Block assessment cannot tax recorded share transactions as undisclosed income without incriminating material; surcharge also not leviable.

Block assessment under Chapter XIV-B can tax only undisclosed income found through search material; recorded share transactions supported by regular books and unsupported by any incriminating evidence could not be recharacterised as undisclosed income. On these facts, the loss on sale of shares was treated as a genuine business loss rather than a concealed or bogus transaction, and the attempted addition was unsustainable. The commentary also notes that surcharge was not leviable on undisclosed income assessed under Chapter XIV-B, since section 113 did not authorise a separate surcharge in such block assessments.

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Issues: (i) Whether the addition made in block assessment by treating the loss on sale of shares as undisclosed income was sustainable where the transactions were recorded in the regular books and no incriminating material was found; (ii) whether surcharge was leviable on the undisclosed income assessed under Chapter XIV-B.

Issue (i): Whether the addition made in block assessment by treating the loss on sale of shares as undisclosed income was sustainable where the transactions were recorded in the regular books and no incriminating material was found.

Analysis: The transactions of purchase and sale of shares were found recorded in the assessee's regular books of account, the return for the relevant year had already been filed, and no material was found in search to show that the entries were bogus, unrecorded, or otherwise concealed. The mere forwarding of seized books of account was held insufficient to show satisfaction for proceedings under section 158BD of the Income-tax Act, 1961. The assessment was therefore treated as an impermissible reassessment of recorded income rather than a valid block assessment of undisclosed income. The loss on sale of shares was also found to be a genuine business loss, not a colourable device or unexplained transaction.

Conclusion: The addition treating the loss as undisclosed income was unsustainable and was deleted in favour of the assessee.

Issue (ii): Whether surcharge was leviable on the undisclosed income assessed under Chapter XIV-B.

Analysis: The levy of surcharge on block assessment income was held to be unjustified, following the view that section 113 did not permit a separate surcharge in such assessments.

Conclusion: Surcharge was not leviable and the assessee succeeded on this issue as well.

Final Conclusion: The block assessment could not be sustained because no undisclosed income was found, and the consequential levy of surcharge also failed.

Ratio Decidendi: Chapter XIV-B proceedings can bring to tax only undisclosed income detected on the basis of search material, and recorded transactions supported by regular books of account cannot be treated as undisclosed income in the absence of incriminating material.

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