Block assessment validity requires statutory scrutiny notice and search-derived material; post-search evidence cannot sustain undisclosed-income assessment.

A block assessment under Section 158BC requires a valid notice under Section 143(2) where assessment is completed under Section 143(3); non-issuance is a jurisdictional defect, not a curable procedural irregularity. It must also be confined to undisclosed income revealed by search material. Material collected after the search during assessment proceedings cannot support a block assessment, particularly where the underlying transaction was already examined in a regular assessment. The note states that these defects invalidated the block assessment, while the substantive capital-gains addition remained undecided.

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Issues: (i) Whether notice under Section 143(2) of the Income-tax Act, 1961 was mandatory before completing a block assessment under Section 158BC of the Income-tax Act, 1961. (ii) Whether a block assessment could be made on the basis of material collected after the search when the relevant transaction had already been examined in a regular assessment.

Issue (i): Whether notice under Section 143(2) of the Income-tax Act, 1961 was mandatory before completing a block assessment under Section 158BC of the Income-tax Act, 1961.

Analysis: The statutory scheme governing block assessments requires compliance with the procedure under Section 143(2) of the Income-tax Act, 1961 where the assessment is to be completed under Section 143(3) read with Section 158BC. The requirement is jurisdictional and cannot be treated as a curable procedural irregularity. The assessment record contained no evidence that such notice had been issued, and the Revenue was unable to produce one.

Conclusion: Notice under Section 143(2) of the Income-tax Act, 1961 was mandatory, and its non-issuance invalidated the block assessment.

Issue (ii): Whether a block assessment could be made on the basis of material collected after the search when the relevant transaction had already been examined in a regular assessment.

Analysis: Block assessment under Chapter XIV-B and Section 158BC of the Income-tax Act, 1961 is confined to undisclosed income detected as a result of the search under Section 132 of the Income-tax Act, 1961. Material collected after the search during assessment proceedings cannot be treated as material found during the search. The transaction had already been examined in the regular assessment under Section 143(3) of the Income-tax Act, 1961, and the block assessment was founded on post-search material rather than qualifying search material. The legal objection could also be raised before the Tribunal without a separate cross-appeal because it supported the order under challenge.

Conclusion: The block assessment could not be sustained on the basis of post-search material relating to a transaction already examined in the regular assessment.

Final Conclusion: The jurisdictional defects rendered the block assessment unsustainable. The assessment order and the Tribunal's order were quashed and set aside, while the remaining question concerning the substantive capital-gains addition was left undecided.

Ratio Decidendi: A block assessment under Section 158BC of the Income-tax Act, 1961 requires a valid notice under Section 143(2) and must be based on material found during the search, not material collected thereafter.

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