Block assessment must include pending years in block computation; prior approval under section 158BG needs no mandatory pre-hearing.

In a Chapter XIV-B search assessment, income for previous years whose returns were filed but assessments were still pending had to be brought into the block computation under section 158BB(1); excluding those years and completing them separately under the regular provisions would cause impermissible duplication, so the exclusion was contrary to the block assessment scheme. On section 158BG approval, the absence of a pre-approval hearing did not invalidate the sanction, and the record did not show non-application of mind by the Commissioner. The block assessment was therefore set aside for fresh adjudication, while the challenge to the prior approval failed.

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Issues: (i) Whether the block assessment under Chapter XIV-B was valid when the pending assessments for the relevant previous years were not included in the block computation and were left to be completed separately under the regular assessment provisions. (ii) Whether the previous approval under section 158BG of the Income-tax Act, 1961 was invalid for want of prior hearing to the assessee and alleged non-application of mind.

Issue (i): Whether the block assessment under Chapter XIV-B was valid when the pending assessments for the relevant previous years were not included in the block computation and were left to be completed separately under the regular assessment provisions.

Analysis: The computation of undisclosed income under section 158BB(1) requires determination of the total income of each previous year falling within the block period, including years for which returns were filed but assessments had not been completed on the date of search. Where such income is already required to be worked out within the block assessment, a separate regular assessment for the same year would create impermissible duplication. The special block procedure, therefore, extends to those pending years and displaces a separate regular assessment for the same subject matter.

Conclusion: The exclusion of the pending assessment years from the block assessment was held to be contrary to Chapter XIV-B, and the matter was decided in favour of the assessee on this issue.

Issue (ii): Whether the previous approval under section 158BG of the Income-tax Act, 1961 was invalid for want of prior hearing to the assessee and alleged non-application of mind.

Analysis: The requirement of prior approval under section 158BG is meant for supervisory control over a special search assessment and the statute does not prescribe a mandatory pre-approval hearing. In such matters, absence of a hearing does not by itself vitiate the approval, and the record did not establish that the Commissioner failed to apply his mind while granting approval.

Conclusion: The approval under section 158BG was held to be valid, and this issue was decided against the assessee.

Final Conclusion: The block assessment was set aside and sent back for fresh adjudication in accordance with law, while the challenge to the Commissioner's approval was rejected.

Ratio Decidendi: In a search assessment under Chapter XIV-B, pending years falling within the block period and already covered by filed returns must be brought into the block computation under section 158BB(1), and a separate regular assessment for the same year is not permissible; prior approval under section 158BG does not require a mandatory pre-decisional hearing unless the statute so provides.

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