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2008 (11) TMI 154 - HC - Income TaxWhether Tribunal was justified in holding that without rejecting the books of account, AO was not justified in making reference to the Departmental Valuation Officer, ignoring the retrospective effect of the provisions of section 142A - Whether it is mandatory to reject the books of account before making reference u/s 131(1)(d) - Tribunal was not justified in holding that without rejecting the books of account AO was not justified in making reference to the DVO - we also hold that it is not mandatory for AO to reject the books of account first before making reference u/s 131(1)(d) or calling for a report of valuer u/s 142A
Issues Involved:
1. Justification of the Income-tax Appellate Tribunal's (ITAT) decision regarding the rejection of books of account before making a reference to the Departmental Valuation Officer. 2. Whether it is mandatory to reject the books of account before making a reference under section 131(1)(d) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Justification of the ITAT's Decision Regarding the Rejection of Books of Account Before Making a Reference to the Departmental Valuation Officer: The leading appeal, I.T.A. No. 125 of 2007, was directed against the judgment and order dated February 23, 2007, by the ITAT, which allowed the appeal of the assessee and set aside the orders of the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)]. The core issue was whether the AO was justified in making a reference to the Departmental Valuation Officer without first rejecting the books of account submitted by the assessee. The ITAT held that the AO was wrong in making a reference to the Departmental Valuation Officer without rejecting the books of account and reports submitted by the assessee. The Tribunal emphasized that the AO should have formally and categorically rejected the books and reports before seeking a valuation report. The Tribunal found the books of account and valuation reports submitted by the assessee to be proper and concluded that the AO and CIT(A) erred in not relying upon them. 2. Whether it is Mandatory to Reject the Books of Account Before Making a Reference Under Section 131(1)(d): The High Court examined whether the AO had the authority to call for a valuation report without formally rejecting the books of account. The court noted that the Tribunal's decision did not fully appreciate the scope of section 142A of the Income-tax Act, which was inserted by the Finance Act of 2004 with retrospective effect from November 15, 1972. Section 142A grants the AO full powers to call for a report from the Valuation Officer for making an assessment or reassessment. The court referred to CIT v. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar, where it was held that proper books of account should be relied upon unless found unreliable. However, the court distinguished this case, noting that the AO had expressed doubts about the correctness of the accounts submitted by the assessee. The court concluded that the AO was justified in calling for a valuation report without formally rejecting the books of account, supported by section 142A and section 131(1)(d) of the Income-tax Act. The High Court held that it was not mandatory for the AO to reject the books of account before making a reference under section 131(1)(d) or calling for a valuation report under section 142A. The court allowed the appeal of the Revenue on the questions of law but did not interfere with the factual findings of the Tribunal, acknowledging that the Tribunal had independently dealt with the factual matrix. Conclusion: The appeal was allowed on the questions of law, affirming that the AO was justified in calling for a valuation report without rejecting the books of account. The connected appeals were also decided accordingly, with no order as to costs.
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