In a recent ruling, the Allahabad High Court dismissed two income tax appeals filed by the Principal Commissioner of Income Tax against Parmarth Iron Pvt. Ltd., affirming that an Assessing Officer ( AO ) cannot refer a matter to the Departmental Valuation Officer ( DVO ) without first rejecting the books of account under Section 142A of the Income Tax Act.
The revenue appealed against the common order dated 21.02.2019 for the Assessment Year 2004-05. The Tribunal allowed the assessee’s appeal and dismissed the revenue’s appeal.
The revenue presented both appeals with the same set of questions of law: Whether the Tribunal erred in reversing the CIT(A)’s finding regarding the non-production of books of account, which could enable the AO to determine the correct cost of construction of the factory building year-wise, especially without reference to the material on record; whether the ITAT was correct in selectively picking the observation of the AO to conclude that complete books of account were produced before the AO; whether the ITAT was correct in holding that the reference made by the AO to the DVO was not as per law; and whether the ITAT was correct in deleting the addition made by the AO of Rs 4,01,79,659/- based on the valuation report, holding that the reference made by the AO to the DVO was not as per law.
The division bench, comprising Justices Saumitra Dayal Singh and Donadi Ramesh, found no merit in the revenue’s appeals and noted that the assessee had filed its income return for the assessment year 2004-05 with audited books of accounts. Without rejecting the books of accounts, the AO made a reference under Section 142A to the DVO. The AO then relied solely on the DVO’s estimation to make a Best Judgement Assessment and reject the books of accounts.
Citing the Supreme Court‘s decision in Sargam Cinema vs. Commissioner of Income Tax (2010) 328 ITR 513 (SC), the court underscored that an assessing authority cannot refer a matter to the DVO without first rejecting the books of account. This principle was further supported by the case of Commissioner of Income Tax vs. Lucknow Public Educational Society (2011) 339 ITR 588, which reaffirmed that an AO must reject the books of accounts before referring to the DVO for an estimate.
Concluding that the issues raised were no longer res-integra and had been settled by prior judgements, the court agreed with the Tribunal’s decision. Consequently, both appeals were dismissed, and no costs were ordered.
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