Block assessment additions need search-linked material; survey-based disallowance required fresh examination before being sustained on remand.

In block assessment, jurisdictional objection failed because the assessment order was passed by a competent officer, so no defect was made out. The deduction disallowance could not be finally sustained on the present record because additions in Chapter XIV-B must rest on undisclosed income supported by search-linked material, and the materials relied on appeared to arise from survey proceedings. The matter was therefore restored for fresh examination on whether the survey material was truly relatable to search evidence and whether the disallowance could stand.

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Issues: (i) Whether notice under section 158BC of the Income-tax Act, 1961 could be issued by an income-tax officer and whether the block assessment suffered from jurisdictional infirmity; (ii) Whether the disallowance of deduction under section 80-IA in block assessment could be sustained when the material relied upon arose from survey and not from incriminating search evidence, and whether the matter required fresh examination.

Issue (i): Whether notice under section 158BC of the Income-tax Act, 1961 could be issued by an income-tax officer and whether the block assessment suffered from jurisdictional infirmity.

Analysis: Section 158BC requires the Assessing Officer to issue notice for filing the return of undisclosed income, while section 158BG governs the authority competent to pass the assessment order and requires that such order be passed by an officer not below the rank of Assistant Commissioner. The assessment order having been passed by the Deputy Commissioner, no jurisdictional defect was made out.

Conclusion: The jurisdictional objection was rejected against the assessee.

Issue (ii): Whether the disallowance of deduction under section 80-IA in block assessment could be sustained when the material relied upon arose from survey and not from incriminating search evidence, and whether the matter required fresh examination.

Analysis: Block assessment under Chapter XIV-B is confined to undisclosed income, and additions cannot be made for items already declared in regular assessments unless supported by material found in search or by evidence relatable to search material. The record showed reliance on documents and statements arising from survey proceedings, and the order did not clearly establish whether those materials were in continuation of search evidence. The scope of undisclosed income under section 158BB, as amended, was also relevant to this inquiry. The proper course was to remand the matter so that the Assessing Officer could determine whether the survey material was relatable to search evidence and, if not, whether the disallowance could stand.

Conclusion: The disallowance issue was set aside and restored to the Assessing Officer for fresh decision.

Final Conclusion: The jurisdictional challenge failed, but the substantive disallowance of deduction was not finally upheld and was sent back for reconsideration, leaving the assessee with partial relief.

Ratio Decidendi: In a block assessment, additions must rest on undisclosed income supported by search-linked material, and survey material can justify an addition only if it is shown to be relatable to evidence found in search.

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