Tribunal Invalidates Assessment: Amended Section Not Retroactive

The Tribunal held that the reference to the Departmental Valuation Officer (DVO) under Section 142A without rejecting the books of account was invalid. The amended Section 142A, effective from 01.10.2014, does not apply retrospectively to pending assessments. The Assessing Officer's additions based on the DVO's report were deleted as the AO did not reject the books of account before making the reference. The Tribunal's decision was in line with the Accountant Member's view that the amended provision does not have retrospective effect.

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Issues Involved:
1. Validity of reference to the Departmental Valuation Officer (DVO) under Section 142A of the Income-tax Act.
2. Requirement of rejecting the books of account before making a reference to the DVO.
3. Applicability of the amended Section 142A (effective from 01.10.2014) to pending assessments.

Issue-Wise Detailed Analysis:

1. Validity of reference to the DVO under Section 142A:
The primary issue was whether the Assessing Officer (AO) was justified in referring the valuation of the hotel building to the DVO under Section 142A without rejecting the books of account. The AO referred the matter to the DVO because the cost of construction reported by the assessee was higher than the valuation by the Approved Valuer. The DVO's report estimated a higher construction cost, leading the AO to add the difference as unexplained investment under Section 69B.

2. Requirement of rejecting the books of account before making a reference to the DVO:
The CIT(A) held that the AO was not justified in referring the issue to the DVO without rejecting the books of account. The CIT(A) concluded that the reference to the DVO under Section 142A is invalid unless the books of account are found to be unreliable. This position was supported by various judicial pronouncements, including the Supreme Court's decision in Sargam Cinema v. CIT, which mandated the rejection of books of account before making a reference to the DVO.

3. Applicability of the amended Section 142A (effective from 01.10.2014) to pending assessments:
The Tribunal considered whether the amended Section 142A, effective from 01.10.2014, which does not require the rejection of books of account before making a reference to the DVO, applies to the present case. The Judicial Member (JM) opined that the amended provision should apply to pending assessments, citing the Supreme Court's decision in CIT v. Sunita Mansingha, which allowed the application of amended procedural provisions to pending cases. However, the Accountant Member (AM) disagreed, stating that the amended Section 142A is not retrospective and does not apply to assessments before 01.10.2014.

Separate Judgments Delivered:

Judgment by the Judicial Member:
The JM held that the amended Section 142A applies to the present case as it is a procedural provision, and the assessment had not attained finality. Therefore, the rejection of books of account is not a precondition for reference to the DVO. However, the JM noted that the AO failed to address the discrepancies pointed out by the assessee in the DVO's report and remanded the matter back to the AO for fresh consideration.

Judgment by the Accountant Member:
The AM held that the amended Section 142A does not apply retrospectively to assessments before 01.10.2014. The AM emphasized that the AO must reject the books of account before making a reference to the DVO, as mandated by the Supreme Court in Sargam Cinema. Since the AO did not reject the books of account, the reference to the DVO was invalid, and the additions made based on the DVO's report were unjustified.

Third Member's Decision:
The Third Member concurred with the AM, stating that the amended Section 142A is not retrospective and does not apply to pending assessments before 01.10.2014. The reference to the DVO without rejecting the books of account was invalid, and the CIT(A)'s decision to delete the additions was upheld.

Conclusion:
The Tribunal, by majority, held that the reference to the DVO under Section 142A without rejecting the books of account was invalid. The amended Section 142A, effective from 01.10.2014, does not apply retrospectively to pending assessments. The AO's additions based on the DVO's report were deleted.

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