Recording of satisfaction under section 158BD is a jurisdictional precondition; absence of it invalidates initiation of proceedings.

For invoking section 158BD of the Income-tax Act, the Assessing Officer of the searched person must first record a satisfaction note that undisclosed income belongs to a person other than the searched person and then transmit the material to the jurisdictional Assessing Officer. That recording is a jurisdictional precondition, not a mere procedural formality, and its absence invalidates initiation of proceedings. The Revenue's failure to produce the original files despite opportunity supported an adverse inference that no satisfaction note had been recorded. The court therefore held that assumption of jurisdiction under section 158BD was bad in law and the issue was answered in favour of the assessee.

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Issues: Whether, for invoking section 158BD of the Income-tax Act, 1961, the Assessing Officer of the searched person was required to record a satisfaction note before notice could be issued to the other person, and whether absence of such satisfaction vitiated the assumption of jurisdiction.

Analysis: The statutory scheme of block assessment under section 158BD operates only when the Assessing Officer of the searched person first records satisfaction that undisclosed income belongs to a person other than the searched person and then transmits the material to the jurisdictional Assessing Officer. This requirement is a jurisdictional precondition and not a mere procedural formality. The Revenue failed to produce the original files despite opportunity, warranting an adverse inference that no satisfaction note had been recorded. The issue was also treated as having been raised before the Tribunal, and in any event it could be examined because it went to jurisdiction. The legal position stood settled by the Supreme Court authorities relied upon, which treat recording of satisfaction as mandatory before proceedings under section 158BD can be validly initiated.

Conclusion: The absence of a recorded satisfaction note rendered the assumption of jurisdiction under section 158BD invalid, and the question was answered in favour of the assessee and against the Revenue.

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