Block assessment cannot tax disclosed income; amounts shown in regular returns must be tested in regular assessment, not Chapter XIV-B.

Amounts already reflected in the regular returns and balance-sheet disclosures cannot be assessed as undisclosed income in block assessment under Chapter XIV-B unless search material establishes that they were detected as a result of search. The article explains that cash loans of Rs. 50,000 and a credit of Rs. 55 lakhs, having been shown in the regular books, were held outside the scope of block additions; any challenge to their genuineness had to be pursued in regular assessment proceedings. The majority rejected the use of block assessment as a substitute for regular scrutiny and deleted both additions.

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Issues: (i) Whether the cash loans of Rs. 30,000 and Rs. 20,000 shown in the regular returns could be assessed as undisclosed income in block assessment. (ii) Whether the credit of Rs. 55 lakhs in favour of M/s. Concept International could be assessed as undisclosed income under Chapter XIV-B.

Issue (i): Whether the cash loans of Rs. 30,000 and Rs. 20,000 shown in the regular returns could be assessed as undisclosed income in block assessment.

Analysis: The amounts were found to have been reflected in the regular returns and balance-sheet disclosures for the relevant years. No incriminating material was shown to have been found in search to establish that these amounts were undisclosed. The block assessment under Chapter XIV-B is confined to undisclosed income detected as a result of search and cannot be used to tax amounts already disclosed in the regular return.

Conclusion: The addition of Rs. 50,000 was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether the credit of Rs. 55 lakhs in favour of M/s. Concept International could be assessed as undisclosed income under Chapter XIV-B.

Analysis: The amount was reflected in the regular books and balance-sheet materials placed on record, and the dispute centred on whether the credit could still be treated as undisclosed income merely because genuineness was questioned. The majority held that where the amount stood disclosed in the regular return and supporting accounts, block assessment could not be used to reopen its genuineness; the power belonged to regular assessment proceedings. The dissenting view treated the search material and discrepancies in the confirmation as sufficient to sustain the addition, but the majority rejected that approach.

Conclusion: The addition of Rs. 55 lakhs was deleted in favour of the assessee.

Final Conclusion: The block additions were held to be unsustainable because the impugned sums had been disclosed in the regular return and the Chapter XIV-B procedure could not be used as a substitute for regular assessment.

Ratio Decidendi: Income disclosed in the regular return and balance-sheet cannot be brought to tax in block assessment under Chapter XIV-B unless it is established, on search material, as undisclosed income detected as a result of search.

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