Block assessment limits undisclosed income to search material; recorded and disclosed transactions cannot be taxed as unexplained additions.

Block assessment under Chapter XIV-B is confined to undisclosed income detected on the basis of search material; additions resting only on presumptions, third-party statements, or post-search inquiry cannot be sustained. Amalgamation reserve arising from a High Court-sanctioned amalgamation and share application money reflected in regular books, returns, and audited accounts before the search were outside the scope of undisclosed income, so the deletion of those additions was upheld. A claim of denial of natural justice was also rejected because the Department had been served with notice and participated in the appellate proceedings, and no material showed that curtailment of time caused prejudice.

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Issues: (i) Whether the Commissioner (Appeals) passed the order in violation of natural justice by curtailing the time granted to the Department. (ii) Whether the amalgamation reserve and share application money could be assessed as undisclosed income in block assessment when the transactions were recorded in the regular books and disclosed before the search.

Issue (i): Whether the Commissioner (Appeals) passed the order in violation of natural justice by curtailing the time granted to the Department.

Analysis: The record showed that the Department had participated in the appellate proceedings and had been served with the preponement notice. The objection that the order was passed too quickly was found to be unsupported by material, and the allegation of denial of opportunity was rejected.

Conclusion: No violation of natural justice was established, and this objection failed.

Issue (ii): Whether the amalgamation reserve and share application money could be assessed as undisclosed income in block assessment when the transactions were recorded in the regular books and disclosed before the search.

Analysis: Block assessment under Chapter XIV-B is confined to undisclosed income found as a result of search. The additions were not founded on incriminating material recovered in search but on presumptions, third-party statements, and post-search inquiry. The amalgamation reserve arose from a High Court-sanctioned amalgamation, and the share application monies were shown in the regular returns and audited accounts before the search. Transactions already disclosed in the regular books and returns do not fall within the scope of undisclosed income merely because the Assessing Officer doubts their genuineness.

Conclusion: The amounts could not be treated as undisclosed income, and the deletion of the additions was upheld in favour of the assessee.

Final Conclusion: The additions made in block assessment were unsustainable because they were not based on evidence found in search and related materials, and the appellate relief deleting the additions was affirmed.

Ratio Decidendi: In block assessment, only income revealed by evidence found during search and relatable material can be brought to tax as undisclosed income; transactions duly recorded in regular books and disclosed before search are outside that scope.

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