In a significant ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that a reference to the District Valuation Officer (DVO) under Section 142A of the Income Tax Act, 1961, can only be made during the pendency of assessment or reassessment proceedings. The Tribunal dismissed the appeal filed by the revenue authorities and upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted an addition of ₹2,28,41,677.
Background of the Case
The case stems from a search operation conducted under Section 132 of the Income Tax Act, 1961, on the Aerens Group. During the investigation, the Assessing Officer (AO) received information from the Investigation Wing regarding the assessee’s transactions in immovable property.
To determine the fair market value of the property, the AO exercised his powers under Section 142A and made a reference to the DVO. However, this reference was made before the issuance of a notice under Section 148, which initiates reassessment proceedings. The AO later issued the Section 148 notice and completed the reassessment, making an addition of ₹2,28,41,677 based on the DVO’s valuation report.
CIT(A) and ITAT Observations
The assessee challenged the addition before the CIT(A), who ruled in favor of the assessee and deleted the addition. The revenue authorities, dissatisfied with the CIT(A)’s order, approached the ITAT.
The ITAT bench, comprising Shri Vikas Awasthy (Judicial Member) and Shri Amitabh Shukla (Accountant Member), observed that the reference to the DVO is legally permissible only during the existence of valid assessment or reassessment proceedings. In this case, the reference to the DVO was made on March 5, 2015, whereas the notice under Section 148 was issued later, on April 1, 2015. Therefore, at the time of the DVO reference, no assessment or reassessment proceedings were pending.
The Tribunal emphasized that as per established legal principles and departmental submissions dated March 23, 2022, a DVO reference made before the initiation of valid proceedings cannot be considered valid. The Departmental Representative could not refute this crucial fact during the hearing.
Final Verdict
The ITAT concluded that the addition made by the AO, which was entirely based on the DVO’s report, was unsustainable in law. As a result, the Tribunal dismissed the revenue’s appeal, upholding the decision of the CIT(A) to delete the ₹2.28 crore addition.
The assessee was represented by Shri Rajeshwar Painuley, while the Department was represented by Shri Om Parkash.
Key Takeaway
This ruling reinforces that income tax authorities cannot make a reference to the DVO unless valid assessment or reassessment proceedings are already underway. Premature references are not legally tenable and can result in the deletion of additions made based on such reports.