Block assessment requires recorded satisfaction and incriminating material; disclosed loans and gifts cannot be taxed as undisclosed income.

Section 158BD requires the Assessing Officer to record objectively discernible satisfaction, from seized material, that undisclosed income belongs to a person other than the searched person; absent that satisfaction, proceedings are invalid. Block assessment is also confined to undisclosed income found through incriminating search material, so loans and gifts already disclosed in pre-search returns and balance-sheets, with corresponding bank entries on record, cannot be treated as undisclosed income merely because their genuineness is doubted. The assessment orders were quashed, and the additions based on disclosed loans and gifts were held unsustainable.

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Issues: (i) Whether proceedings under section 158BD could be initiated without the Assessing Officer's discernible satisfaction that undisclosed income belonged to a person other than the searched person; (ii) Whether amounts of loans and gifts already disclosed in returns and balance-sheets filed before the search could be treated as undisclosed income for block assessment.

Issue (i): Whether proceedings under section 158BD could be initiated without the Assessing Officer's discernible satisfaction that undisclosed income belonged to a person other than the searched person.

Analysis: Section 158BD contemplates a distinct precondition from section 158BC. The Assessing Officer, after receiving seized material, must be satisfied that the undisclosed income belongs to a person other than the person searched, and that satisfaction must be objectively discernible from the material. It is not a mere formality. Where such satisfaction is absent from the record, the statutory condition for invoking section 158BD is not met.

Conclusion: The precondition for invoking section 158BD was not satisfied; the initiation of block assessment proceedings under that provision was invalid.

Issue (ii): Whether amounts of loans and gifts already disclosed in returns and balance-sheets filed before the search could be treated as undisclosed income for block assessment.

Analysis: Block assessment is confined to undisclosed income found on the basis of incriminating material discovered in search. Where the loans and gifts had already been shown in returns or balance-sheets filed before the search, and the related bank entries were also part of the disclosed record, the amounts could not be characterised as undisclosed income merely because the Assessing Officer doubted their genuineness. The genuineness of items already disclosed did not justify their inclusion as undisclosed income in block assessment.

Conclusion: The disclosed loans and gifts could not be assessed as undisclosed income in block assessment; the additions were unsustainable.

Final Conclusion: The assessment orders were quashed and the assessees succeeded on both the jurisdictional objection and the merits of the block additions.

Ratio Decidendi: For invoking section 158BD, the Assessing Officer must have discernible satisfaction from the seized material that undisclosed income belongs to a person other than the searched person, and items fully disclosed in pre-search returns or balance-sheets cannot be brought to tax as undisclosed income in block assessment merely on doubts about their genuineness.

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