Block assessment: fixed deposits in benami names found post-search investigation-treated as not "undisclosed income" u/s158BB; addition deleted.

In block assessment under Ch XIV-B, the dominant issue was whether fixed deposits in benami/fictitious names, discovered only through post-search investigation and not evidenced by assets/documents found during search, could be assessed as "undisclosed income." Applying s.158BB and the statutory limitation that block computation must rest on material found "as a result of search," the Tribunal held such deposits fell outside the permissible evidentiary base; the addition was deleted. On the separate issue of bad debts from regular business dealings already forming part of regular assessments, the Tribunal held Ch XIV-B is not a forum for routine computation claims; the deduction was rightly disallowed in block computation.

---

---

Issues: (i) Whether amounts represented by fixed deposits discovered during investigations following a search (and not seized during the search) can be included in computing undisclosed income under Chapter XIV-B (block assessment) of the Income-tax Act, 1961; (ii) Whether a claim for bad debts of Rs.29,10,778 deductible in regular assessment can be allowed in computation of undisclosed income for the block period under Chapter XIV-B.

Issue (i): Whether fixed deposits revealed by inquiries after the search can be treated as evidence found as a result of search for purposes of computing undisclosed income under Chapter XIV-B.

Analysis: Chapter XIV-B defines undisclosed income of the block period as aggregated income computed on the basis of evidence found as a result of search or requisition of books/documents and other materials available with the Assessing Officer. The statutory scheme prescribes that block assessments be grounded on materials seized or found during the search and the time-lines and procedure for notice and completion of block assessment flow from the date of execution/conclusion of the search. The facts established that the fixed deposits were identified only through post-search inquiries and were not among items seized at the time of search; the deposits stood in benami names though opened by the assessee; judicial precedents were cited holding that computation for block period must be based on material seized/found during the search rather than on subsequent investigations.

Conclusion: The fixed deposits discovered by post-search investigation cannot be included in the computation of undisclosed income under Chapter XIV-B. This conclusion is in favour of the assessee.

Issue (ii): Whether bad debts of Rs.29,10,778, being matters of regular assessment, are admissible in computing undisclosed income under Chapter XIV-B.

Analysis: Chapter XIV-B is a special code for assessment of undisclosed income found as a result of search and prescribes the basis and exclusions for computation of block-period income; items and claims appropriate to regular assessments do not fall within the scope of block assessment unless they qualify under the statutory scheme and are supported by evidence found as a result of search. The claimed bad debts represent normal dealings and had been addressed in regular assessment context; they were not material found in search for the block assessment computation.

Conclusion: The claim for bad debts of Rs.29,10,778 is not allowable in the block assessment under Chapter XIV-B. This conclusion is against the assessee.

Final Conclusion: On the issues decided, the appeal is allowed in part by excluding the amount corresponding to the fixed deposits identified through post-search investigations from the undisclosed income computed under Chapter XIV-B, while the claim for bad debts in the block assessment is not permitted.

Ratio Decidendi: Undisclosed income for a block assessment under Chapter XIV-B must be computed on the basis of evidence found or seized during the search or requisition; amounts revealed only by investigations subsequent to the search do not qualify as evidence 'found as a result of search' and therefore cannot be included in block-period undisclosed income.

---