2017 (6) TMI 1227 - AT - Income Tax

Validity of reference made to DVO u/s 142(2A) - no mention of rejection of books of accounts of the assessee company - Held that - No clear sequence of events and proceedings leading to the production of the books of accounts its examination and rejection thereof reference to DVO and finally completion of the assessment proceedings No finding recorded by the ld. CIT(A) in terms of rejection of books of accounts before a reference was made to the DVO u/s 142A of the Act. In absence of sufficient material available on record we set aside the matter to file of the ld. CIT(A) to examine the said contention of the ld. AR afresh in light of above decision the Hon ble Supreme court in case of Sargam Cinema 2009 (10) TMI 569 - SUPREME COURT OF INDIA and Dr. Raghuvendra Singh 2014 (1) TMI 491 - PUNJAB AND HARYANA HIGH COURT - appeal of the assessee is allowed for statistical purposes

Summary

Issues Involved:
1. Legality of reference to the Departmental Valuation Officer (DVO) under Section 142(2A) of the Income Tax Act, 1961.
2. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
3. Addition of Rs. 3,02,977 out of the total addition of Rs. 2,36,74,724 based on the DVO’s valuation report.

Detailed Analysis:

1. Legality of Reference to DVO under Section 142(2A):
The assessee contended that the Assessing Officer (AO) erred in making a reference to the DVO under Section 142(2A) as this section does not empower the AO to refer to the DVO. Instead, Section 142A provides such power, and it can only be invoked for estimating the value of investments referred to in Sections 69, 69B, or 56(2). The assessee argued that before making the reference, the AO neither examined nor rejected the books of accounts. The Tribunal noted that the DVO received the reference under Section 142A(1) and concluded that the mention of Section 142(2A) was a typographical error. The Tribunal found this contention devoid of merit as the DVO's report supported the reference under Section 142A.

2. Rejection of Books of Accounts under Section 145(3):
The assessee argued that the AO did not examine or reject the books of accounts before making the reference to the DVO. The Tribunal referred to the decision in Prithavi Raj Bohra v. ITO, where it was held that the AO must reject the books of accounts before referring the matter to the DVO under Section 142A. The Tribunal also cited the Supreme Court’s decision in Sargam Cinema v. CIT, which reiterated that the AO could not refer the matter to the DVO without rejecting the books of accounts. The Tribunal observed that the note sheet of the assessment proceedings did not clearly document the sequence of events, including the rejection of books and reference to the DVO. Consequently, the Tribunal set aside the matter to the CIT(A) to re-examine whether the books of accounts were rejected before the reference to the DVO.

3. Addition of Rs. 3,02,977 Based on DVO’s Valuation Report:
Since the Tribunal set aside the issue of reference to the DVO, it also set aside the related grounds concerning the rejection of books of accounts and the addition of Rs. 3,02,977 to the CIT(A) for fresh examination.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, setting aside the issues to the CIT(A) for re-examination in light of the Supreme Court’s decision in Sargam Cinema and other relevant judgments. The Tribunal emphasized the need to establish whether the AO rejected the books of accounts before making the reference to the DVO. The appeal was thus remanded for a detailed re-evaluation by the CIT(A).