Search and seizure – Block assessment – B. P. 1/04/1996 to 12/09/2002 – No incriminating material found during search – Survey – Incriminating material found in survey but no evidence that it related to assessee – Amounts based on survey not includible in block assessment –

In September 2002, search proceedings were initiated in the case of YS and were concluded in November 2002. A statement of KB was recorded. No incriminating materials were found. On 12th September, 2002, a survey was conducted in the business premises of the Assessee and incriminating materials were identified and were impounded. Such material contained the extract of a savings bank account in the name of B. His statement was recorded on 12th September, 2002. The bank account contained heavy deposits and withdrawals. After going through the statement, the Assessing Officer came to the conclusion that this bank account contained transactions related to assessee and it contained deposits in respect of unaccounted sales and withdrawals. Therefore, he estimated the undisclosed income on the basis of the deposits made in the bank account and applied a certain rate of profit and computed the undisclosed income. Therefore, a block assessment order was passed. The Tribunal held that the income computed in the hands of the assessee as undisclosed income could not have been taxed under the block assessment and the income had to be considered for regular assessment.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“On the basis of the incriminating material found in the course of survey mainly because the material was put to the assessee and his statement was recorded subsequent to the search, the material could not be held to be relatable to the assessee. Therefore, the Appellate Authorities were justified in holding that the material found in the course of survey can become the subject matter of regular assessment and it could not become the subject matter of block assessment.”