By TIOL News Service

ALLAHABAD, MARCH 25, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether once the very basis for referring the matter to the DVO stands vanished, then entire assessment proceedings on basis of such valuation will be rendered unjustified. YES IS THE VERDICT.

Facts of the case:

THE assessee, a partnership firm, had filed its returns declaring income at Rs. 2,64,430/- for the relevant A.Y. For the year under consideration, the assessee made an investment in construction of multiplex at Kidwai Nagar, Kanpur and disclosed the investment of Rs. 21,03,44,598/-. This investment therein was made during three financial years. The AO, in order to ascertain the correct investment made in the construction of multiplex, referred the matter to the DVO, who determined the total investment of Rs. 27,50,55,529/- upto the date of inspection. The AO therefore invited the objection from assessee on differential value of investment shown in the construction. After considering the report of the DVO and objection of the assessee, the AO made an addition of Rs. 2,50,98,612/- in the total taxable income of assessee.

On appeal, the CIT(A) confirmed the assessment order made by AO. On further appeal, the Tribunal however reversed the order of AO as well as the CIT(A).

High Court held:

++ the very basis for referring the matter to Departmental Valuation Officer in the disputed years, where the proceeding has been initiated u/s 153-C, has been held without jurisdiction. Once the very basis for referring the matter to the DVO has vanished, the entire proceedings cannot be held to be justified. Moreover, at the time of referring the matter to the DVO, neither returns were filed, nor the books of account maintained by the assessee were rejected, nor any assessment or reassessment proceedings were pending. In view of the facts and circumstances of the case, no substantial question of law arises.

(See 2019-TIOL-658-HC-ALL-IT)