Block assessment requires search-linked evidence of undisclosed income; already disclosed interest income cannot be taxed in those proceedings.

Block assessment under Chapter XIV-B is confined to undisclosed income found on the basis of material unearthed during search, and it cannot be used as a substitute for regular assessment. Interest income that was already recorded in audited accounts and known to the Department could not be brought to tax in block proceedings where no seized material linked it to undisclosed income. In the absence of search-related evidence supporting the addition, the assessment of that income in block proceedings was unsustainable, and the matter was treated as falling outside the scope of Chapter XIV-B.

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Issues: Whether interest income already recorded in the assessee's books and known to the Department could be brought to tax in block assessment under Chapter XIV-B in the absence of material found during search indicating undisclosed income.

Analysis: The assessee's interest income arose during the construction period and had been reflected in the audited accounts, with the Department already aware of its treatment in the returns filed before search. The block assessment order did not refer to any seized material connecting the interest receipts with undisclosed income, and the notice under Section 158BD was not supported by discussion of the recorded reasons in the assessment order. Block assessment under Chapter XIV-B is confined to undisclosed income detected on the basis of material unearthed in search, and it cannot be used as a substitute for regular assessment. Since no search-related material was shown to justify bringing the interest receipts to tax in block assessment, the addition lacked legal foundation.

Conclusion: The interest income could not be assessed in block proceedings and the addition was unsustainable; the issue was decided in favour of the assessee.

Final Conclusion: The block assessment was annulled and the appeal succeeded, leaving the revenue to proceed only in accordance with law in regular assessment, if otherwise permissible.

Ratio Decidendi: Block assessment under Chapter XIV-B can be made only on the basis of material found in search that supports an inference of undisclosed income, and income already disclosed or otherwise known cannot be added in such proceedings in the absence of search-linked evidence.

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