DCIT., CENTRAL CIRCLE-1(3) , HYDERABAD vs. SUDHAKAR REDDY NALLA, HYDERABAD

आआआआ आआआआआआ आआआआआआ, आआआआआआआआ आआआ
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ‘B’ Bench, Hyderabad

BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER

आ.अपी.सं /ITA No.1098/Hyd/2024
(निर्धारण वर्ा/Assessment Year:2016-17)

Sudhakar Reddy Nalla,
Hyderabad.
PAN:ACTPN4645D ….. Appellant.
Vs.
Dy. Commissioner of Income Tax,
Central Circle-1(3), Hyderabad. …….Respondent.

आ.अपी.सं /ITA Nos.776 & 1194/Hyd/2024
(निर्धारण वर्ा/Assessment Years:2016-17 & 2019-20)

Dy. Commissioner of Income Tax,
Central Circle-1(3), Hyderabad. …….Appellant.
Vs.
Sudhakar Reddy Nalla,
Hyderabad. ……Respondent.
निर्धाररती द्वधरध/Assessee by: Shri P. Murali Mohan Rao, C.A.
रधजस् व द्वधरध/Revenue by:: Smt. M. Narmada, CIT-DR &
Dr. Sachin Kumar, SR-DR

सुिवधई की तधरीख/Date of hearing: 06/02/2025
घोर्णध की तधरीख/Pronouncement: 01/04/2025

आदेश/ORDER
PER MADHUSUDAN SAWDIA, A.M. :

These appeals are filed by Shri Sudhakar Reddy Nalla (“the assessee”) and Revenue, feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals),
Hyderabad-11 (“Ld. CIT(A)”), dated 04.06.2024 & 20.09.2024 for the A.Ys. 2016-17 & 2019-20 respectively. Since these appeals

ITA Nos.1098, 1194 & 776/Hyd/2024 2

are inter-related, they are heard together and one consolidated order is being passed for the sake of convenience and brevity.
2. The revenue has raised the following grounds :
“ 1. The Ld. CIT(A) erred on the facts and the circumstances of the case and in law.

ITA Nos.1098, 1194 & 776/Hyd/2024 4

the order of Ld. AO. In the result, the Ld. CIT(A) allowed the appeal of the assessee.
5. Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us. The solitary issue raised by the revenue before us is that there was no infirmity in the satisfaction recorded by the Ld. AO. Therefore, the order of the Ld. CIT(A) treating the satisfaction of Ld. AO, not as per law is not correct. The Learned
Department Representative (“Ld. DR”) submitted that, the Ld.
CIT(A) has stated that the satisfaction recorded by the Ld. AO is not as per law due to the reason that a Combined Satisfaction
Note (“CSN”) was recorded by the Ld. AO for A.Ys. 2015-16 to 2021-22. The Ld. DR submitted that, there is no bar under the provisions of section 153C of the Act for recording CSN for more than one year. In support of her contention, the Ld. DR invited our attention to para nos.22 to 25 of the decision of Hon'ble Delhi
(2024) 463 ITR 431 (Del) wherein the Hon'ble Court has held that, there is no bar in the statute qua recording of CSN. The only condition which has been specified under the statute is the satisfaction of the Ld. AO that the seized material has an impact on the total income for the relevant assessment year. The Ld. DR also invited our attention to page no.54 of the order of Ld. CIT(A) and submitted that the seized material were having bearing on all the assessment years, hence a CSN has been recorded for all the assessment years by the Ld. AO. Further, with regard to the reliance of Ld. CIT(A) on the decision of Hon'ble Delhi High Court in the case of Saksham Commodities Ltd. Vs. ITO (2024) 464 ITR
1 (Del), the Ld. DR invited our attention to para no.62 of the ITA Nos.1098, 1194 & 776/Hyd/2024 5

decision of Hon'ble Delhi High Court and submitted that the Hon'ble Court has not given any adverse findings on the recording of CSN . Hence, the reliance of Ld. CIT(A) on the decision of Hon'ble Delhi High Court in the case of Saksham
6. Per contra, the Learned Authorised Representative (“Ld. AR”) with the permission of the bench made his submission under Rule 27 of the Income Tax (Appellate Tribunal) Rules,1963 (“ITAT
Rules”) to strengthen the order of Ld. CIT(A). The Ld. AR submitted that, their arguments are in two folds. The first argument of the Ld. AR was that, the Ld. AO was required to prepare separate satisfaction note with regards to each assessment year. In their alternate argument, the Ld. AR submitted that, even if a CSN has been prepared by the Ld. AO, then the Ld. AO should have explicitly identified the seized material and its linkage to the escapement of quantum of income for each assessment year.
6.1 As far the their first argument is concerned, the Ld. AR relying on the decision of this Tribunal in the case of DCIT Vs.
Adventures
International
Pvt.
Ltd.
in ITA
Nos.465
&
489/Hyd/2024 dated 19.12.2024, invited our attention to para no.18 of the order, wherein the CSN of the Ld. AO has been reproduced by the ITAT. The Ld. AR also invited our attention to page no.53 of the order of Ld. CIT(A), where the CSN of the assessee has been reproduced. The Ld. AR submitted that, the ITA Nos.1098, 1194 & 776/Hyd/2024 6
Ltd. at para no.23 of its order has decided the issue in favour of the assessee due to the reason that, there was a CSN for all the assessment years. The Ld. AR also invited our attention to page no.104 of the paper book, wherein the Hon'ble Karnataka High taxmann.com 179, has held that satisfaction note is required to be recorded u/s.153C for each assessment year and hence a consolidated satisfaction note recorded for different assessment years would vitiate the entire assessment proceedings.
6.2 Further, as far as the reliance of Ld. DR on the decision of Hon'ble Delhi High Court in the case of Indian National Congress
Vs. DCIT (supra) is concerned, the Ld. AR invited our attention to para nos.34 & 35 of the order of Hon'ble High Court and submitted that in the said case, the main issue before the Hon'ble
High Court was the maintainability of the writ petition and finally the Hon'ble High Court had not accepted the writ petition.
Hence, the observation of the Hon'ble High Court on the issue of CSN was not the core issue before the Hon'ble High Court and hence the same cannot be taken as the final verdict of Hon'ble
High Court on the issue of CSN. Accordingly, the same cannot be applied in the case of the assessee under consideration. The Ld.
AR further submitted that, even if the observation of Hon'ble High
Court in the case of Indian National Congress Vs. DCIT (supra) is stated as the final verdict of Hon'ble High Court, the observation of the Hon'ble High Court is contrary to the findings of Hon'ble

ITA Nos.1098, 1194 & 776/Hyd/2024 7
Sharma (supra). Hence, where there are two contrary view of Hon'ble High Courts, then, as per the decision of Hon'ble
(1973) 88 ITR 192 (SC), the view favourable to the assessee should be considered. Accordingly, relying on the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products
Ltd. (supra), the decision of Hon'ble Karnataka High Court in the case DCIT Vs. Sunil Kumar Sharma (supra) will be applicable to the assessee. Accordingly, the order passed by the Ld. AO on the basis of CSN will become bad in law and liable to be quashed.
6.3 In their alternate argument, the Ld. AR submitted that, even if the CSN is held to be valid as per law, the Ld. AO has to explicitly identify the seized material and its linkage to the escapement of income for each assessment year. However, in the case of the assessee, the quantification of the escapement of income qua seized material with regard to these assessment years has not been done by the Ld. AO. Therefore, it shows the arbitrariness on the part of the Ld. AO. Hence, in absence of the specific details in the CSN, the CSN recorded by the Ld. AO cannot be said to be valid as per law. Accordingly, the order passed by the Ld. AO on the basis of such CSN is liable to be quashed.
7. In rejoinder, with regard to the reliance of Ld. AR on the decision of this Tribunal in the case of DCIT Vs. Adventures
International Pvt. Ltd. (supra), the Ld. DR submitted that, the facts in that case were different from the facts of the case of the assessee. In that case, the assessee was a private limited

ITA Nos.1098, 1194 & 776/Hyd/2024 8
Intgernational Pvt. Ltd. (supra) cannot be applied in the present case of the assessee. With regard to reliance of Ld. AR on the decision of Hon'ble Karnataka High Court in the case of DCIT Vs.
Sunil Kumar Sharma (supra), the Ld. DR invited our attention to para nos.50 & 51 of the order and submitted that, in that case the statement relied on by the revenue was later on retracted and the loose sheet on the basis of which the satisfaction note was drawn was not available during the appellate proceedings.
Therefore, that case is also not comparable to the case of the assessee. Accordingly, the Ld. DR submitted that, there is no infirmity in recording the CSN for more than one assessment year. Further, as far as the reliance of the Ld. AR on the decision of Hon'ble Supreme Court in the case of DCIT Vs.
Vegetable Products Ltd. Ltd (supra), the Ld. DR invited our attention to the decisions of Hon'ble Bombay High Court, in the case of CIT Vs. New Shorrock Spg. & Mfg. Co. Ltd. 212 ITR 355
(Bom), wherein it was held as under :
“ The plea of the assessee that there being two decisions of two different High Courts, that beneficial to the assessee should be accepted, could not sustained The question of accepting the principle of beneficial interpretation would arise only in a case where two views are reasonably possible in t opinion of the Court deciding the point at issue.
In such a case the Court should tilt in favour of the assessee. But where on a plain reading of t statutory provision, the Court is of the opinion that one and the only one interpretation is reasonably possible and that is against the assessee, it cannot give an erroneous interpretation in favour of the assessee by taking resort to the principle of beneficial

ITA Nos.1098, 1194 & 776/Hyd/2024 9

interpretation. In view of the above the principle of beneficial interpretation has no application in the instant case. Thus, the Tribunal was not right in holding that the limits prescribed under section 80G(4) should be applied only after computation of the deduction allowable under section 80G(1) so that the assessee would be entitled to deduction 50 per cent of the donation as restricted by the ceiling limit of 10 per cent of the total income.”
On the basis of aforesaid findings of Hon'ble Bombay High Court, the Ld. DR further submitted that, in the case of the assessee, reasonably, only one view is possible. Hence, the decision of Hon'ble Supreme Court in the case of DCIT Vs. Vegetable
Products Ltd. (supra) is not applicable in the case of the assessee under consideration.
7.1 As far as the alternate contention of the Ld. AR regarding the explicit identification of the seized material and its linkage to the escaped income for each assessment year, the Ld. DR submitted that, there is no such requirement provided u/s.153C of the Act with regard to the explicit identification of the seized material and its linkage to the escaped income for each assessment year. Hence, the contention of the Ld. AR is liable to be rejected. Finally, the Ld. DR submitted before the bench to set aside the order of Ld. CIT(A).
8. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. In the present case before us, one CSN was recorded by Ld. AO for A.Ys. 2015-16 to 2021-22. Mainly two legal issues are raised before us in this regard – (i) whether the CSN recorded by the Ld. AO for more than one year is valid or not and (ii) if the CSN has been recorded for more than one year, whether explicit

ITA Nos.1098, 1194 & 776/Hyd/2024 10

identification of the seized material and its linkage to the escaped income for each assessment year is required or not.
8.1 First, we proceed to decide the second legal issue. In this regard, it is the contention of the Ld. DR that no such explicit identification of the seized material and its linkage to the escaped income for each assessment year is required as per the mandate of section 153C of the Act. However, the Ld. AR relying on the decision of Hon'ble Delhi High Court in the case of Saksham
We have gone through the decision of Hon'ble Delhi High Court in the case of Saksham Commodities Ltd. Vs. ITO (supra), wherein at para no.62 of the order, the Hon'ble High Court has held as under :
“62. Hypothetically speaking, it may be possible for the material recovered in the course of a search having the potential or the probability of constituting incriminating material for more than one assessment year. However, even if such a situation were assumed to arise, it would be incumbent upon the AO to duly record reasons in support of such a conclusion. The Satisfaction Notes would thus have to evidence a formation of opinion that the material is likely to be incriminating for more than a singular assessment year and thus warranting the drawl of Section 153C proceedings for years in addition to those to which the material may be directly relatable.”

has held that the satisfaction note would have to evidence a formation of opinion that the material is likely to be incriminating for more than one year. In other words, the Ld. AO must have to satisfy how the seized material is related to more than one year.
We have also gone through CSN recorded by the Ld. AO which are placed at page nos.53 & 54 of the order of Ld. CIT(A) which is to the following effect :

ITA Nos.1098, 1194 & 776/Hyd/2024 12

ITA Nos.1098, 1194 & 776/Hyd/2024 13

opinion unless the seized material is explicitly identified and linked to the escaped income for each assessment year, the satisfaction recorded by the Ld. AO will be considered as arbitrary and is not in accordance with law. Accordingly, in our opinion the CSN recorded by the Ld. AO is not as per the mandate of the law. Therefore, without going into the dispute whether CSN for more than one year can be recorded by the Ld.
AO or not, we hold that the order passed by the Ld. AO on the basis of a wrong CSN is liable to be quashed. Accordingly, we dismiss the appeal of the revenue.

ITA No.1098/Hyd/2024 for A.Y. 2016-17 (Assessee's appeal)

ITA Nos.1098, 1194 & 776/Hyd/2024 14

(i) whether the CSN recorded by the Ld. AO for more than one year is valid or not and (ii) if the CSN has been recorded for more than one year, whether explicit identification of the seized material and its linkage to the escaped income income for each assessment year is required or not.
11.1
In this context the Ld. AR submitted that the additional ground so raised are admissible in view of judgment rendered by the Hon’ble Supreme Court in the case of National
Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). The ITA Nos.1098, 1194 & 776/Hyd/2024 15

prayer for admission of additional ground noted above which are not in memorandum of appeal are being admitted for adjudication in terms of Rule 11 of the ITAT Rules owing to the fact that objections raised in additional ground are legal in nature for which relevant facts are stated to be emanating from the existing records.
12. The issue involved in this appeal is identical to the issue involved in the appeal of the Revenue in ITA No.1194/Hyd/2024, wherein we have dismissed the appeal of the Revenue. Therefore, our discussion and findings in ITA No.1194/Hyd/2024 are mutatis mutandis applicable to this appeal also. As the appeal in ITA No.1194/Hyd/2024 has been decided against the revenue, the appeal of the assessee in ITA No.1098/Hyd/2024 is allowed.

ITA No.776/Hyd/2024 for A.Y. 2016-17 (Revenue’s appeal)

ITA Nos.1098, 1194 & 776/Hyd/2024 16

Hyderabad.
Dated: 01.04.2025. * Reddy gp

Copy of the Order forwarded to :

BY ORDER,