MADHUSUDAN PALA,HYDERABAD vs. DCIT, CIRCLE-9(1), HYDERABAD, HYDERABAD

The brief facts of the case are that, a search and seizure operation under Section 132 of the Income Tax Act, 1961, was conducted in the case of M. Sambasiva Rao and others, Hyderabad, on 16.07.2008. During the course of search operation, incriminating loose sheets and documents indicating investments made by Shri P. Madhusudan were found and seized vide Annexure A/MSR/Res/06. Consequent to search, the case was centralized and notice under Section 153C of the Act, was issued. In response to notice, the assessee filed return of income declaring an income of Rs. 29,59,432/-. The case was selected for scrutiny assessment. During the course of assessment proceedings, the A.O. noticed that, in the course of search operation at the residence of Shri M. Sambasiva Rao, incriminating loose sheets and documents indicating investments made by the assessee were found and as per the said seized material at page No.1, there is one credit for Rs.10,00,000/- dated 26.03.2008. The A.O. called upon the assessee to explain the documents, for which the assessee submitted that, he has not advanced any amounts to Shri M. Sambasiva Rao as loan, but has contributed capital to the firm M/s. Sai Venkateswara Realtors and requested for time.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 21.03.2014 dismissed the appeal filed by the assessee in light of Section 249(4)(a) of the Act, on the ground that, the assessee has not paid self-assessment tax on the returned income. The assessee carried the matter in further appeal before the Tribunal and the Tribunal vide its order dated 21.06.2016 in ITA Nos.1126, 1128 and 1129/Hyd/2014 set aside the appeals to the file of the Ld. CIT(A) to verify the claim of the assessee whether the assessee has filed letters before the A.O. requesting adjustment of amount paid against the self-assessment tax. In the second round of proceedings before the Ld. CIT(A), the Ld. CIT(A) admitted the appeal filed by the assessee upon noticing the fact that the assessee has paid self-assessment tax and decided the issue involved in the appeal on merits and upheld the addition made by the A.O. towards unexplained investment of Rs.10,00,000/- on the basis of incriminating material found during the course of search at the residence of Shri M. Sambasiva Rao.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri P. Murali Mohan Nos.1131 to 1136/Hyd/2014 dated 07.04.2016. The assessee has also relied upon the decision of the Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Shettys Pharmaceuticals & Biologicals Ltd. reported in (2015) 57 taxmann.com 282 (Andhra Pradesh).

The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, referring to the remand report of the A.O., submitted that, the A.O. has referred to a master folder which contains the order sheet of assessment proceedings of the assessee, wherein the A.O. has recorded satisfaction in light of search conducted in the case of Shri M. Sambasiva Rao and others on 16.07.2008 and consequent materials found and seized vide file page no.

We have heard both parties, perused the material available on record and had gone through the orders passed by the authorities below. We have also carefully considered the relevant order sheets and copies submitted by the Revenue and we find that, the A.O. had issued notice under Section 153C of the Act, dated 11.12.2008 on the basis of search conducted in the case of Shri M. Sambasiva Rao and others on 16.07.2008 and consequent documents found and seized vide page No.54 of Annexure A/MSR/Res/06 and A/MSR/Res/18. We further note that, from the order sheet, it is not ascertainable as to any kind of satisfaction recorded by the A.O. in light of material found during the course of search and satisfied that, the material found during the course of search belongs to the other person and has a bearing on determination of total income of the relevant assessment year. In the absence of proper satisfaction as required under Section 153C of the Act, notice issued under Section 153C dated 11.12.2008 is invalid and consequent assessment order passed by the A.O. under Section 143(3) r.w.s. 153C of the Act, is devoid of merit and liable to be quashed. This legal principle is supported by the decision of the Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Shettys Pharmaceuticals & Biologicals Ltd. (supra), wherein it was held that, recording of satisfaction by the A.O. is a pre-condition for invoking juri iction under Section 153C of the Act. This view is also supported by the decision of the ITAT in the case of Shri Y. Swami Reddy, wherein we find that, the Coordinate Bench of the Tribunal, on an identical issue in light of the very same search conducted in the case of Shri M. Sambasiva Rao and others on 15.07.2008 and the satisfaction recorded by the A.O. for issuance of notice under Section 153C of the Act, after considering the relevant facts, held as under:

In this view of the matter and considering the facts and circumstances of the case and also by respectfully following the decision of the Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Shettys Pharmaceuticals & Biologicals Ltd. (supra), and also the decision of the ITAT, Hyderabad Bench in the case of Shri Order pronounced in the Open Court on 20th May, 2026. (श्री रवीश सूद) (मंजूिधथ जी) (RAVISH SOOD) (MANJUNATHA G.) न्यायिक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Hyderabad, dated 20.05.2026. TYNM/sps

The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file