Galaxy Instruments Pvt. Ltd. vs. ACIT New Delhi: Assessment Dispute and Reconsideration for AY 2017-18

Introduction

The case of Galaxy Instruments Pvt. Ltd. vs. Assistant Commissioner of Income Tax (ACIT), Central Circle-25, New Delhi, pertains to a significant dispute concerning the assessment year 2017-18. The appellant, Galaxy Instruments Pvt. Ltd., a company based in Faridabad, Delhi, challenged the assessment order passed by the ACIT, which led to an appeal before the Income Tax Appellate Tribunal (ITAT). The case involved critical legal issues surrounding the application of Section 153C of the Income Tax Act, 1961, and the validity of the assessment conducted under Section 143(3).

Background of the Case

The appellant, Galaxy Instruments Pvt. Ltd., filed its income tax return for the assessment year 2017-18 on October 26, 2017, declaring a nil income after setting off brought forward business losses amounting to Rs. 2,28,032. The return was processed under Section 143(1) of the Income Tax Act, 1961. However, a search and seizure operation under Section 132 was conducted on June 2, 2016, in the case of Mr. Pawan Arya, a director of the appellant company, and his family members. The search also included a survey conducted at the premises of Galaxy Instruments Pvt. Ltd. on the same day.

Reason for Filing the Appeal

The appeal arose due to the ACIT’s decision to make an addition of Rs. 5,98,000 under Section 69A of the Income Tax Act, 1961, based on unexplained cash found during the search. The appellant company contended that the assessment should have been conducted under Section 153C instead of Section 143(3), as the cash was allegedly linked to the business activities of the company. The primary legal contention was that the assessment order was inherently flawed due to the incorrect application of the relevant sections of the Income Tax Act.

Proceedings Before the CIT(A)

Galaxy Instruments Pvt. Ltd. challenged the addition before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing both on the merits of the addition and on legal grounds concerning the application of Section 153C. The company submitted that no valid satisfaction was recorded under Section 153C, which is a prerequisite for initiating proceedings under this section. Despite filing comprehensive written submissions, the appellant did not appear for oral hearings, leading to the dismissal of the appeal by the CIT(A) without a detailed examination of the legal issues raised.

Arguments Presented by the Appellant

The appellant, represented by Advocate Shri Kapil Goel, argued before the ITAT that the entire assessment was vitiated by the failure to correctly invoke Section 153C. The counsel emphasized that the satisfaction note under Section 153C was recorded, and the case should have been assessed accordingly. The counsel also pointed out that the CIT(A) failed to address this critical legal issue, which fundamentally impacted the legality of the assessment order.

Arguments Presented by the Revenue

The Departmental Representative (DR), Shri R.K. Gupta, participated in the proceedings via mobile communication and acknowledged that the CIT(A) did not adequately address the appellant’s legal arguments. The DR consented to the proposal that the matter should be reconsidered by the CIT(A) to ensure that the legal issues and the merits of the case were appropriately addressed.

Tribunal’s Decision

The ITAT, comprising Judicial Member Shri Bhavnish Saini and Accountant Member Shri O.P. Kant, reviewed the submissions and concluded that there was a prima facie case regarding the incorrect application of Section 153C. The tribunal noted that the CIT(A) did not provide a reasoned order addressing the legal contentions, particularly the issue of whether the assessment should have been conducted under Section 153C.

Consequently, the ITAT set aside the order of the CIT(A) and remanded the case back to the CIT(A) for a fresh examination. The tribunal directed the CIT(A) to issue a reasoned order after considering all the submissions made by the appellant, ensuring that the legal issues, including the applicability of Section 153C, were thoroughly addressed.

Significance of the Case

This case highlights the importance of correctly applying the provisions of the Income Tax Act, particularly in situations involving search and seizure operations. The tribunal’s decision underscores the need for tax authorities to adhere to procedural requirements, such as recording satisfaction under Section 153C, before proceeding with assessments. The case also illustrates the role of the ITAT in ensuring that taxpayers receive a fair hearing and that their legal arguments are duly considered.

Conclusion

The case of Galaxy Instruments Pvt. Ltd. vs. ACIT, Central Circle-25, New Delhi is a critical reminder of the procedural safeguards embedded in the Income Tax Act, 1961. The ITAT’s decision to remand the case for reconsideration by the CIT(A) ensures that the legal issues raised by the appellant are adequately addressed, particularly concerning the application of Section 153C. This case serves as a precedent for similar disputes where the proper application of tax law is in question, emphasizing the necessity for tax authorities to follow due process in their assessments.

Galaxy Instruments Pvt. Ltd. vs. ACIT New Delhi: Assessment Dispute and Reconsideration for AY 2017-18