2014 (10) TMI 822 - AT - Income Tax

Valuation - Rejection of books of accounts - reference to the Departmental Valuation Officer for the valuation of the building of cold storage and plant and machinery - held that - Unfortunately despite the judgment of the apex court rendered 2009 (10) TMI 569 - Supreme Court of India the Assessing Officer has made a reference to the Departmental Valuation Officer even without examining the books of account ; what to say about its rejection. This callous attitude of the Assessing Officer cannot be appreciated. This is not only a single case where the Assessing Officer has made reference to the Departmental Valuation Officer without even examining the books of account ; we have come across a number of cases like this. We are therefore of the view that the Department should take necessary step to educate their own Assessing Officer so that while framing the assessment they should be aware of the law laid down by the hon ble apex court and High Courts through their judicial pronouncements. - where the reference was made by the Assessing Officer even without verifying the books of account what to say about its rejection the reference is totally illegal and the illegal report submitted consequent thereto cannot be a valid report and no addition on the basis of the same can be made on account of unexplained investment in the cold storage - Decided against Revenue.

Summary

Issues:
Appeal against deletion of addition of long-term capital gain by Assessing Officer based on valuation reports.

Analysis:
1. The Revenue appealed against the deletion of an addition of Rs. 2,26,52,624 by the Assessing Officer for long-term capital gain. The Revenue argued that the Assessing Officer had referred the valuation of the property to the Departmental Valuation Officer, which was in accordance with the law. The Revenue contended that the Departmental Valuation Officer, being a technical expert empowered by the Income-tax Act, should have been given more weight in the valuation process.

2. During the appeal hearing, the Revenue highlighted the timeline of events, including the issuance of notices under sections 143(2) and 142(1) of the Income-tax Act, 1961. The Assessing Officer had made a reference to the Departmental Valuation Officer for valuation without rejecting the books of account, which was deemed improper based on the judgment in the case of Sargam Cinema v. CIT [2010] 328 ITR 513 (SC). The Commissioner of Income-tax (Appeals) considered this violation and deleted the addition based on the Departmental Valuation Officer's report.

3. The Tribunal examined the actions of the Assessing Officer, noting that the reference to the Departmental Valuation Officer was made prematurely without waiting for the assessee's compliance with the questionnaire or examining the books of account. This premature reference was found to be a violation of legal precedents set by the apex court. The Tribunal criticized the Assessing Officer's disregard for proper procedure and emphasized the need for educating Assessing Officers on legal requirements for assessments.

4. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) based on the legal principles established by the apex court regarding the improper reference to the Departmental Valuation Officer. The Tribunal concluded that the reference made without verifying the books of account was illegal, rendering the subsequent valuation report invalid. Consequently, no addition could be justified based on such an illegal report. The Tribunal dismissed the Revenue's appeal, confirming the decision of the Commissioner of Income-tax (Appeals).

In conclusion, the judgment highlighted the importance of following proper procedures in valuation assessments and emphasized the need for Assessing Officers to adhere to legal guidelines established by judicial pronouncements to ensure fair and lawful tax assessments.