Incriminating search material can sustain block proceedings despite prior disclosure of share transactions in the return.

Proceedings under section 158BD read with section 158BC are stated to be sustainable where search material from a third party shows disclosed share transactions to be bogus, even if the assessee had reported them in the regular return. The controlling factor is the existence of incriminating material found in search, not the mere prior disclosure of the transaction. On the facts discussed, the search revealed paper share dealings used to generate bogus capital gains or losses, and the assessee's claim was linked to that material through the property investment.

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Issues: Whether proceedings under section 158BD read with section 158BC of the Income-tax Act, 1961 could be sustained where the assessee had disclosed the share transactions in the regular return but incriminating material found in the search of a third party showed the transactions to be bogus.

Analysis: The relevant principle is that block assessment or proceedings under section 158BC/158BD are not barred merely because a transaction was disclosed in the regular return. The controlling consideration is whether incriminating material is found in the course of search which shows the disclosed entry or transaction to be false or bogus. On the facts, the search in the case of the third party revealed that the share dealings were paper transactions used for providing bogus capital gains or losses, and the assessee's claim of capital gains was linked to that material through the investment in the house property. The earlier decisions relied upon by the assessee were held to be inapplicable because they operated only where no incriminating material was found.

Conclusion: Proceedings under section 158BD read with section 158BC were held to be permissible, and the Revenue succeeded on this issue.

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