Estimate of value of assets by Valuation Officer [Section 142A]

Estimate of value of assets by Valuation Officer [Section 142A]

Section 142A of the Income Tax Act, 1961 was initially inserted by the Finance (No. 2) Act, 2004, with retrospective effect from 15.11.1972. It was amended by Finance Act, 2010 with effect from 01.07.2010. It was further amended by Finance (No. 2) Act, 2014 with effect from 01.10.2014.

The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him.

 Section 142A as it existed at the time of amendment on 01.07.2010

The Section 142A as it existed at the time of amendment on 01.07.2010 provided that: 

“For the purposes of making assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him”.

After the amendment on 01.10.2014

After the amendment on 01.10.2014, it is provided that the Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him and such reference can be made to the Valuation Officer under sub-section (1) whether or not the Assessing Officer is satisfied about the correctness or completeness of the accounts of the assessee.

 Background

Prior to 2014, in the absence of specific provision for reference to Departmental Valuation Officer (DVO), for estimating the cost of construction of a property/investment, the Assessing Officers were using the power of summons under section 131, survey under section 133 and power of enquiry under section 142(1). The use of these powers by Assessing Officers for reference to DVO, were being questioned and the various judicial forums and High Courts had taken conflicting views as to the legitimacy of use of such powers. This had been put on rest based on the judgment of Supreme Court in the case of Amiya Bala Paul v CIT (2003) 262 ITR 407 (SC), wherein the Apex Court has categorically concluded that there is no power to Assessing Officer for making reference to DVO for valuation of investments for assessment purpose.

Finance (No. 2) Act, 2004 has inserted Section 142A as a new section, with retrospective effect from 19th November, 1972 to neutralise the decision of the Supreme Court in Amiya Bala Paul v CIT 2003 (262 ITR 407). As per section 142A, as introduced by Finance (No. 2) Act, 2004, the Assessing Officer can refer to Valuation Officer to make an estimate of value of any investment referred to in Section 69 or Section 69B. Therefore, section 142A has given power to Assessing Officer to refer to the DVO for the purpose of estimating value of any investment for making assessment subject to certain conditions.

Scope of reference under section 142A of the Income Tax Act, 1961

An idea about scope of section 142A may be drawn from the judgement of Hon’ble Apex Court in Smt. Amiya Bala Paul's case (supra). Hon'ble Apex Court in that case held that no reference u/s. 55A can be made for determination of cost of construction. In order to overcome the absence of enabling power to make reference for determination of cost of construction or investment in the Act, section 142A was inserted by Finance (No. 2) Act 2004. The Memorandum explained the provision as under:

“ESTIMATES BY VALUATION OFFICER IN CERTAIN CASES:

For determining the cost of construction of properties, an Assessing Officer has been taking the assistance of a Valuation Officer by exercising his power vested in him under section 131 of the Income-tax Act which provides that the Assessing Officer shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit. One such power is of “issuing commission” provided under clause (d) of sub-section (1) of the said section which inter alia empowers the court “to make a local investigation” and also “to hold a scientific, technical or expert investigation”. The authority of Valuation Officer was created under the Wealth-tax Act by Taxation Laws (Amendment) Act, 1972 with effect from 15.11.1972. The scope of power under section 131 vested in an Assessing Officer to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a matter of different legal interpretations.

With a view to remove any doubt in this regard, it is proposed to insert a new section 142A, with retrospective effect from 15.11.1972, so as to clarify that Assessing Officer has and always had the power to make a reference to the Valuation Officer.

Sub-section (1) of proposed section provides that where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required for the purposes of making any assessment or re-assessment, the Assessing Officer may require the Valuation Officer to make an estimate of the same and report to the Assessing Officer.

Sub-section (2) of the proposed section provides that the Valuation Officer to whom such a reference is made under sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957.

Sub-section (3) of the proposed section provides that on receipt of the report from the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment.”

Thus, there was a clear intention of the Legislature to insert the provision of section 142A for the purposes of determination of cost of construction and value of other investments referred to in section 69 or 69B. Since enabling power for making reference for the purposes of computing capital gains was already existing under section 55A as clarified by Hon’ble Apex Court in the case of Smt. Amiya Bala Paul v. CIT, Shillong  (2003) 130 Taxman 511 (SC), such power could not be deemed to be further provided in section 142A. Thus, clear dividing line is made for references under section 55A and 142A, the former being confined to Chapter IV-E and the latter in respect of other matters covered under sectionss 69, 69A and 69B. 

Text of Section 142A

^[1][142A. Estimation of value of assets by Valuation Officer

(1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him.

(2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.

(3) The Valuation Officer, on a reference made under sub-section (1), shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(4) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee.

(5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions.

(6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1).

(7) The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

Explanation : In this section, “Valuation Officer” has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]

KEY NOTE

1. Substituted by the Finance No. 2) Act, 2014, with effect from 01.10.2014.Prior to its substitution, it was inserted by the Finance (No. 2) Act, 2004, with retrospective effect from 15.11.1972 read as under:

142A. “Estimate by Valuation Officer in certain cases

(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.

(2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).

(3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:

PROVIDED that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.

Explanation :In this section, “Valuation Officer” has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).”

Reference by Assessing Officer to the Valuation Officer for estimate of the value including fair market value of any asset, property, or investment [Section 142A(1) and (2)]

The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to the Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit the report to him. [Section 142A(1)]

The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. [Section 142A(2)]

Power of Valuation Officer and procedure to make the estimate of the value of the asset, property or investment [Section 142A(3), (4) and (5)]

The Valuation Officer, on a reference being made, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the Wealth-tax Act, 1957. [Section 142A(3)]

The Valuation Officer shall estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee. [Section 142A(4)]

If the assessee does not co-operate or comply with the directions of the Valuation Officer, he may, estimate the value of the asset, property or investment to the best of his judgment. [Section 142A(5)]

Time period of submitting valuation report [Section 142A(6)]

The Valuation Officer shall send a copy of the report of the estimate made by him under section 142A(4) and (5) to the Assessing Officer and the assessee within a period of six months from the end of the month in which the reference is made.

Assessing Officer may take such report into account in making assessment or reassessment [Section 142A(7)]

The Assessing Officer on receipt of the report from the Valuation Officer may, after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

Specimen order of reference to the Valuation Officer

Office of the

Dated : ..........................

To
The Valuation Officer
Valuation Cell,
Income-tax Department,

............................................

Sir,

Subject : Valuing the cost of investment in the property belonging to M/s

XYZ..............................

M/s. XYZ has invested in the construction/renovation of the property as per the details indicated below:—

DETAILS:

 2 The Assessment is getting time barred on ....................... for A.Y .................... You are requested to submit the report on or before ....................... so that case can be finalised, if any variation is found preferably by ......................... In order to elucidate the correctness of the cost of investment, I require and authorize you under section 142A of the Income-tax Act, 1961 to inspect the property and to make such investigation and seek clarification and material from the assessee and other concerned persons as are considered necessary and take such measures as are deemed fit for determining the true and correct cost of investment of the said property.

You are requested to send your Valuation report to me in duplicate urgently and preferably by ....................... .......................

Yours faithfully,

Sd/-

Income-tax Officer

.........................................

Extension of limitation for completing assessment/ reassessment is available, if correct legal reference is made under section 142A only [clause (v) of Explanation 1 to section 153]

Extension of limitation for completing assessment/reassessment is provided by clause (v) of Explanation 1 to section 153 only when correct legal reference to valuation is made under section 142A. Clause (v) of Explanation 1 reads as under -

Text of clause (v) of Explanation 1 to section 153

Explanation 1. - For the purposes of this section, in computing the period of limitation -

Xxxx

Xxxx

(v) the period commencing from the date on which the Assessing Officer makes a reference to the Valuation Officer under sub-section (1) of section 142A and ending with the date on which the report of the Valuation Officer is received by the Assessing Officer;

Shall be excluded.

CBDT Circular explains amendments carried out by Finance (No. 2) Act, 2014 whereby provisions of Section 142A of the Act was substituted with effect from 01.10.2014 [Circular No. 1/2015 dated 21.01.2015]

The Circular reads as under:-

43. Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made

43.1 The provisions contained in section 142A of the Income-tax Act, before its amendment by the Act, provided that the Assessing Officer may, for the purpose of making an assessment or reassessment, require the Valuation Officer to make an estimate of the value of any investment, any bullion, jewellery or fair market value of any property. On receipt of the report of the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard take into account such report for the purposes of assessment or reassessment.

43.2 Section 142A of the Income-tax Act does not envisage rejection of books of account as a pre-condition for reference to the Valuation Officer for estimation of the value of any investment or property. Further, the said section 142A does not provide for any time limit for furnishing of the report by the Valuation Officer.

43.3 Accordingly, section 142A has been substituted so as to provide that the Assessing Officer may, for the purposes of assessment or reassessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit the report to him. The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. The Valuation Officer, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the Wealth-tax Act, 1957. The Valuation Officer is required to estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession or gathered, after giving an opportunity of being heard to the assessee. If the assessee does not co-operate or comply with the directions of the Valuation Officer he may, estimate the value of the asset, property or investment to the best of his judgment.

43.4 It has also been provided that the Valuation Officer shall send a copy of his estimate to the Assessing Officer and the assessee within a period of six months from the end of the month in which the reference is made. On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

43.5 Sections 153 and 153B of the Income-tax Act have also been amended to provide that the time period beginning with the date on which the reference is made to the Valuation Officer and ending with the date on which his report is received by the Assessing Officer shall be excluded from the time limit provided under the aforesaid section for completion of assessment or reassessment.

43.6 Applicability:- These amendments take effect from 1st October, 2014.

Clarificatory amendments regarding estimates by Valuation Officer in certain cases [CBDT Circular No. 05/2005, Dated 15.07.2005]

The existing provisions of section 131 provide that the Assessing Officer shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit. One such power which has been provided in clause (d) of sub-section (1) of section 131, is the power to issue commissions. Section 75 of CPC and Order XXVI of the Schedule thereto lays down the power of ‘issuing commission’, which inter alia, empowers the Court to make a local investigation and also “to hold a scientific, technical and expert investigation”. Using this power, the Assessing Officer has been making a reference to the Valuation Officer for estimating the cost of construction of properties.

The scope of power vested in an Assessing Officer under section 131 to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a subject-matter of litigation.

A new section 142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with retrospective effect from 15th November, 1972 to save the cases where such references have been made in the past and are still pending in litigation at one stage or the other.

Sub-section (1) of the new section provides that where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made for the purposes of making any assessment or re-assessment, the Assessing Officer may require the Valuation Officer to make an estimate of the same and report to the Assessing Officer.

Sub-section (2) of the new section provides that the Valuation Officer to whom such a reference is made under sub-section (1) shall, for the purpose of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957.

Sub-section (3) of the new section provides that on receipt of the report from the Valuation Officer, the Assessing Officer may after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment.

It has been provided in the proviso to the new section that the provisions of the same shall not apply in respect of an assessment made on or before the 30th day of September, 2004 and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment

is required to be made in accordance with the provisions of section 153A. This amendment takes effect retrospectively from 15th November, 1972. Section 142A of the Act was substituted vide Finance (No. 2) Act, 2014 with effect from 01.10.2014. As per the said substitution the reference to sections 69, 69B, etc …. had been removed and it has made as a general provision stating that Assessing Officer can refer to DVO to estimate the value of any asset, property or investment for the purpose of assessment. The sub-section (2) of section 142A of the Act states that the Assessing Officer may make a reference to DVO whether or not he is satisfied about correctness or completeness of the accounts of the assessee.

Assessing Officer is empowered to make a reference to DVO, however, stage for making reference is after rejection of books of account

Section 142A empowers Assessing Officer to make a reference to DVO, however, stage for making reference is after rejection of books of account. Where essential facts with respect to making of reference to DVO had not been dealt by Tribunal, order of Tribunal was to be set aside and matter was to be remitted to Tribunal to determine if books of account of assessee had been rejected before reference was made to DVO. [Matter remanded] (Related Assessment year : 1997-98) – [Kay Flames (P) Ltd. v. CIT (2024) 162 taxmann.com 349 (All.)]

For a reference to Valuation Officer under section 142A to be valid it is necessary that Assessing Officer must first reject books of account in terms of section 145(3) 

Assessee filed its return of income for relevant year which was supported by its audited books of account. Assessing Officer without rejecting books of account proceeded to make reference under section 142A to Departmental Valuation Officer (DVO) and on strength of estimation made by DVO in his report, Assessing Officer proceeded to reject the books of account and make the best judgment assessment wherein he relied on the estimation of investment made by the assessee, as disclosed by the DVO. On appeal, the Commissioner (Appeals) upheld the order passed by the Assessing Officer. On further appeal, the Tribunal allowed the appeal of the assessee. On appeal:

In CIT, Lucknow v. Lucknow Public Educational Society (2011) 339 ITR 588 : 199 Taxman 1512011] 10 taxmann.com 260 (All.), it was observed as below:

“18. The issue for consideration is, whether the Assessing Officer, under section 142A(1), can refer a matter to the Valuation Officer, for the purpose of making an estimate of such value. Under sub-section (3) of section 142A, it is provided that on receipt of the report of the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment. Would the language of section 142A mean that before proceeding to call for a report of the Valuation Officer, the books of account must be rejected.

19. The judgment in Bhawani Shankar Vyas (2009) 311 ITR 8 : (2010) 186 Taxman 352 (Uttarakhand) also came up for consideration before the Supreme Court in the case of Sargam Cinema v. CIT (2010) 328 ITR 513 : (2011) 241 CTR 179 : 197 Taxman 203 (SC), wherein the Supreme Court has held that the assessing authority cannot refer the matter to the Departmental Valuation Officer without first rejecting the books of account. Once that be the law as declared by the Supreme Court, it is not possible for us to consider the contention advanced on behalf of the Revenue.”

Thus, the issue is no longer res-integra. It already stands concluded by the co-ordinate bench decision of this Court. Since Assessing Officer cannot refer matter to DVO without first rejecting books of account, impugned order passed by Assessing Officer was to be set aside. [In favour of assessee] (Related Assessment year : 2004-05) - [PCIT v. Parmarth Iron (P) Ltd. (2024) 161 taxmann.com 709 (All.)]

Report of DVO was prepared, completed and furnished by DVO to department beyond stipulated time provided in section 142A(vi), same was against mandate of law and, therefore revisionary proceedings initiated under section 263 based upon such report were illegal/bad in law and consequently unsustainable

Assessee was a partnership firm deriving income from real estate business. The Assessing Officer observed that the assessee has raised certain observations regarding valuation of Work-in-Progress (WIP), which had been kept on record. A reference under section 142A(1) was made to the Departmental Valuation Officer (DVO) for elucidation of valuation of immovable property for assessment, with a request to submit the report in 45 days. Subsequently, the Principal Commissioner observed that the issue pertaining to discrepancies found in WIP in respect of the assessee were left open by the Assessing Officer to be decided after the receipt of the report of DVO. From the case records, he further gathered that on receipt of the DVO’s report dated 24.12.2020, there was a huge difference in valuation as per books and DVO’s report as on dated of survey. And, finally, he invoking the provisions of Explanation 2 of section 263 had set aside the assessment order passed under section 143(3) by the Assessing Officer considering the same as erroneous insofar as it is prejudicial to the interest of the revenue. On the assessee's appeal to the Tribunal:

Held : In the instant case the controversy raised by the assessee was with respect to initiation of revisionary proceedings under section 263 based on the DVO’s report called for under the provisions of section 142A(1) by the Assessing Officer, which was received after the culmination of the assessment.

 It was observed that certain admitted facts of the case are that the PCIT has not dealt with the objections raised by the assessee regarding anomalies in the report of the DVO, which was the sole basis for invoking and initiating the proceedings under section 263. Moreover, as per sub-section (4) of section 142A, it was incumbent upon the Valuation Officer to "estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee, apparently no such opportunity was provided to the assessee. Further as per sub-section (6) of section 142A. “The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1)”, in instant case the report of the DVO was send to department way beyond the stipulated time period which shows complete violation of provisions of section 142A. Under such circumstances the report of DVO being barred by limitation should be categorized as non est, thus, cannot be the basis for revisionary proceedings under section 263.

The co-ordinate bench of the Tribunal in the case of Zulfi Revdjee v. ACIT in [IT Appeal No. 2415 (HYD) 2018, order dated 05.09.2019, wherein the tribunal has held that the report of the Valuation Officer has to be filed within the time given under section 142A(vi) and therefore, the assessment order passed on the basis of such report of Valuation Officer beyond the time limit is not sustainable.

Following the aforesaid decision of Tribunal, in absence of any contrary information or decision by the revenue to counter these observations, it is to be held that the non-disposal of the objections of the assessee on DVO’s report by the Principal Commissioner in revisionary proceedings against the principle of natural justice, though set aside to Assessing Officer for opportunity to assessee, however the report of DVO was prepared, completed and furnished by the DVO to the department beyond the stipulated time provided in section 142A(vi), thus the same is against the mandate of law and literal interpretation of provisions of section 142A, therefore the revisionary proceedings initiated under section 263 based such report are unjustified as well as against the intent of law and, thus, the same is illegal/bad in law, consequently unsustainable. [In favour of assessee] (Related Assessment year : 2017-18) – [Shree Krishna Colonisers (2024) 159 taxmann.com 247 (ITAT Raipur)]

Assessee not liable for DVO’s lapse on delay in report submission; Stamp duty valuation indicative of price

Cuttack ITAT observes that the Assessee should not be held liable on account of DVO’s failure to submit the report within the stipulate period; Further holds that the valuation ascertained by stamp authority is indicative of the price computed for charging stamp duty, and cannot be considered for charging capital gains, and therefore the consideration received by the Assessee in terms of registered sale deed should be taken for computing capital gains; In the present case, Assessee sold land for through ten sale deeds separately executed, and offered long term capital gains of Rs 5.60 Lakhs; Assessing Officer observed that the valuation of the property was made at Rs 1.15 Cr by stamp valuation authority, that was contested by the Assessee; Consequently a reference was made to the District Valuation Officer (DVO), but due to delay by DVO in issuing report, Assessing Officer substituted the sale consideration with the valuation adopted by the stamp authority; Tribunal observes that reference to the DVO was duly made in accordance to provisions outlined in Section 50C, but no report was tendered/received, and therefore the Assessee cannot be held liable for the inordinate delay which is solely attributable to the DVO; Notes that Section 50C and 55A are special provisions drawn within the statute for determination of fair market value of capital asset for computing capital gains, whereas Section 142A are general provisions for estimation of value of asset/property or investment for purposes of assessment/reassessment; Outlines that as Sections 50C and 55A are special provisions, the maxim ‘Generalia specialibus non derogant’ i.e., special provision prevail over general provision applies, and therefore reference to DVO can only be made under Section 50C and Section 55A and not under Section 142A; Highlights that on perusal of Sections 43CA, 50C, 55A and 142A, it is clearly evident that except Section 142A no statutory time limit for submission of valuation report has been drawn in any other sections; Emphasizes that even though Section 142A is not a special provision, for purpose on limitation for submission of valuation of report, time limit drawn in Section 142A(6) could be considered as a guiding factor in other sections where reference is made to DVO; However, asserts that this can be done only in special circumstances where the submission of the report has been delayed by the DVO for indefinite time period; Adopts view laid down in the decision of Zulfi Revdjee v. ACIT (2019) 75 ITR(T) 219 (ITAT Hyderabad) to observe that any report submitted after inordinate delay should be held as time barred, and no cognizance of the same should be taken even where reference is made under Section 50C; ITAT opines the Assessee should not be punished for the lapses on the part of the DVO even after expiry of such a long period; Rejects Revenue’s submission and articulates that DVO is guilty for breach of law for failing to submit the said report within the stipulated period, and the Revenue should not receive consideration for enhancing the limitation period by leaving the assessment open for indefinite period; Further states that where the Assessing Officer is allowed to modify the order after receipt of report from DVO, which is otherwise barred by limitation such consideration would not only reward the Revenue with enhanced limitation but embolden unscrupulous tax officials to manipulate orders or mistreat the Assessee; Thus allows Assessee’s appeal. [In favour of assesse] (Related Assessment year : 2018-2019) - [Lalit Kumar Jalan v. ITO [TS-788-ITAT-2024(CTK)] – Date of Judgement : 17.10.2024 (ITAT Cuttack)]

Reference to DVO for roving enquiries without rejecting Assessee’s books not valid; Deletes addition under section 69

Assessee, engaged in the business of building and developing filed its return of income for Assessment year 2011-12 and 2012-13 declaring Nil. Revenue, during the course of assessment, referred the matter to Departmental Valuation Officer (DVO) to determine the exact cost of construction undertaken by the Assessee, however the DVO report was received by the Revenue only after the assessment proceeding was completed. Subsequently, Assessee was subject to reassessment notice and rejected Assessee’s books of account under Section 145(3) and accepted the cost of construction estimated by the DVO; Revenue, accordingly made addition of Rs. 2.45 Cr and Rs. 3.78 Cr, Assessment years 2011-12 and 2012-13 respectively, being the difference between cost of construction declared by the Assessee and cost of construction estimated by the DVO, as unexplained investments. CIT(A) held that the Revenue failed to reject the books of account of the Assessee for Assessment year 2013-14, before making reference to the DVO for verifying the cost incurred for the project undertaken by the Assessee and therefore no addition can be made on the basis of difference of cost of construction between the amounts declared by the Assessee in the books and that determined in DVO’s report and deleted the impugned addition. Aggrieved, Revenue preferred the present appeal.

Pune ITAT dismisses Revenue’s appeal for Assessment years 2011-12 and 2012-13 and confirms deletion of Rs. 2.45 Cr and Rs. 3.78 Cr, respectively made towards the difference between cost of construction declared by the Assessee and cost of construction estimated by the DVO, as unexplained investments under Section 69; ITAT observes that as per Section 69 it is sine-qua-non that the assessee must have made investments which are not recorded in the books of account; Points out that it must be proved by the Revenue first that the Assessee has made investment outside the books, then only the burden shifts upon the Assessee to prove the source of investments; Further points out that if it is not so proved, the Assessee cannot be called upon to prove the source of such hypothetical investments; On perusal of the reassessment order, ITAT observes that except for relying on the DVO’s report, nothing has been brought on record to indicate that the Assessee made investments in a project over and above that declared in the regularly maintained books of account; Rejects Revenue’s contention that satisfaction of the Revenue as to the correctness or completeness of the books of account is not necessary for making reference to the DVO as the said submission is based on the amended provision of Section 142A applicable with effect from 01.10.2014, and the said amendment is not applicable for the relevant Assessment years 2011-12 and 2012-13, as amended provision is applicable prospectively; Relies on Supreme Court judgment in Sargam Cinema v. CIT (2010) 328 ITR 513 (SC), wherein it was held that the Revenue cannot refer the matter to the DVO without the books of account being rejected, thus concurs with CIT(A)’s finding that the Revenue cannot make a reference to DVO under Section 142A for making roving and fishing enquiries; ITAT, on verification of books of account produced by the Assessee, finds that the same are duly supported by the bills/vouchers to prove the cost of construction declared in the books of account, thus no defects could be found so as to reject the books of account under Section 145(3); Thus holds that the impugned additions to be not sustainable. [In favour of assesse] (Related Assessment years : 2011-12 & 2012-13) - [ITO, Aurangabad v. Royal Estates [TS-561-ITAT-2024(PUN)] – Date of Judgement : 22.07.2024 (ITAT Pune)]

Sole basis of addition under section 69A on account of difference in cost of construction of hotel was only valuation report furnished by DVO which had been obtained by Assessing Officer during search proceedings, since said valuation report was filed beyond prescribed time, same could not be relied upon by either party in eyes of law, and thus addition made by Assessing Officer by placing reliance on such invalid valuation report was not valid

In terms of section 142A(6) valuation report has to be furnished by DVO within six months from end of month in which reference is made by Assessing Officer. For purpose of valuing a property when normally, there is difference between CPWD rates and PWD rates, benefit of rate difference between CPWD and PWD rates should have to be given. Sole basis of addition under section 69A on account of difference in cost of construction of hotel was only valuation report furnished by District Valuation Officer (DVO) which had been obtained by Assessing Officer during search proceedings. Said valuation report was filed beyond prescribed time and, hence, could not be relied upon by either party in eyes of law.  Consequentially, no addition per se could be made by revenue by placing reliance on an invalid valuation report. [In favour of assessee] (Related Assessment years : 2014-15 and 2019-20) – [Golden Tulip Hospitality (P) Ltd. v. ACIT (2023) 156 taxmann.com 511 (ITAT Amritsar)]

Where assessee purchased a ready built house, provisions of section 142A were not attracted

Assessee purchased a ready built house. Assessing Officer invoking provisions of section 142A and made a reference to District Valuation Officer (DVO) for estimating value of house purchased by assessee. Assessing Officer further based on report of DVO made addition to income of assessee as unexplained income under section 69. Commissioner (Appeals) held that provisions of section 142A were applicable in instant case. Provisions of section 142A are applicable only when assessee had made investment in construction and as assessee purchased a ready built house, provisions of section 142A were not attracted. Reference to DVO was not valid and consequently addition made to assessee’s income could not be sustained. [In favour of assessee] (Related Assessment year : 2014-15) – [Ananthakrishna Vasudev Aithal v. ITO (2023) 147 taxmann.com 376 (ITAT Bangalore)]

Assessing Officer cannot complete assessment without taking into account of valuation report if matter was referred to DVO

Where assessee purchased a property for Rs. 80,82,900/-, whereas guideline value of property fixed by Sub-Registrar’s Office (SRO) was at Rs. 2,83,00,000/-. and Assessing Officer on request of assessee referred valuation of property to Departmental Valuation Officer (DVO), however, DVO had not submitted report even when assessment was getting time barred and Assessing Officer completed assessment and made an addition of Rs. 2,02,17,100/- as per provisions of section 56(2)(vii)(b).

In this case, there is no dispute with regard to the fact that there is a difference in the consideration paid for purchase of a property and the guideline value fixed by the SRO. The Assessee claims to have paid a sum of Rs. 80,82,900/- as consideration; whereas the SRO had fixed the guideline value of the property at Rs.2,83,00,000/-. Thus, there is a difference of Rs.2,02,17,100/-. The contention of the Assessee was that the guideline value fixed by the SRO is not the fair market value of the property and thus, had requested the Assessing Officer to refer the valuation of the property to the DVO. The Assessing Officer as per the request of the Assessee referred the valuation of the property to the DVO. However, the DVO had not submitted the report when the assessment was getting time barred and therefore, the Assessing Officer completed the assessment without waiting for the DVO’s report and had made the additions towards the differential amount as per the provisions of section 56(2)(vii)(b) of the Income-tax Act, 1961.

Once the Assessing Officer has referred the valuation of the property to the DVO, then he ought to have waited for the DVO’s report to ascertain the fair market value of the property for the purchase as per the provisions of section 56(2)(vii)(b) of the Income-tax Act, 1961. Since the Assessing Officer has made the additions without waiting for the DVO’s report, we are of the considered view that the issue needs to be remitted back to the file of the Assessing Officer to reconsider the issue afresh after taking into account the report submitted by the DVO. Hence, we set aside the issue and remit the matter back to the file of the Assessing Officer and direct the Assessing Officer to redo the assessment and consider the issue in accordance with law after taking into account the valuation report submitted by the DVO. – [Sudalaimani Palanivelrajan v. DCIT (2023) 146 taxmann.com 162 (ITAT Chennai)]

Income Tax Act prevails over MSMED Act for Special Audit Fee dispute with Income Tax Department

Delhi High Court allows Revenue's writ petition challenging the directions for reference to arbitration passed by Micro and Small Enterprise Facilitation Council (MSEFC, authority under MSMED Act) involving special audit fee dispute between a CA Firm and Income Tax Department; The Respondent CA Firm was engaged for conducting Special Audit of Oracle India, Sahara India Financial Corp. and Reverse Logistics and raised the invoice of Rs. 6.44 Cr. whereas the Revenue determined and paid fees of Rs. 1.36 Cr for only two audit assignments whereas the fees for all the three assignments was determined at Rs. 1.6 Cr.; The CA Firm treated the fee outstanding as per the invoice as fee payable and approached MSEFC; High Court holds that the nature of Special Audit and the manner in which the fee is determined requires domain expertise and knowledge which MSEFC cannot possess; Expounds, “the function which is in effect delegated to the Audit firm is one which is exercised under the Income Tax Act and would be purely governed by the said statute.”; Categorically upholds ‘statutory nature’ of assessments where Special Auditor assists the Assessing Officer, thus, holds that Income Tax Department cannot be termed as a ‘buyer’ for availing the services of a CA Firm, which cannot be termed as a ‘supplier’; Therefore, concludes that invoking MSMED Act over statutory duty of Special Audit is not tenable; Clarifies that a CA Firm may be registered as a a micro or small enterprise and may be entitled to invocation of the jurisdiction of the MSMED Act for other purposes; Further expounds that the determination of the CA Firm's remuneration is solely the prerogative of the specified Revenue authorities and would not be liable to be called into question either in a commercial suit or civil suit for recovery of money; Also clarifies that the nomination as a Special Auditor is governed purely by the provisions of the Income Tax Act and Rules but this does not bar the remedy of filing of a writ petition; Therefore, finds clear lack of jurisdiction in the MSEFC, which even failed to consider as to whether the MSMED Act would itself be applicable or not; Emphasizes that, “Insofar as Audits under Section 142(2A) are concerned, the Income Tax Act would have to be reckoned as the Special Act and the MSMED Act as the general Act dealing with MSME disputes.” The remedies of the CA Firm, if any, to challenge the orders passed by the IT Department in respect of determination of remuneration, are left open. – [Micro and Small Enterprise Facilitation Council [TS-371-HC-2023(DEL)] - Date of Judgement : 06.07.2023 (Del.)]

Reference to valuation officer under section 142A can be made to ascertain value of any investment referred to in section 69 or section 69B or value of any bullion, jewellery or any other valuable article referred to in section 69A or section 69B and not for purpose of section 69C inasmuch as there is conspicuous exclusion of section 69C

Assessing Officer had made assessment under section 69C of the Act and he had referred the matter to DVO under section 142A of the Act. The learned DR submitted that merely because there was an error in writing section 69C by the Assessing Officer, would not vitiate the entire proceedings. The Assessing Officer was dealing in substance with the subject-matter relating to the investment made by the assessee in immovable property. He submitted that by mistake the Assessing Officer has stated section 69C, that has been correctly construed to be section 69B by the learned CIT (Appeals).

The objection of the assessee regarding erroneous reference to the DVO, it was submitted that the Assessing Officer was not empowered to refer the matter to DVO, where the assessment was being made under section 69C of the Act. There is no dispute with regard to the fact that the Assessing Officer in the assessment order has stated addition regarding unexplained expenditure under section 69C of the Act. The Revenue has not brought on record that mentioning of section 69C was on account of any typographical error. It is also clear from the assessment order that the Assessing Officer had referred the issue of market value of the property in question under section 142A of the Act. However, as per section 142A such reference can be made to ascertain the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or any other valuable article referred to in section 69A or section 69B of the Act. There is conspicuous exclusion of section 69C. In the present case, reference under section 142A was not made regarding ascertaining the correct market value of the investment in property. But, it was in fact for the purpose of ascertaining expenditure which the assessee made on the purchases. I find merit into the contention of the assessee that the reference to DVO under section 142A for the purpose of section 69C is not valid.

Now coming to the question regarding action of the learned CIT (Appeals) to treat the reference under section 142 for the purpose of section 69B, I find merit into the contention of the assessee that there is no power conferred upon the learned CIT (Appeals) to assess a particular item under different provision of the Act what the Assessing Officer had done without giving a specific notice to the assessee regarding such action. The Revenue has not brought any material to suggest that the assessee was put to notice by the learned CIT (Appeals) before taking such action. I am of the considered view that law does not permit for such change of provision of law. As per section 250 of the Act, the learned CIT (Appeals) is empowered to make further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report to the learned CIT (Appeals). As per section 251(1)(a), in appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment, but there is no such power provided by the law that learned CIT (Appeals) could change the provision of law qua the item of which assessment was made. Therefore, in the absence of such power, learned CIT (Appeals) could not have treated the addition made under section 69C as the addition made under section 69B and the same is contrary to the spirit of the Act. Reliance placed by the learned counsel for the assessee on the judgment of the Hon’ble Delhi High Court, rendered in the case of CIT v. Aar Pee Apartments (P) Ltd. (2010) 319 ITR 276 : 188 Taxman 39 (Del.), has held that from the reading of sub-section (1) of section 142A, it is clear that legislature referred to the provisions of sections 69, 69A and 69B but specifically excluded 69C. The principle of casus omissus becomes applicable in a situation like this. What is not included by legislature and rather specifically excluded, cannot be interpreted by the Court through the process of interpretation. The only remedy is to amend the provision. It  is not the function of the Court to legislate or to plug the loopholes in the law. In the light of the above binding precedent the action of the learned CIT (Appeals) in treating the addition made by the Assessing Officer u/s 69C as have been made under section 69B is contrary to the law laid down by the Hon’ble Jurisdictional High Court. I, therefore, respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of Aar Pee Apartments (P) Ltd. (supra), the impugned order is therefore set aside. The addition made under section 69C on the basis of the report of the DVO by the Assessing Officer deserves to be deleted. Hence, impugned addition is hereby deleted. Grounds of appeal taken by the assessee are allowed accordingly. [In favour of assessee] (Related Assessment year : 2006-07) – [Toffee Agricultural Farms (P) Ltd. v. ITO (2022) 141 taxmann.com 429 (ITAT Delhi)]

Difference between valuation shown by assessee and estimated by Departmental Valuation Officer was less than 10 per cent, Assessing Officer was not justified in substantiating valuation determined by Departmental Valuation Officer for cost shown by assessee and therefore, addition made by Assessing Officer on account of difference in valuation as determined by DVO and as shown by assessee in its regular books of account was to be deleted

Cost of construction - During course of assessment proceedings, Assessing Officer made addition in hands of assessee on account of difference in valuation relating to cost of construction of showroom as determined by Departmental Valuation Officer (DVO) and as shown by assessee in its regular books of account. However, it was found that assessee asked for benefit of 10 to 15 per cent on account of self-supervision but valuation officer had given a benefit of only 3.75 per cent and even valuation officer applied CPWD rates which were higher than local PWD rates. Valuation Officer ought to have applied local PWD rates. If PWD rates had been applied and benefit at 10 per cent was given for self-supervision, difference between valuation as worked out by DVO and that shown by assessee in books of account would be less than 10 per cent. Therefore, when difference between valuation shown by assessee and estimated by DVO was less than 10 per cent, Assessing Officer was not justified in substantiating valuation determined by DVO for cost shown by assessee. Therefore, addition made by Assessing Officer was to be deleted. [In favour of assessee] (Related Assessment year : 2017-18) –[Smt. Charu Aggarwal v. DCIT (2022) 140 taxmann.com 588 : 96 ITR(T) 66 (ITAT Chandigarh)]

There was huge difference in cost of building between books of account of assessee and valuation report, Assessing Officer ought to have referred matter to DVO for valuation; without referring matter to DVO, Assessing Officer could not consider difference between entries made by assessee and its registered valuer to make addition

Assessee-company had invested in a building and had shown cost of same in depreciation schedule after capitalizing interest on loan. Assessing Officer noted that cost of said building as shown in depreciation schedule was different from amount computed by assessee’s valuer, and thus, made addition of differential amount as unexplained investment under section 69. It was noted that difference in cost of building as shown in assessee’s books of account and as against in valuation report was very huge and thus, Assessing Officer ought to have referred matter to DVO for valuation. To make addition on account of difference in cost of building, Assessing Officer was duty bound to reject books of account of assessee and refer matter to DVO as prescribed under section 142A. Since Assessing Officer failed to make such reference to DVO and made addition based on assessee’s valuer’s report, such impugned additions were liable to be deleted. [In favour of assessee] (Related Assessment year : 2003-04) – [VRL Logistics Ltd. v. ACIT (2022) 140 taxmann.com 69 : 95 ITR(T) 221 (ITAT Bangalore)]

Where reference under section 142A was made for determination of FMV of immovable property for substituting the same as full value of consideration under section 50C and the assessment order was passed beyond the time-limit laid down in section 153(1), was barred by limitation

The assessee sold immovable property on 23.01.2015 for a consideration of Rs. 1,50,00,000/-. On 09.11.2017, the Assessing Officer referred the transaction to the Valuation Officer, Solapur under section  142A to ascertain the property value as on the date of sale. The stamp value of the property as on the date of sale was Rs. 2,21,40,900/-. The Valuation Officer submitted his report on 14.08.2018 valued the Fair Market Value of the property at Rs. 1,80,39,000/-. The Assessing Officer based on the Valuation Report issued a show cause notice on 05.09.2018 as to why the said value as per the Valuation Report amounting to Rs. 1,80,39,000/- should not be considered as Fair Market Value of the said immovable property on the date of sale.

Heard rival parties and perused the materials available on record including the Paper Book and Case Laws cited by the assessee counsel. Section 142A of the Income Tax Act titled as 'Estimate by Valuation Officer in certain cases'. This section prescribes that for the purpose for making an assessment, where an estimate of the value of any investment referred to in sections 69, 69A, 69B are required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to Assessing Officer. Thus the scope of section 142A is limited in its span only to determine the value of investment in respect of certain assets, such as, bullion, jewellery, valuable articles etc. In this section as well there is no power vested with Assessing Officer to seek the help of Valuation Officer in respect of determination of capital gain prescribed undersection 48 of the Income tax Act, 1961.

Reading of the above provisions makes it very clear that the Assessing Officer is necessarily to pass the assessment order within the time limit as prescribed under section 153(1) of the Act which is in this case namely 31.12.2017. However the Assessing Officer has wrongly referred the valuation of the immovable property under section 142A of the Act which is not provided under the provisions of the Income Tax Act. However after receipt of the Valuation Report from the DVO, the Assessing Officer passed the assessment order on 28.09.2008 which is clearly barred by limitation which is not sustainable in law. Therefore, the assessment order is hereby invalid in law. Thus the ground no. 1 raised by the assessee is hereby allowed. [In favour of assesse] (Related Assessment year : 2015-16) - [Smt. Rashidaben Taher Morawala Badri Mohalla v. DCIT (International Taxation) Baroda [IT Appeal No. 1353 (AHD) of 2019 – Date of Judgement : 19.10.2022 (ITAT Ahmedabad)]

Reference to DVO without rejecting Assessee’s books, invalid; 2014 amendment to Section 142A not retrospective

Bangalore ITAT allows Assessee’s appeal, deletes the disallowance made on account of earth filling and land levelling based on DVO’s report as unsustainable since Revenue had accepted Assessee’s books of accounts; Further holds that material collected during the course of survey under Section 133A has no evidentiary value, thus, cannot be a basis for addition; Also holds that the reference made to DVO under Section 142A by Revenue was not justified without rejection of Assessee’s books since the amendment introduced by the Finance Act, 2014 is not retrospective in nature; Assessee-Individual, a land developer, was subject to survey under Section 133A, during which the Revenue discovered self-made vouchers of cash payment below Rs.20,000, claimed to be made towards earth filling expenses, however Revenue doubted if such expenses were actually incurred and asked Assessee to furnish the name and address of the parties to whom the payment has been made; Assessee failed to produce the name and address of the service provider, however furnished the certificate to support the expenditure from one party and supported the claim of expenditure by filing an affidavit; Revenue did not accept the documents filed by Assessee and referred the matter to DVO, whereby the report was obtained after lapse of 2 years of incurring this expenditure, stating that Assessee has incurred an expenditure of Rs. 9.30 Lacs only, towards earth filling and levelling; Accordingly, the Revenue disallowed the expenditure incurred towards earth filling and land levelling expenses of Rs. 6.42 Cr. for Assessment year 2007-08, and on CIT(A)’s direction made the addition of the earth filling and land levelling expenditure incurred in Assessment year 2006-07 of Rs. 7.55 Cr. on a protective basis totalling the disallowance to Rs. 13.88 Cr.; CIT(A) dismissed Assessee’s appeal in limine, on the ground that the Assessee had not paid the taxes in full in respect of the admitted income but ITAT restored the matter to CIT(A) for fresh consideration, pursuant to which CIT(A) held that the claim of earth filling and levelling expenses is only a paper entry with sole purpose of inflating the cost to reduce the profit, thereby evade the tax and sustained the addition of Rs. 13.88 Cr. by allowing a deduction of only Rs. 9.30 Lacs out of total claim of expenditure; On Assessee’s appeal, ITAT notes that the Revenue made addition on the basis of DVO’s report, however Assessee’s books of accounts maintained and duly audited under Section 44AB were  not rejected; Opines that disallowance of expenditure without rejecting Assessee’s books of accounts is not sustainable especially when the regular books of accounts are maintained with supporting evidence, which are duly audited; Further notes that Assessee failed to produce the service providers to whom the payment was made, as they left the city (Bangalore) after completion of Assessee’s work, since they do not have the permanent address or residence (in Bangalore); Holds that Revenue’s finding that there was no evidence to support the claim of expenditure is erroneous since Assessee had furnished regular books of accounts and supporting vouchers and bills; Points out that the evidences were filed during the course of assessment including the survey report by M/s. Guideline Survey and Assessee’s affidavit, were not examined by the Revenue in accordance with law; Observes that material  collected during the course of survey proceedings was the provocation to doubt the expenditure incurred on earth filling and land levelling and reference to DVO to decide the quantum of amount spent on the said expenses; Relies on Supreme Court ruling in Khader Khan v. CIT (2003) 352 ITR 480 : 254 CTR 228 (SC), wherein it was held that the material collected during the course of survey under Section 133A which have no evidential value, cannot be basis for addition; Thus, holds that the addition of expenses incurred towards earth filling is not sustainable, accordingly deletes the addition of Rs. 13.88 Cr by relying on jurisdictional High Court ruling in Sri Ganesh Shipping Agency in ITA No.366/2015 vide order dated 06.02.2021; ITAT notes Assessee’s contention that reference made to DVO under Section 142A is bad in law since section 142A does not empower Revenue to make reference to DVO to determine the cost of development works incurred by Assessee; Observes that Section 142A provides that a reference could be made to DVO for making an estimate of the value of investment referred to in section 69, or for the valuation of any bullion, jewellery or other valuable article referred to in sections 69 & 69B but it does not empower Revenue to make a reference to the Valuation Officer to estimate the expenditure incurred by Assessee, as provisions of section 69C is not included in section 142A, as it stood at the relevant point of time; Relies on Supreme Court ruling in Amiya Bala Paul v. CIT (2003) 262 ITR 407 : 182 CTR 489 : 30 Taxman 511 (SC), wherein it was held that a Valuation Officer can only have jurisdiction to give a report under the Income-tax Act in terms of the statutory provisions of the Act, i.e., Section 142A; Relies on Supreme Court ruling in Sargam Cinemas v. CIT 262 ITR 513 (SC), wherein it was held that rejection of books of accounts is a pre-condition for making a reference to DVO; Holds that the reference made to DVO under Section 142A by Revenue is not justified, thus the addition of Rs. 13.88 Cr based on DVO’s report cannot be sustained. [In favour of assessee] (Related Assessment year : 2007-08) – [K. Satish Kumar v. Addl. CIT – Date of Judgement : 01.08.2022 (ITAT Bangalore)]

Accepts FMV/actual consideration sans DVO reference, despite Assessee’s request; Distinguishes Ansal Housing ruling on notional rent

Jaipur ITAT allows Assessee’s appeal on applicability of Section 50C(2), claim for exemption under Section 54F, nature of capital gains from sale of building of a discontinued business and taxability of notional rent; ITAT disagrees with adoption of estimated consideration as sale consideration since Revenue failed to refer the matter to the valuation officer in terms of Section 50C(2), despite Assessee’s specific prayer; Also allows exemption under Section 54F denied by the Revenue where Assessee owned seven house properties in his business which were undisputedly held as stock-in trade; Holds Section 50 inapplicable on sale of building from discontinued business which was held by the Assessee as investments; ITAT also factually distinguishes Delhi High Court ruling in Ansal Housing Finance & Leasing Co.Ltd. (2013) 354 ITR 180 (Del.) to delete addition of notional rent, where the property in instant case was old, dilapidated and unfit for habitation; Assessee-Individual sold land and building at Rs. 8.81 Cr. (FMV) whereas Revenue adopted SDV of land at Rs. 9.90 Cr. as full value of consideration for the land and retained consideration of the building at Rs. 2.18 Cr.; CIT(A) reduced the value of building at SDV i.e., Rs. 1.28 Cr. while ITAT agrees with Assessee’s contention that Revenue adopting the SDV for the land and actual consideration for the building resulted in the aggregate consideration to be Rs. 12.09 Cr. which was higher than the aggregate SDV of the entire property which was Rs. 11.19 Cr.; Notes that Assessee’s objection that SDV was higher than the FMV on the date of transfer was ignored by the Revenue in disagreement with valuation report submitted by the Assessee; Opines that if Assessee made an objection for invoking Section 50C(1), the Revenue ought to have referred the matter to the valuation officer to ascertain the market value but without doing so, the Revenue estimated the capital gains by adopting the estimated value, higher than the actual consideration or the fair market value; Relies on the Calcutta High Court ruling in Sunil Kumar Agarwal v. CIT(2015) 372 ITR 83 and the coordinate bench ruling in Smt. Sharda Devi wherein it was observed that if objection is made by the Assessee for the value taken, then the Revenue should comply with the provision of Section 50C; Finds that in the instant case, the Revenue neither discussed Assessee’s contentions for adopting actual consideration as fair market value of the property sold nor referred the matter to the DVO as was required under Section 50C(2) despite Assessee’s specific prayer; Also notes that the lower authorities did not find or allege that Assessee received any excess amount over sale consideration mentioned in the deed, and thus finds no justification in adopting the deemed sale consideration in violation of Section 50C(2); On Section 54F exemption, denied by the Revenue and allowed by the CIT(A), ITAT observes that Assessee owned seven properties in his trading business and reflected as unsold stock-in trade, finds that the conditions stipulated under Section 54F were fulfilled, thus, allows the exemption; With respect to Revenue’s treatment of gain from sale of building of discontinued business as short-term capital gain in terms of Section 50, ITAT finds Assessee owned land/building which was in business use up to Assessment year 2012-13 and thereafter as investments; Subsequently, Assessee sold the asset and treated it as long-term capital asset whereas Revenue held Section 50 to be applicable which was also upheld by the CIT(A); ITAT factually distinguishes the Bombay High Court ruling in Smt. Meena V. Pamnan v. CIT, Bombay on 29 September, 2017 and the Kerela High Court ruling in CIT v.Sakthi Metal Depot (2011) 333 ITR 492 (Ker.) relied on by the Revenue and holds that Section 50 as inapplicable in the instant case; With respect to addition of Rs. 32.28 lakh as notional rent on old and unused property held as stock-in-trade, which was confirmed by the CIT(A) by relying on the Delhi High Court ruling in Ansal Housing, ITAT finds that the condition of the building was old and dilapidated, unfit for habitation whereas in the aforesaid Delhi High Court ruling, there was a new building, which was ready to use/habitation; Holds the lower authorities findings based on the above precedent to be devoid of merit and disagrees with the CIT(A)’s order. – [DCIT, Jaipur v. Goverdhan Prasad Singhal [TS-487-ITAT-2022 (JPR)] – Date of Judgement : 07.06.2022 (ITAT Jaipur)]

Pursuant to search conducted upon assessee DDIT (Investigation) not being satisfied with value of immovable properties shown by assessee made reference to DVO on 11.07.2014 and on basis of his report made certain addition to income of assessee, in view of fact that DDIT(Inv.) got empowered to make reference to DVO under section 132(9D) only after 01.04.2017 by an amendment by Finance Act, 2017, impugned reference to DVO was unlawful

A search and seizure operation under section 132(1) was conducted at office/residence of assessee on 13.03.2014. Pursuant to search, DDIT (Investigation) made a reference to DVO on 11.07.2014 in respect of valuation of immovable properties held by assessee. DVO furnished valuation report showing value of properties at higher amount than what was shown by assessee. On basis of same, Assessing Officer invoked proceedings under section 153A and passed an assessment order making addition on account of difference in valuation of properties as submitted by DVO. Assessee objected to reference made by DDIT (Investigation) to DVO on ground that only Assessing Officer under section 142A could make reference to DVO for valuation of property and this power was conferred upon DDIT (Investigation) by inserting sub-section (9B) in section 132 on 01.04.2017. It was noted that authorized officer of search DDIT (Investigation)/ADIT (Investigation) was empowered to make reference to Valuation Officer inserted by section 132(9D) only after 01.04.2017 by an amendment by Finance Act, 2017. Therefore, impugned reference to DVO given by DDIT (Investigation) on 11.07.2014 when he did not have power/jurisdiction for same was unlawful. Accordingly, impugned addition made on basis of such valuation report was to be deleted. [In favour of assessee] (Related Assessment year : 2008- 09) –[ACIT(C) v. Narula Educational Trust (2021) 189 ITD 31 : 126 taxmann. com 158 : 86 ITR(T) 365 (ITAT Kolkata)]

Power to make reference under section 142A is restricted to matters concerning section s 69, 69A or 69B and since subject matter of examination in said sections is under statement in value of investments acquired during year, reference under section 142A could not have been made for finding out extent of alleged overstatement in value of investment

Assessee sold ancestral land (acquired prior to 01.04.1981) and adopted Fair Market Value (FMV) as on 01.04.1981 as Cost of Acquisition (COA) based on report of Registered Valuer (RV). Assessing Officer made reference to District Valuation Officer (DVO) under section 142A to determine correct value on grounds that purchase documents of ancestral property were not made available. DVO furnished valuation report under section 55A determining value of land at lower figure. Assessing Officer adopted said FMV and enhanced taxable gain. Power to make reference under section 142A is restricted to matters concerning sections 69, 69A or 69B and since subject-matter of examination under sections 69, 69A or 69B is understatement in value of investments acquired during year, reference under section 142A could not have been made for finding out extent of alleged overstatement in value of investment. Reference made under section 142A was also unsustainable for another reason that provision of section 142A cannot be invoked without assigning some tangible basis giving rise to doubt on FMV adopted by assessee and Assessing Officer while making reference to DVO had not provided any reasons for doing so except to obtain elucidation on correct value. Section 55A(b)(i) concerns a situation where FMV of assets exceeds value of asset claimed by assessee and since in instant case FMV was sought to be lowered by Assessing Officer than what was claimed by assessee, section 55A could not be applied. [In favour of assessee] (Related Assessment year : 2013-14) – [Chirag Dashrathbhai G. Patel v. DCIT (2020) 182 ITD 327 : 116 taxmann.com 229 (ITAT Ahmedabad)]

Assessee filed instant petition contending that report of DVO was finalized without following requirements of hearing to be granted to assessee in terms of sub-section (4) of section 142A - Provisions of sub-section (7) of section 142A enjoin a duty on Assessing Officer to hear assessee on report of DVO before he can act upon same - Therefore, at said stage, assessee would get ample opportunity to contest report on all grounds including on ground that reasonable opportunity of hearing as envisaged under sub-section (4) of section 142A was not granted - Therefore, there being no merit in instant petition, same was to be dismissed

The petitioner, an individual, has primarily prayed for a direction to be heard before the valuation report is finalized by respondent No. 2 - District Valuation Officer (“the DVO” for short). At the outset, learned counsel for the petitioner stated that though the petitioner has made the additional prayer for setting aside the notice for reopening of assessment, the same is not pressed in this petition, of course, keeping all the contentions of the petitioners open which may be raised at the appropriate stage.

 The petitioner’s sole prayer pressed before us as noted above, arises out of the petitioner's objection to a report of the valuation by the DVO dated 23.07.2018 which concerns four immovable properties. The contention of the petitioner is that this report was finalized without following the requirements of hearing to be granted to the petitioner in terms of sub-section 4 of Section 142A of the Income-Tax Act, 1961.

Learned counsel for the petitioner submitted that if the petitioner was granted reasonable opportunity of hearing, the petitioner would have been in a position to produce materials on record pointing out that the valuation of the properties in question is far below what the DVO wanted to adopt. He further submitted that some of the properties covered under the report did not even belong to the petitioner.

 Having heard the learned counsel for the parties and having perused the documents on record, we are not inclined to interfere at this intermediary stage when the Assessing Officer has yet to pass any final order of assessment. It is always open for the petitioner to contest the contents of the report before the Assessing Officer. As is clear from sub-section 7 of Section 142A of the Act, this provision provides that the Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment. Thus, even this provision enjoins a duty on the Assessing Officer to hear the assessee on the report of the DVO before he can act upon the same. At this stage, the petitioner would have ample opportunity to contest the report on all grounds including on the ground that reasonable opportunity of hearing as envisaged under sub-section 4 of Section 142A of the Act was not granted. We have not examined the validity of this contention. This observation would not limit the petitioner's objection only to this limited issue and would enable the petitioner to raise all objections on substance as well as contents of the report. At the stage where the assessment is not yet made, we do not find it appropriate to interference. With these observations, the petitions are disposed of. – [Pratap Vitthal Bandal v. Union of India (2020) 116 taxmann.com 919 (Bom.)]

 Section 142A amendment vide Finance Act, 2014, not retrospective; Quashes DVO reference without rejection of books

Bangalore ITAT allows assessee’s appeal for Assessment year 2007-08, holds that amendment in Section 142A cannot be said to have retrospective effect; Assessing Officer had made reference to the DVO without rejecting the books of the assessee, which was challenged by the assessee in view of Supreme Court decision in Sargam Cinemas, wherein it was held that rejection of books of accounts is a pre-condition for making a reference to DVO; Considering the legislative intent of introduction of Section 142A, ITAT notes  that pursuant to Supreme Court decision in Sargam Cinemas, the addition made on account of unexplained investments in construction was being deleted, where such criterion was not met; States that the amendment vide Finance Act, 2014 was made only to overrule the legal position as interpreted by various High Courts and Supreme Court in the case of Sargam Cinemas; States that “the legislature did not make the law retrospective in operation nor were pending proceedings as was done when Section 142A was inserted by the Finance (No.2) Act, 2004 w.r.e.f. from 15.11.1972. It cannot also be said that Section 142A as inserted by the Finance Act, 2014 has retrospective effect”, rules that the reference to DVO in the present case is invalid in view of Supreme Court judgement in Sargam Cinemas wherein held that rejection of books of accounts is a pre-condition for making a reference to DVO and there was admittedly no such rejection of books of accounts. [In favour of assessee] (Related Assessment year : 2007-08) – [Shetty Constructions v. ACIT, Kalaburagi [TS-92-ITAT-2020 (Bang)] – Date of Judgement : 12.02.2020 (ITAT Bangalore)]

NOTE

Post amendment by the Finance Act, 2014 to section 142A, Assessing Officer can make reference to DVO whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.

Estimated cost of construction shown in project report submitted to bank for availing loan could not constitute actual cost of construction once assessee had recorded actual cost of construction in books of account and once Assessing  Officer was satisfied with cost of fixed assets as shown in balance sheet, it was not mandatory for Assessing Officer to refer valuation to DVO

The assessee-company was engaged in business of hotel. The assessment order was passed under section 143(3) whereby total income was assessed at Nil. The Commissioner found that the order was erroneous and prejudicial to the interest of the revenue. The issue was in respect of investment in construction of hotel building. According to the Commissioner, there was huge difference between investment shown by assessee in its balance sheet and valuation done by surveyor-cum-valuer appointed by bank while granting loan to assessee. The Commissioner was of the view that in such a situation the correct course of action would have been to refer the matter to the Departmental Valuation Officer under section 142A. On appeal, the Tribunal set aside order passed under section 263. On revenue’s appeal:

Project report submitted to bank for availing term loan for construction of hotel building could not constitute actual cost of construction once assessee had recorded actual cost of construction in books of account. It was not mandatory for Assessing Officer to refer valuation to DVO once he was satisfied with cost of construction and cost of fixed assets as recorded in books of account. [In favour of assessee] (Related Assessment year : 2013- 14) – [PCIT v. Om Rudra Priya Holiday Resort (P) Ltd. (2019) 266 Taxman 97: 109 taxmann.com 63 (Raj.)]

Quashes Revenue’s action of re-valuing property in ‘search proceedings’ absent ‘seized material’

Delhi High Court upholds ITAT order, deletes additions under section 153A made on the basis of re-valuing assessee’s property sold during Assessment year 2008-09; High Court notes that while the dispute relating to transaction value of property sold by assessee during relevant Assessment year was pending before ITAT, search and seizure proceedings were initiated under section 132 and Assessing Officer made additions by adopting the value of property based on response received from assessee’s bankers under section 133(6); Rejects Revenue’s stand that since search and seizure proceedings were conducted, Assessing Officer was justified in going into the matter afresh and derive property value based on replies from assessee’s bankers, who held the property as collateral and provided credit to assessee ; High Court notes that Assessing Officer’s order nowhere disclosed what was the fresh document or material seized which made him suspect the valuation of property and ultimately led him to send queries to assessee’s banker, rules that absence of any material seized during the search proceeding could not have justified afresh examination of the valuation issue”; Further upholds ITAT order that the valuation by the banker, who provided credit could be different from the valuation report for the transaction given that assessee purchased the property long ago in 1974, also clarifies that observations in this appeal shall not affect the merits of the pending issues.

Assessee had filed its return for Assessment year 2008-09 declaring Rs. 7 lakhs as income and reported sale of its capital asset which was acquired in 1974. Although the assessment was completed, further appeals were pending on behalf of both the parties before the ITAT. Meanwhile, on November 6, 2008, a search and seizure operation was initiated under section 132 in the assessee’s premises. The Assessing Officer suspected assessee’s valuation of the property sold during the Assessment year, and accordingly referred the issue to the District Valuation Officer (DVO) under section 142A. The DVO valued the property at Rs. 83.59 lakhs. However, the Assessing Officer based on the replies to the queries received from the assessee’s banker determined that the true market value of the property was valued on July 5, 2005, was Rs. 5 crores. The assessee rejected the DVO’s valuation. On appeal, CIT(A) after re-appreciating the entire circumstances, opined that the Assessing Officer was not justified in calculating the considerations on a notional basis. On appeal, ITAT also re-affirmed CIT(A)’s order.Aggrieved Revenue filed an appeal before Delhi High Court.

High Court noted that evidently, the sale and the consideration received were reported by the assessee in the return filed. The transaction took place on 29.06.2007, and the dispute regarding the transaction value was a matter as yet undetermined. Further, High Court opined that the orders of the adjudicating authorities and the Assessing Officer were unable to  substantiate their suspicion on the valuation of property via any fresh document or material seized which could have led him to send queries to the assessee’s banker and also refer the matter to the DVO. High Court re-affirmed ITAT’s order and held that the valuation by the banker, who provided credit could well be different from the valuation report for the transaction given that the assessee had purchased the property long ago. Thus, High Court commented that the absence of any material seized during the search proceeding could not have justified afresh examination of the valuation issue. No substantial question of law arises”.

Finally, High Court dismissed Revenue’s appeal. However, High Court clarified that the discussion in this appeal shall not be deemed to include the merits of the pending issues in regard to which parties’ contentions are kept open.” - [In favour of assessee] (Related Assessment year : 2008-09) – [Anita Rani (2017) 392 ITR 501 : 88 taxmann.com 591 : [TS-83-HC-2017(DEL)] (Del.)]

Assessment had not become final and conclusive because appeal preferred by revenue was pending before High Court, in view of proviso to sub-section (3) of section 142A, a valid reference to DVO could be made

From the order of the Tribunal we find that the Tribunal has even though held that the reference to the Departmental Valuation Officer in question is not valid, in view of the decision of this Court in the case of  Amiya Bala Paul v. CIT (2003) 262 ITR 407 : 130 Taxman 511, but it has also held that it is settled principle of law that in place of Central Public Works Department rates local Public Works Department rates are to be applied and adopted to determine the cost of construction. In view of the fact that Section 142A was inserted by Finance (No. 2) Act, 2004 with retrospective effect from 15.11.1972 and subsequently again substituted by Finance Act, 2010 with effect from 01.07.2010 and Finance (No. 2) Act, 2014, with effect from 01.10.2014, as the proviso to sub-section (3) of Section 142A as it existed during the relevant period, reference to the Departmental Valuation Officer can be made because assessment in the present case had not become final and conclusive because the appeal preferred by the Revenue under section 260A of the Income-tax Act, 1961 was pending before the Rajasthan High Court. However, in view of the finding recorded by the Tribunal that the local Public Works Department rates are to be applied and adopted in place of Central Public Works Department rates, we do not find any good ground to interfere with the impugned judgment on this issue on merits. The appeal fails and is dismissed. [In favour of revenue] – [CIT, Ajmer v. Sunita Mansingha (2017) 393 ITR 121 : 295 CTR 590 : 247 Taxman 93 : 80 taxmann.com 258 (SC)]

Assessee filed writ petition challenging power of Assessing Officer to obtain report of DVO for computing capital gain arising from sale of land on ground that same had been assessed on basis of Jantri rates prevailing at time of sale, since those Jantri rates had not been revised for a long time, petition filed by assessee was to be dismissed

During relevant year, assessee sold three pieces of agricultural lands situated in different villages. While scrutinizing such assessment, Assessing Officer desired to obtain valuation of such properties, for which purpose he made a reference to DVO under section 50C(2). Assessee raised a plea that capital gain could not be computed on basis of report of DVO as same had been assessed on basis of Jantri rates prevailing at time of sale. It was noted that Jantri rates had not been revised for a long time. Moreover, in terms of section 142A, Assessing Officer had power to obtain valuation reports even in context of issues other than that of capital gains computation. In view of aforesaid, writ petition filed by assessee was to be dismissed. [In favour of revenue] (Related Assessment year : 2008-09) – [Kanaiyalal Dhansukhlal Sopariwala v. District Valuation Officer (2017) 391 ITR 56 : (2016) 243 Taxman 378 : 75 taxmann.com 271 [Guj.)]

Assessing Officer cannot make addition to assessee’s income merely based upon DVO’s report in absence of any corroborative material to point out under valuation of property in question

Section 69, read with section 142A of the Income-tax Act, 1961 - Unexplained investment (Immovable property) - In course of search proceedings carried out in case of assessee, Assessing Officer found that he had purchased a residential house - In response to notice issued, assessee submitted that he had purchased said property for a total consideration of Rs. 62.32 lakhs. Assessing Officer referred property for purpose of valuation to DVO, who estimated investment at Rs. 1.57 crore. Assessing Officer, accordingly, worked out difference and made addition to assessee’s income. Assessing Officer cannot make addition to assessee’s income merely based upon DVO’s report in absence of any corroborative material to point out under valuation of property. Since there was no evidence on record that assessee had made any further investment after purchase of property in question, impugned addition was to be set aside. [In favour of assessee] (Related Assessment year : 2013-14) – [Raj Kumar Mittal v. ITO (2017) 87 taxmann.com 344 (ITAT Agra)]

A report of DVO itself was invalid if it travelled beyond reference period and, thus, reassessment sought on basis of such report, was invalid

Assessee had started construction of a hotel. Assessing Officer had made a reference to Departmental Valuation Officer for his opinion on cost of construction for period 20.09.2005 to 31.03.2006. However, DVO estimated cost of construction of building for period from 01.04.2004 to 01.07.2005. Assessing Officer on basis of such report, sought to reopen assessment. Report of DVO itself was invalid as it travelled beyond reference period and, consequently, reassessment was to be set aside. [In favour of assessee] (Related Assessment year : 2005-06) – [Jagdish P. Bhatt v. ITO (2017) 83 taxmann.com 98 (Guj.)]

Deletes notional profit addition on property sale, quashes reference to DVO

Chandigarh ITAT deletes notional profit addition on sale of property constituting assessee’s ‘stock-in-trade’ for Assessing Officer 2010-11, holds that reference to the Valuation Officer (‘DVO’) was illegal, being made under general provision under section 131(1)(d); During relevant Assessment year, assessee-individual claimed ‘business loss’ on account of sale of property, however, Assessing Officer issued commission under section 131(1)(d) to DVO to determine the fair market value (‘FMV’) of the property, and accordingly substituted the sale-price with FMV and computed profits on sale of property; ITAT cites Supreme Court ruling in Amiya Bala Paul to hold that Assessing Officer is empowered to refer the matter for valuation only where specific powers are contained in the Act, accepts assessee’s stand that reference under section 131(1)(d), being a general power could not have been made; Further holds that even assuming that reference was made under section 142A (prevailing at the relevant time), it could have been made only for the purpose of determining cost of construction and not sale value of the property, relies on Delhi ITAT ruling in Namita Singh and memorandum explaining the reasons and objects for inserting Section 142A; Also, ITAT observes that Assessing Officer merely relied on DVO valuation and did not produce any other evidence to prove that assessee earned more than the stated consideration, moreover, notes that the specific provision for substituting sale consideration of immovable property held as stock-in- trade was brought on the Statute only w.e.f. April 1, 2014 by inserting Section 43CA:[In favour of assessee] (Related Assessment year : 2010-11) – [Sumit Aggarwal v. ACIT, Ludhiana [TS-255-ITAT-2017(CHANDI)]– Date of Judgement : 03.04.2017 (ITAT Chandigarh)]

Matter can be referred to Valuation Officer under section 142A only during pendency of assessment or reassessment proceedings and not afterwards

The assessee was a partnership firm. It had purchased a property for a hospital jointly with an HUF. The assessee declared cost of property in the return at Rs. 83.87 lakhs. The Assessing Officer passed an order requesting the Valuation Officer to calculate the correctness of the cost of investment and authorized the said officer under section 142A to inspect the property and make such investigation as considered necessary. The assessee filed instant petition contending that the Assessing Officer had no reason to call for the valuation and the Valuer’s report was called for only by way of fishing inquiry, which was not permissible.

Held : Initial starting point for triggering a reference to the Valuer, therefore, has to be invocation of section 69, 69A or 69B. It is only when any of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B. It would only amount to fishing inquiry and not investigation under section 142A.

The scheme of the provisions when read harmoniously would lead to a situation where in case the Assessing Officer, during the pendency of assessment or reassessment, is of the opinion that sections 69, 69A and 69B can be invoked; in order to estimate such unexplained investment or expenditure in acquisition of bullion, jewellery or valuable article, he can resort to valuation by the Valuation Officer in terms of sub-section (1) of section 142A. In the present case, no such material emerges from the record.

To the contrary, neither from the order of reference nor from any other material, the respondent could point out that the Assessing Officer had invoked the provisions of section 69, 69A or 69B and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVO’s report was called. He simply gave no reasons in the order. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought on record. Thus, quite apart from the assessee’s grievance that the Assessing Officer merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report, in absence of any valid reasons for making a reference, the order must fail. [In favour of assessee] (Related Assessment year : 2002-03) – [Me & Mummy Hospital v. ACIT (2014) 224 Taxman 65 : 272 CTR 1 : 45 taxmann.com 248 (Guj.)]

Matter cannot be referred to Valuation Officer under section 142A by Assessing Officer without rejecting books of account

Assessee owned a petrol pump and made investment towards construction of petrol pump and same was duly recorded in books of account under the heads ‘Building account’, ‘Plant and Machinery account’ and ‘Furniture and Fixture account’. Assessing Officer referred matter to Assistant Valuation Officer whereby addition had been made. The Assistant Valuation Officer vide his report dated 21.11.2007 estimated the valuation of the Petrol pump building on the basis of which the Assessing Officer made an addition of an amount of Rs. 5,84,586/-. The CIT(A) allowed the appeal. Not satisfied with the order, the revenue filed appeal before the Tribunal who partly allowed the appeal whereby addition of Rs. 5,79,586/- made by the Assessing Officer  as unexplained investment under Section 69 of the Act was sustained. Hence the present appeal by the assessee.

Held : It was not disputed by the learned counsel for the revenue that the books of account produced by the assessee were never rejected. The Apex Court in Sargam Cinema v. CIT (2010) 328 ITR 513 : (2011) 197 Taxman 203 (SC) held that the assessing authority could not have referred the matter to  the DVO when there was no rejection of books of account maintained by the assessee. It was observed as under:-

“In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived.”

Similar view was taken in CIT v. Chohan Resorts (2013) 33 taxmann.com 644 (P&H), Goodluck Automobiles (P) Ltd. v. ACIT (2012) 210 Taxman 183 : 26 taxmann.com 254 and CIT v. Lucknow Public Educational Society (2011) 339 ITR 588 : 199 Taxman 151 : 10 taxmann.com 260 (All.). In view of the above, where Assessing Officer referred matter to valuation officer without rejecting books of account or referring to any material/evidence/information on basis of which it could be said that investment reflected by assessee was understated or suppressed, reference was not justified the substantial questions of law are answered in favour of the assessee and against the revenue. Accordingly, the appeal is allowed. [In favour of assessee] (Related Assessment year : 2005-06) – [Nirpal Singh v. CIT, Jalandhar (2013) 359 ITR 398 : (2014) 220 Taxman 152 : 41 taxmann.com 23 (P&H)]

Assessing Officer has power under section 142A to take up issue of valuation of investment in assessee’s plant for a reassessment, if necessary

The assessee challenged the notice under section 142A issued by the Assessing Officer after completion of assessment on the ground that while passing the assessment order, the Assessing Officer neither referred to nor expressed any doubt about the valuation of its plant and, in fact, he also accepted certain vouchers and other documents filed by it showing investments in the plant. It was, therefore, contended that section 142A was not applicable to once again probe into the valuation of the assessee’s plant or the investment made on it. The Assessing Officer, in counter affidavit, submitted that despite reminders the assessee did not produce the bills and vouchers necessary for correctly estimating the value of the investments in the plant and went on postponing the matter and as the time limit for completion of assessment was about to expire, he passed the assessment order without touching the valuation of the civil works including the plant.

Held that the circumstance of the case would show that the Assessing Officer did not go into valuation of the plant in the aforesaid assessment order and his plea was that since there was no full information, he refrained from going into the same. In such a situation, he claimed that he took up the issue of valuation of the plant and called for particulars from the Valuation Officer also apart from issuing other communications to the assessee for full information relating to valuation to take up reassessment if necessary and the Assessing Officer was within his power to do so under section 142A.

An Assessing Authority under the Act is also given inquisitorial powers while making assessment or reassessment. Thus, it could not be said that the Assessing Officer had accepted the valuation given by the assessee in his books of account and the other bills and vouchers filed by him with regard to its plant and its other civil works in the previous assessment proceedings. It, therefore, followed that the Assessing Officer was well within his power under section 142A to take up issue of valuation of or investment in assessee plant for a reassessment if necessary.[In favour of revenue] (Related Assessment year : 2009-10) – [Bharathi Cement Corporation (P) Ltd. v. CIT (2012) 253 CTR 98 : (2013) 33 taxmann.com 643 (AP)]

 Estimate by Valuation Officer in certain cases - An assessing authority can not refer any matter to Departmental Valuation Officer without books of account being rejected

In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived. For the above reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal stands restored to the file. Accordingly, the assessee succeeds. [In favour of assesse] - [Sargam Cinema v. CIT (2010) 328 ITR 513 : (2011) 241 CTR 179 : 197 Taxman 203 (SC)]

 Matter can be referred to Valuation Officer under section 142A only during pendency of assessment or reassessment proceedings and not afterwards - Where no assessment proceedings are pending, Assessing Officer has no jurisdiction to refer any property for valuation to the DVO

Ahmedabad ITAT held that section 142A empowers the Assessing Officer to require the Valuation Officer for making the estimate of value of any asset provided the Assessing Officer required the same for purpose of making the assessment or reassessment. This provision does not empower the Assessing Officer to refer the matter to the DVO for gathering information for reopening of assessment. When the process of reopening of assessment ends and the assessment is validly reopened, thereafter the process of making the assessment starts. It was therefore held that even after insertion of section 142A, the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment as provided under section 147 and thereafter only the notice for reassessment can be issued under section 148.

In the opening part of section 142A the words used are “for the purposes of making an assessment or reassessment under the Act”. The intent of the legislation is that the matter can be referred to the Valuation Officer only when the proceedings of assessment or reassessment are pending before the Assessing Officer. When no such proceedings are pending, the Assessing Officer has no jurisdiction to refer any property for assessment.

It was observed that even after insertion of section 142A there is no amendment in the language of section 147 therefore the condition prescribed under section 147 for reopening of assessment still exists. Accordingly, the Tribunal held that notices issued under section 148 were not in accordance with law, the same were quashed and consequently the assessments completed in pursuance of the notices under section 148 were quashed. – [CIT v. Umiya Co-op. Housing Society Ltd. (2009) 314 ITR 272 : [TS-32-HC-2006(GUJ)] (Guj.)]