Block assessment requires seized evidence, and surcharge under section 113 cannot apply retrospectively without clear legislative intent.

Block assessment under Chapter XIV-B is confined to undisclosed income supported by material found in the search, so income for earlier years cannot be estimated in the absence of seized documents or other incriminating evidence. The analysis rejected reliance on presumptions, conjecture, or a rule of thumb for extending the addition to periods not backed by search material. It also noted that surcharge under section 113 was introduced only from 1 June 2002 and, as a taxing provision creating a new liability, could not be applied retrospectively to a search conducted before that date absent clear legislative intent.

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Issues: (i) Whether undisclosed income for the earlier block years could be estimated in the absence of seized material or incriminating evidence for those years; (ii) Whether surcharge under section 113 could be levied on a search conducted before the amendment brought into force on 1 June 2002.

Issue (i): Whether undisclosed income for the earlier block years could be estimated in the absence of seized material or incriminating evidence for those years.

Analysis: Block assessment under Chapter XIV-B is confined to undisclosed income evidenced by material found as a result of search. The seized papers related only to the later years and no material was found for the earlier six years. In the absence of incriminating documents or other evidence for those years, estimation of undisclosed income for a longer period could not rest on presumptions, conjectures, or a rule of thumb.

Conclusion: The deletion of the addition for the earlier six years was and the Revenue's challenge failed on this issue.

Issue (ii): Whether surcharge under section 113 could be levied on a search conducted before the amendment brought into force on 1 June 2002.

Analysis: The levy of surcharge on block assessment was introduced by amendment with effect from 1 June 2002. A taxing provision creating liability is ordinarily prospective unless the statute clearly provides otherwise. Since the search in this case was conducted before the amendment took effect, surcharge could not be imposed retrospectively.

Conclusion: The surcharge under section 113 was rightly deleted and the Revenue's challenge failed on this issue.

Final Conclusion: The Revenue's appeal was rejected in entirety, and the relief granted to the assessee was sustained.

Ratio Decidendi: In block assessment, undisclosed income can be determined only on the basis of evidence found during search, and a surcharge creating a new liability cannot be applied retrospectively in the absence of clear legislative intent.

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