Recently, in the case of Principal Commissioner of Income Tax V. Sanjay Hiralal Thakkar, the division bench of the Gujarat High Court quashed the assessment proceedings, which was based on the report of Departmental Valuation Officer (DVO) and clarified that the assessing Officer cannot make a reference to the DVO under the provisions of the Income Tax Act without rejecting the books of accounts.
In the instant case, the assessee impugned the order of assessment based on the report of the Departmental Valuation Officer (DVO) on ground that before the referring the matter to the DVO, the Assessing Officer had not rejected the books of accounts. The Appellate Tribunal held in favour of the assessee and therefore, the Revenue preferred appeal to the High court.
The division bench noted that while quashing the assessment, the Tribunal relied upon the Supreme Court decision in the case of SargamCinema vs. Commissioner of Income Tax and held that before making a reference to the DVO under Section 142A of the Income Tax Act, if the Assessing Officer has not rejected the books of account and therefore, the reference under Section 142A of the Income Tax Act itself was bad in law and therefore, DVO’s report cannot be the basis to make addition.
“From the material on record, it does not seem to be any dispute that while making the reference to the DVO under Section 142A of the Income Tax Act, the Assessing Officer did not first rejected the books of account. Therefore, considering the requirement of law which was prevailing at the time of years under consideration and considering the decision of the Hon’ble Supreme Court in the case of Sargam Cinema (supra) the reference itself can be said to be bad in law. In the case of Sargam Cinema (supra), the Hon’ble Supreme Court has observed and held that unless and until the books of account are first rejected by the Assessing Officer, the Assessing Officer is not justified in making the reference to the DVO’s under Section 142 A of the Act. While reference is held to be bad in law, the DVO’s report has to be ignored and cannot be basis to make the addition. It is true that subsequently, there is amendment to Section 142 A of the Act however, considering the provision of law prevailing at the time of years under consideration and the decision of the Hon’ble Supreme Court in the case of Sargam Cinema (supra) before making reference to DVO, the Assessing Officer was required to reject the books of account.”
Read the full text of the Judgment below.
