PALLA SIMHACHALAM (HUF),VISAKHAPATNAM vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-5(1), VISAKHAPATNAM

Per contra, the Ld. Departmental Representative [Ld. DR] argued that the search was conducted in the month of March, 2014 on the individual Sri PallaSankara Rao wherein the searched person Sri PallaSankara Rao while recording the statement u/s. 131(1A) and submitted vide Q.No.3 that the undisclosed income belong to PallaSimhachalam(HUF). The Ld. DR further submitted that based on the voluntary admission by the searched person Sri PallaSankara Rao notice u/s. 153C was issued to PallaSimhachalam(HUF) by the AO since the AO being the same Assessing Officer for both the searched person and the assessee. Therefore, the Ld. AR pleaded that the satisfaction note need not be issued. The Ld. DR also submitted a letter from DCIT, Circle-3(1), Visakhapatnam stating that since the searched

6 person Sri PallaSankara Rao, himself has accepted the undisclosed transaction in the hands of PallaSimhachalam(HUF)it is clear that the AO is satisfied with the escapement of income in the hands of Palla Simhachalam (HUF) needs to be brought into tax by passing the order U/s. 153C of the Act. The Ld. DR also submitted that Palla Simhachalam (HUF) has never filed its return of income till date. The Ld. DR further submitted that a notice U/s. 153C is a general format which is being used by the Department to all the assessees. The Ld. DR relied on the decision of the Hon’ble Supreme Court in the case of Super Malls (P.) Ltd vs. Pr. CIT [2012] 115 taxmann.com 105 (SC).

7 searched party are the same. The argument of the Ld. DR that a separate satisfaction note is not required since the AO is the same for the assessee and the searched person, cannot be accepted. We extract below section 153C of the Act for the sake of reference: 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which

8 search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.

9 8. In the light of the above, we understand that satisfaction note was not recorded by the AO before issuing the notice U/s. 153C of the Act. From the reliance placed by the Ld. DR in the decision of the Hon’ble Supreme Court in the case of Super Malls (P.) Ltd (supra), it is seen from para 6.2 that a satisfaction note was recorded by the Assessing Officer and the question arose before the Supreme Court was whether there is sufficient compliance of section 153C or not with respect to satisfaction recorded by the AO? The Hon’ble Supreme Court has observed that in that case the Assessing Officer was satisfied and it was specifically mentioned that the books of account seized were belonging to the assessee-other person, and therefore concluded that it cannot be said that the mandatory satisfaction given u/s. 153C of the Actare not being complied with. In the instant case, inspite of repeated requests from the AR, the Revenue has not produced any satisfaction note either to the assessee or before us. Further, it is also noted from the letter of the DCIT, Circle- 3(1), Visakhapatnam that the satisfaction recorded before the issue of notice U/s. 153C was not found as per the order sheet notings. The Circular No. 24/2015, dated 31/12/2015 relied on by the Ld. AR is reproduced below:

11 9. From the plain reading of the above Circular, it is noticed in para 4 that even if the AO of the searched person and the other person is one and the same, then also AO is required to record the satisfaction, as held by the various Courts. In the instant case, no such material has been brought before us by the ld. DR. In view of the above discussions, since the satisfaction was not recorded by the Assessing Officer before issue of notice U/s. 153C of the Act, we are of the considered view that the order passed by the Ld. CIT(A) U/s. 153C of the Act deserves to be set aside for all the impugned assessment years. It is ordered accordingly.

OKK - SPS आदेशकीप्रतिलिपिअग्रेपिि/Copy of the order forwarded to:- ननधधाररती/ The Assessee–PallaSimhachalam (HUF), D.No. 9-1-177, 1. Pentaiah Marg, Gajuwaka, Visakhapatnam, Andhra Pradesh – 530026. रधजस्व/The Revenue –Assistant Commissioner of Income Tax, Circle- 2. 5(1), Pratyakshakar Bhavan, MVP Colony, Visakhapatnam, Andhra Pradesh – 530017. 3. The Principal Commissioner of Income Tax-2, Visakhapatnam. आयकरआयुक्त (अऩीऱ)/ The Commissioner of Income Tax (Appeals)-9, 4. Hyderabad. ववभधगीयप्रनतननधध, आयकरअऩीऱीयअधधकरण, ववशधखधऩटणम/ DR,ITAT, 5. Visakhapatnam गधर्ाफ़धईऱ / Guard file 6.

आदेशधनुसधर / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam