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

The brief facts of the case are that the assessee is an individual engaged in the business of film production and film distribution, filed its original Return of Income (“ROI”) for A.Y. 2019-20 on 19.10.2019 admitting a loss of Rs.2,76,81,109/-. A search and seizure operation u/s.132 of the Income Tax Act, 1961 (“the Act”) was conducted in the premises of Bala Group of cases covering M/s. Usha Pictures and Financers on 28.01.2021. During the search proceedings in the case of M/s. Usha Pictures and Financers, certain incriminating material containing financial transactions were seized. From the seized material, it was observed that the assessee had received loan in cash and made repayment of loan also in cash. On the basis of the seized material, a satisfaction note was drawn and notice u/s.153C of the Act was issued to the assessee. Subsequently, the Learned Assessing Officer (“Ld. AO”) completed the assessment for A.Y. 2019-20 u/s.153C of the Act on 30.03.2023 by making addition of Rs.77,94,000/- u/s.69A of the Act on account of unexplained money, Rs.80 lakhs on account of undisclosed income from movie distribution rights and Rs.9,99,000/- on account of unexplained expenditure u/s.69C of the Act.

Aggrieved by the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) held that the satisfaction recorded by the Ld. AO for invoking the provisions of section 153C are not in accordance with law and accordingly, annulled the order of Ld. AO. In the result, the Ld. CIT(A) allowed the appeal of the assessee.

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 & 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 CSN in the case of Advertures International Pvt. Ltd. and in the present case are identical and on the basis of the CSN, this Tribunal in the case of DCIT Vs. Adventures International Pvt. 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 Court in the case of DCIT Vs. Sunil Kumar Sharma (2024) 159 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 Karnataka High Court in the case of DCIT Vs. Sunil Kumar Sharma (supra). Hence, where there are two contrary view of Hon'ble High Courts, then, as per the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (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.

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 company and two different satisfaction notes were prepared for two different private limited companies and later on one company was got merged with the assessee company. Therefore, the decision of this Tribunal in the case of DCIT Vs. Adventures 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 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).

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 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 Commodities Ltd. Vs. ITO 464 ITR 1 (Del), submitted that, explicit identification of the seized material and its linkage to the escaped income for each assessment year is necessary in a case where CSN for more than one year has been recorded by the Ld. AO. 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.”

At the outset, it is seen that, there is a delay of 80 days in filing of this appeal for which the assessee has filed a condonation petition along with affidavit explaining the reasons for such delay. After considering the contents of the condonation petition and after hearing the learned DR, the delay of 80 days in filing of this appeal is condoned and the appeal is admitted for adjudication.

The assessee has raised the following grounds :

The issue involved in this appeal is identical to the issue involved in the appeal of the Revenue in wherein we have dismissed the appeal of the Revenue. Therefore, our discussion and findings in 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.

The issue involved in this appeal is identical to the issue involved in the appeal of the assessee in wherein we have allowed the appeal of the assessee. Therefore, our discussion and findings in are mutatis mutandis applicable to this appeal also. As the appeal in ITA No.1098/Hyd/2024 has been decided in favour of the assessee, the appeal of the Revenue in is dismissed.

To sum up, both the appeals of revenue in and 776/Hyd/2024 are dismissed and the appeal of assessee in is allowed.