Retracted search statements and limitation in block assessments defeated additions, with belated return income not treated as undisclosed income.

A retracted search statement, without independent corroboration, cannot sustain an addition in block assessment, so the addition of undisclosed income was deleted. Income returned in a belated return is not automatically treated as undisclosed income under section 158BB(1)(c) merely because it was filed after the search or due date, so that inclusion was rejected. The block assessment had to be completed within two years from the end of the month in which the last search authorisation was executed; as the order was passed after that period, it was time-barred and quashed.

---

---

Issues: (i) whether the addition of Rs. 11,75,000 as undisclosed income could be sustained on the basis of the assessee's retracted statement; (ii) whether the income of Rs. 47,032 returned for the assessment year 1997-98 could be treated as undisclosed income under section 158BB(1)(c); and (iii) whether the block assessment order was barred by limitation under section 158BE.

Issue (i): whether the addition of Rs. 11,75,000 as undisclosed income could be sustained on the basis of the assessee's retracted statement

Analysis: The addition rested on the statement recorded at the time of search and was maintained only because the retraction was rejected. A retracted statement, by itself, does not have evidentiary force unless independently supported by material. On the facts accepted by the authorities, the disputed amount was not shown to be sustainable merely on the basis of the original statement.

Conclusion: The addition of Rs. 11,75,000 was unsustainable and the finding was in favour of the assessee.

Issue (ii): whether the income of Rs. 47,032 returned for the assessment year 1997-98 could be treated as undisclosed income under section 158BB(1)(c)

Analysis: Section 158BB lays down the method for computing undisclosed income in a block assessment. Clause (c) addresses a situation where the due date has expired and no return has been filed. It does not authorise treating a belatedly filed return as undisclosed income merely because it was filed after the search or after the due date. The returned amount had been disclosed in the return and could not be brought to tax as undisclosed income on that basis alone.

Conclusion: The inclusion of Rs. 47,032 as undisclosed income was not justified and this issue was decided in favour of the assessee.

Issue (iii): whether the block assessment order was barred by limitation under section 158BE

Analysis: The limitation for a block assessment is two years from the end of the month in which the last authorisation for search is executed. On the accepted factual matrix, the search was concluded on 30 September 1997, so the assessment had to be completed by 30 September 1999. The order dated 28 October 1999 was beyond that period. The Department's reliance on a different completion date was not accepted, and the assessment was therefore time-barred.

Conclusion: The assessment order was barred by limitation and the issue was decided in favour of the assessee.

Final Conclusion: The additions did not survive and the block assessment was quashed, leaving the assessee successful in the appeal.

Ratio Decidendi: A retracted statement, without independent corroboration, cannot sustain an addition in block assessment; a belated return is not automatically undisclosed income under section 158BB(1)(c); and a block assessment order passed beyond the statutory two-year period from the end of the month of search completion is barred by limitation.

---