Gujarat High Court Quashes DVO Reference Made A Day Before Assessment Became Time-Barred

The Gujarat High Court has quashed an Assessing Officer's reference to the Departmental Valuation Officer (DVO) made just a day before the assessment was due to become time-barred. The court held that the reference was a colourable exercise aimed at extending the time available to complete the assessment.

A bench comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati found that the material relating to the company's assets and payments was already available with the Assessing Officer.

It also held that the depreciation issue could have been dealt with directly by the Assessing Officer.

The court noted that the Assessing Officer himself had recorded that the assessment would become time-barred on June 25, 2023. Yet, on June 24, he referred the valuation of the company's tangible assets to the DVO.

The reference was made under Section 142A of the Income Tax Act. This provision allows an Assessing Officer to seek an expert valuation to determine the value of an asset or the correctness of an investment when it is relevant to the assessment.

The Revenue relied on Explanation 1(v) to Section 153. In simple terms, this provision allows the period between making a valuation reference and receiving the valuation report to be excluded while calculating the assessment deadline.

The court found that the reference was used to extend the assessment period. It observed that the Assessing Officer was aware that the limitation period was about to expire.

The case concerned Slimtile Private Limited. The company had declared total income of about ₹8.18 crore for the 2021-22 assessment year.

The valuation reference was based on two grounds. First, the Revenue alleged that the company had made unaccounted cash payments relating to share purchases and had shown an increase in fixed assets. Second, it alleged that the company had claimed depreciation on fixed assets purchased in the names of individuals.

On the depreciation issue, the Revenue conceded that a valuation reference was unnecessary. The Revenue's counsel submitted that the Assessing Officer could disallow the depreciation claim if it was found to be bogus.

The court accepted this position. It held that the Assessing Officer had acted illegally by using the depreciation issue to strengthen the first ground for the valuation reference and extend the limitation period.

The court also examined the first ground concerning the assets and alleged unaccounted payments. It noted that the company had already furnished details of its assets, payments, and supporting documents to the Assessing Officer in December 2022.

The show-cause notices issued in June 2023 did not raise any issue concerning valuation of those assets. The court noted that the issue of valuation was raised in the June 24 reference, just before the assessment became time-barred.

The court was also critical of the delay in dealing with the search material. The material had been handed over to the Deputy Commissioner of Income Tax, Surat, on December 28, 2022, but the relevant show-cause notices were issued only in June 2023.

The court found that the Revenue had not given a satisfactory explanation for the delay. It observed that the Assessing Officer could have re-examined the company's earlier explanation regarding payments made for the assets and its depreciation claim within the available time.

The bench ultimately found that the Assessing Officer had raised the two issues to overcome his own failure to complete the assessment before the deadline.

Explaining its conclusion, the bench observed:

“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.”

The bench also found that the Assessing Officer had created an artificial basis for seeking a valuation of the assets and the depreciation claim. It held that this was an attempt to extend the assessment period by relying on the limitation provision.

The court accordingly quashed the June 24, 2023 valuation reference. 

For Petitioner: B.S. Soparkar

For Respondents: Karan G. Sanghani