Block assessment limits undisclosed income to search material; disclosed export income could not be taxed by denying deduction.

Chapter XIV-B applies only to undisclosed income detected as a result of search, and block assessment under section 158BC cannot be used to tax income already disclosed in a return absent seized material establishing concealment. Where the assessee had disclosed export income, supported it with export documents, and the claim under section 80HHC had already been accepted in processing under section 143(1)(a), denial of the deduction could not by itself convert that income into undisclosed income for block assessment. The operative effect is that disclosed income remains outside block assessment unless search material specifically shows it to be undisclosed.

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Issues: Whether the addition made in block assessment under section 158BC could be sustained when the same income had already been disclosed in the return processed under section 143(1)(a), and whether denial of deduction under section 80HHC was justified in the absence of undisclosed income found as a result of search.

Analysis: Chapter XIV-B applies only to undisclosed income detected as a result of search, as defined in section 158B(b), and the block assessment under section 158BC is distinct from regular assessment proceedings. The record did not show any specific seized material that established the assessed export income as undisclosed income, and the assessee had already disclosed the income in its return. The assessee had also furnished supporting export documents and the claim under section 80HHC had earlier been accepted in processing under section 143(1)(a). On these facts, the assessed amount could not be brought to tax in block assessment merely by denying the deduction previously allowed.

Conclusion: The addition made under section 158BC was unsustainable and was deleted; the issue was decided in favour of the assessee.

Final Conclusion: Block assessment could not be used to tax income already disclosed in the return in the absence of material showing undisclosed income unearthed in search, and the assessee was entitled to relief.

Ratio Decidendi: Block assessment under Chapter XIV-B can reach only income shown to be undisclosed as a result of search, and cannot be used to reopen disclosed income or withdraw an allowed deduction without seized material establishing undisclosed income.

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