Undisclosed income under block assessment cannot be sustained where the transaction was already disclosed in the regular return and records.

Section 158BD action requires search material showing undisclosed income; where seized papers and the assessee's statement linked the payment to a regular bank account already reflected in the return and balance sheet, the jurisdictional basis for block assessment was absent. The block assessment was therefore invalid. A further addition of an amount treated as undisclosed income could not survive on a probability-based inference when the investment and source were already disclosed in the regular return and accompanying records; the addition was deleted. The Chapter XIV-B assessment was held void ab initio.

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Issues: (i) Whether notice under section 158BD and the block assessment framed in consequence thereof were valid when the seized material and disclosed bank transaction did not reveal any undisclosed income of the assessee. (ii) Whether the addition of Rs. 1,10,000 as undisclosed income could survive when the transaction stood disclosed in the regular return and accompanying records.

Issue (i): Whether notice under section 158BD and the block assessment framed in consequence thereof were valid when the seized material and disclosed bank transaction did not reveal any undisclosed income of the assessee.

Analysis: The seized papers related to purchase of a shop and the assessee's statement linked the payment to a regular bank account reflected in the balance sheet and regular return. The statutory concept of undisclosed income under Chapter XIV-B requires income or property not disclosed, or not likely to be disclosed, for the purposes of the Act. Where the relevant transaction is already disclosed in the regular return and there is no material from search indicating undisclosed income, the basic jurisdictional foundation for action under section 158BD is absent. The assumption of jurisdiction must rest on material found in search and cannot be a mere ipse dixit.

Conclusion: The notice under section 158BD was not justified and the block assessment made pursuant to it was invalid.

Issue (ii): Whether the addition of Rs. 1,10,000 as undisclosed income could survive when the transaction stood disclosed in the regular return and accompanying records.

Analysis: The amount was treated as undisclosed only on a probability-based inference, although the assessee had filed the cash flow and balance sheet and the record did not show any defect in those disclosures. Once the underlying investment and source stood reflected in the regular return, the same amount could not again be assessed as undisclosed income in block assessment proceedings under Chapter XIV-B.

Conclusion: The addition of Rs. 1,10,000 was unsustainable and was deleted.

Final Conclusion: The assessment under Chapter XIV-B was held to be void ab initio and the assessee's appeal succeeded in full.

Ratio Decidendi: Action under section 158BD can be sustained only when search material provides a demonstrable basis for treating income as undisclosed; disclosed transactions already reflected in the regular return cannot be reassessed as block undisclosed income.

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