income still required a factual foundation found in search material. Since the assessing authority had not established the quantum through evidence, ad hoc estimation on a prorate basis was held impermissible on the facts. The Tribunal also held that the reliance placed on the precedent concerning speed money and public policy was misplaced because the factual setting differed materially.

Conclusion: Chapter XIV-B could apply in principle, but the particular addition by ad hoc estimation was not justified, and the issue was decided in favour of the assessee.

Issue (iii): Whether the restriction of the addition by applying the ad hoc 25 per cent approach from another case was justified.

Analysis: The cited precedent was treated as inapplicable because it concerned a different factual matrix involving speed money to dock workers, whereas the present case involved different companies, different activities, and no comparable evidentiary foundation. The remand material did not amount to a positive verification supporting the percentages adopted by the first appellate authority. In the absence of a reliable basis for estimating unsupported expenditure, the partial sustenance of addition could not stand.

Conclusion: The 25 per cent restriction of the addition was not justified and was set aside in favour of the assessee.

Final Conclusion: The additions made in all the group company assessments were deleted, the assessee's appeals succeeded, and the Revenue's appeals failed.

Ratio Decidendi: In a block assessment, an addition must rest on material found during search and not merely on a general confession or affidavit; a statement under section 132(4) may evidence a possible discrepancy, but it cannot by itself establish the quantum of undisclosed income without corroboration.

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