FOR LEARNING OF ALL CONCERNED REFERENCE BY AO TO DVO AT LAST MOMENT CONSIDERED AN ATTEMPT TO GAIN TIME AND EXTEND LIMITATION GUJARAT HC -TIMELY STEPS ARE DESIRABLE BY ALL TAX OFFICERS AND ASSESSEE

Provisions expressly mentioned in the judgment/order text.

Income-tax Act, 1961

1. Section 142A - Estimate by Valuation Officer in certain cases
2. Section 153 - Time limit for completion of assessment, reassessment and precomputation.

In several earlier articles also learned author has emphasised that timely step should be taken and last moment action should be avoided to miss the limitation and also to avoid doubts about intentions and keep actions beyond glare of raising a doubt and suspicion about intentions and bona fides. in the case discussed in this article also last moment reference for valuation raised doubt about intention of ld. AO and the reference was quashed.

Recent case Slimtile Private Limited Versus Assistant Commissioner Of Income Tax & Anr. - 2026 (9) TMI 453 - GUJARAT HIGH COURT

Cases referred in above case and also cases referred in it:

ANAND BANWARILAL ADHUKIA Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 14 AND 1 - 2016 (11) TMI 294 - GUJARAT HIGH COURT

1. Me And Mummy Hospital Versus Assistant Commissioner Of Income-Tax - 2014 (2) TMI 898 - GUJARAT HIGH COURT

2. Commissioner of Income-tax -IV Versus Sarjan Realities Ltd. - 2012 (9) TMI 1076 - GUJARAT HIGH COURT

3. Bharathi Cement Corporation P. Ltd. Versus Commissioner of Income-tax - 2013 (10) TMI 1026 - ANDHRA PRADESH HIGH COURT

Delayed action by learned AO indicates lack of bonafide:

Reference for valuation of the company's fixed assets was made by ld. AO at last moment and one day before expiry of the last date to complete assessment vide his order of reference dated 24.06.2023. As per paragraph 6, as per submissions of counsel the reference was made for determining the Fair Market Value of the tangible assets as on 24.06.2023 (sic. there seems a mistake about this date it should normally be last day of relevant previous year), even though the assessment proceedings would become time-barred on 25.06.2023.

Therefore, the assessee challenged the action of Ld. AO through case being No.- R/SPECIAL CIVIL APPLICATION NO. 13575 of 2023. This was filed and /or heard by the division bench consisting of HONOURABLE MR. JUSTICE A.S. SUPEHIA AND HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI of Gujarat High Court.

The order passed and reported is stated to be a CAV JUDGMENT.

Observations of learned author:

Curia advisari vult in short (CAV) is a Latin phrase implying that "the court wishes to consider" or "the court wishes to be advised".

In the given context mentioning it as 'CAV JUDGMENT' apparently imply that it is Reserved Judgment for reasons that the judge heard all oral arguments and evidence from both sides, but is not giving an immediate decision.It require Deliberation: The judge takes time outside of the courtroom to study the records, research the law, and write a careful opinion. Nothing is finalized yet. The court will list the case on a future date to deliver the final judgment.

However, on reading of the entire order and final conclusive order learned author find that there is finality of judgment and order and there is nothing pending for further deliberations and consideration. Any date is not fixed for further hearing or announcement of the final order or judgment.

Therefore, with due respect, it seems that mistakenly phrase 'CAV JUDGMENT' has been typed / written although this is a final judgment. This seems to be a mistake committed while data entry / typing by the secretary of the honourable judge.

Facts of the case analysed:

1.The issues is for Assessment Year (A.Y.) 2021-22 for which assessee declared total income of Rs. 8,17,74,420/- in the return of income filed on14.03.2022,

2. Notice under Section 143(2) of the Income Tax Act, 1961 (ITA in short) was issued to the petitioner-Company on 29.06.2022.

3. Various notices under Section 142(1) of the Act were issued to the petitioner-Company, to which the petitioner-Company duly responded by filing the requisite replies and furnishing the information and documents sought by the ld. AO (respondent No. 1).

{er suthor - this means that ld. AO had sufficient time and occasions for taking further steps, if any, were required for valuation or other purposes for completion of assessment effectively. Earlier any such steps were not taken, can be considered as an after thought of ld. AO)

1. On 17.06.2023 and 20.06.2023, ld. AO (respondent No. 1) issued the show cause notices to the petitioner-Company. The assessee (petitioner-Company) submitted its detailed reply thereto on 22.06.2023, wherein, apart from dealing with the allegations and issues raised in the show cause notices on merits, the petitioner-Company specifically questioned the very maintainability and validity of the notices and the proceedings initiated pursuant thereto, inter alia, on the ground that the proceedings were barred by limitation.
2. The ld. AO,in response to the aforesaid objection regarding limitation, by an email dated 21.06.2023 addressed to the petitioner- sought to contend that the time available for completion of the assessment stood extended by virtue of the Explanation to Section 153 of the Act.
3. The said communication by email of Ld AO is not reflected on the Income Tax Business Application (ITBA) portal of department.
4. On 24.06.2023, ld. AO ( respondent No. 1) made a reference to respondent No. 2-District Valuation Officer ( in short DVO) under Section 142A of ITA, seeking determination of the value of the fixed assets allegedly acquired by the petitioner-Company, on the premise that the said assets had been acquired in the names of individual owners and were allegedly not being used for the purposes of the business of the petitioner-Company.
5. During hearing Learned counsel of assessee Advocate Mr. Soparker, submitted that the reference dated 24.06.2023 made by Ld AO(respondent No. 1) to respondent No. 2 i.e. DVO for determination of the value of the fixed assets constitutes is nothing but a colourable exercise of power, having been resorted to with the object and effect of artificially extending the period available for completion of the assessment.
6. In the said reference Ld AO 1 sought the opinion of DVO for determining the Fair Market Value of the tangible assets as on 24.06.2023, ( this date seems wrong) while acknowledging that the assessment proceedings would become time-barred on 25.06.2023. ( this was perhaps stated to request for an early report from DVO)
7. Ld Counsel contended that the reference could not have been made as a legitimate step in the assessment proceedings, but was consciously resorted to at the fag end of the prescribed period, with the sole object of invoking the statutory consequence of such reference and thereby seeking to extend the period available for completion of the assessment. Therefore, the reference itself was assailed as being a colourable and impermissible exercise of power and, consequently, as being without jurisdiction and liable to be quashed and set aside.
8. Ld. Counsel submitted that the reference is wholly misconceived and legally unsustainable. According to Ld. AO assessee had acquired the fixed assets in the names of individual owners, and claimed depreciation in respect thereof in its books of account (and in assessment also - added by learned author). It was submitted that, even assuming this to be correct, the same could at the highest furnish a ground for examining the claim for depreciation of the assessee (petitioner-Company) and, if found impermissible, for disallowing such claim in accordance with law.
9. As per ld. Counsel there was, no justification whatsoever for obtaining a valuation of the fixed assets from DVO) because valuation of such assets had no bearing upon the alleged defect in the claim for depreciation of the assessee- petitioner-Company.
10. The timing and manner in which the reference was made, particularly on 24.06.2023, immediately before the assessment was to become time-barred on 25.06.2023, clearly demonstrated that the reference was not made for any genuine or bona fide valuation requirement, but was merely employed as a device to invoke the statutory extension of time and thereby keep the assessment proceedings alive. The reference, therefore, being a colourable and impermissible exercise of power, was submitted to be without jurisdiction, illegal and liable to be quashed and set aside.
11. Precedence relied:

As mentioned in introductory part of this article.

2014 (2) TMI 898 - GUJARAT HIGH COURT -Me And Mummy Hospital supra it was observed and ultimately held on the following lines:

1. The ld AO simply gave no reasons in the order. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought to our notice.
2. The Assessing Officer merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report from DVO.
3. In absence of any valid reasons for making a reference, in our opinion, the order must fail.
4. If the reference to DVO is simply not competent, we fail to see why the petitioner should be made to go through the gamut of supplying details permitting the Valuer to make his estimate.
5. If eventually such report itself can be of no legal value, the inquiry must be terminated at the threshold.
6. The Court observed that 'we do not see any other stage where the assessee can oppose the reference to the Valuer itself". Hence the impugned order of Ld. AO to make reference to DVO was quashed.

In 2016 (11) TMI 294 - GUJARAT HIGH COURT the case of ANAND BANWARILAL ADHUKIA supra it was observed and ultimately held on the following lines:

1. The Assessing Officer had no cogent material available nor to satisfy himself about the requirement of Section 69 of the Act.
2. In the absence of it, the reference could not have been made under Section 142A of the Act.
3. Simply because prior to 2 days the reference order came to be made, it cannot be said that the action of making reference during the period of assessment is justified.
4. In fact, no purpose would be served to make such reference especially when the contingencies reflected hereinabove are not satisfied on the background of present facts. Therefore, considering this set of circumstance, we are of the opinion that the action of making reference is not tenable.
5. Judgment relied on by revenue in Bharathi Cement Corporation (P) Ltd. (Supra) was found on different facts hence not applicable in case of assessee / petitioner.
6. In ultimate the Court ordered as follows ( highlights added by author)

"13. Upon considering the materials on records and the contentions raised by respective parties and in view of the aforesaid proposition of law laid down by the cases which have been referred, we are of the opinion that the action of making reference is not sustainable in the eye of law and therefore, we hereby quash and set aside the communication dated 29.12.2010 as also the consequent communication dated 10.3.2011 and 26.4.2011 respectively. The petition is allowed to the aforesaid extent. Rule is made absolute."

Final order in case of Slimtile Private Limited (supra) vide para 27 and 28:

27. Thus, the overall analysis and the appreciation of facts manifest that the Assessing Officer has very ingeniously raised two issues for making reference to the District Valuation Officer in order to cover-up his inaction in completing the assessment proceedings before 25.06.2023.

28. Hence, the writ petition succeeds. The impugned order dated 24.06.2023, whereby the Assessing Officer referred the matter to the Departmental Valuation Officer a mere day prior to the assessment proceedings becoming time-barred, is hereby quashed."

Observations of learned author:

As analysed and discussed earlier, the honourable high Court has delivered final judgment allowing petition of assessee. There is no word about further consideration and more hearing required. Author also found that earlier judgments referred in the judgment also there was nothing kept pending.

Therefore, with highest respect and regard learned author feel that mention as CAV JUDGMENT, seems to be an inadvertent mistake. However, this can be a reason for any party to dispute finality of the judgment, if it goes in his favour. For example, revenue can raise such contention, though it will not be maintainable, but a litigation can arise.

Furthermore the judgment is after due consideration of facts, circumstances, applicable law, purpose of valuation by DVO, available time to the Ld. AO for taking action earlier if required, and action taken at last and a day before last day to make assessment order hence held it to be colourable exercise of power. In this regard it can also be said that the reference was likely to be time barred also, because it was difficult to ensure that the order or request for valuation would be delivered before last day considering time taken in movement of files in IT Department.

Considering the nature of contents of the article and underlying subject matter being applicable in other laws it is classified under other topics.