Block assessment additions require search evidence; later returns, notional interest, and already assessed income cannot be treated as undisclosed income.

In block assessment, undisclosed income must be computed only on the basis of evidence found during search or material clearly relatable to such evidence. A seized paper showing a rounded-off outstanding sale consideration, together with bank evidence, did not establish separate on-money receipt, and unilateral notional interest calculation did not create taxable accrual because no enforceable right to interest was shown. Later profit and loss account entries and bad debt claims filed with a regular return could not support block additions when they were not found in search material. An amount already assessed in regular proceedings also could not be duplicated as undisclosed income.

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Issues: (i) Whether the seized paper and surrounding material established receipt of on-money and accrual of interest as undisclosed income for the block period; (ii) Whether income shown in the subsequent regular return and profit and loss account could be used to add bad debt-related amounts and profit as undisclosed income for the block period; (iii) Whether the amount of Rs. 17,426, already assessed in regular proceedings, could again be included as undisclosed income in block assessment.

Issue (i): Whether the seized paper and surrounding material established receipt of on-money and accrual of interest as undisclosed income for the block period.

Analysis: The sale deed and bank evidence showed that the agreed consideration was Rs. 1.08 crores and that the amounts reflected in the seized paper represented a rounded-off computation of outstanding sale consideration and not a separate cash receipt. The Court also found that the assessee had no enforceable right to interest under the transaction, and mere unilateral calculation of notional interest did not create taxable accrual. In block assessment, additions must rest on evidence found in search and relatable material.

Conclusion: The addition for alleged on-money and interest was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether income shown in the subsequent regular return and profit and loss account could be used to add bad debt-related amounts and profit as undisclosed income for the block period.

Analysis: The profit and loss account and the bad debt claim were filed only with the regular return after the search and were not found during the search or shown to be relatable to seized material. The block assessment regime permits computation of undisclosed income only on the basis of evidence found as a result of search and material relatable to it, so a later return could not furnish the foundation for block additions.

Conclusion: The addition based on the subsequent profit and loss account and bad debt claim was unsustainable and was deleted in favour of the assessee.

Issue (iii): Whether the amount of Rs. 17,426, already assessed in regular proceedings, could again be included as undisclosed income in block assessment.

Analysis: The amount had been shown in the regular return and assessed in regular proceedings, and it was neither found in search nor linked to seized material. A block assessment addition cannot be made on the basis of post-search material or by duplicating income already assessed in regular proceedings.

Conclusion: The addition of Rs. 17,426 was deleted in favour of the assessee.

Final Conclusion: The block additions were rejected because they were not supported by searchable evidence relatable to the undisclosed income computation, and the appeal succeeded.

Ratio Decidendi: In block assessment, undisclosed income must be computed only on the basis of evidence found during search or material clearly relatable to such evidence, and not on later returns, unilateral computations, or conjectural inferences of on-money or accrual.

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