Section 142(2A) – Reference to DVO cannot be made by an authority who is not empowered to do so – An invalid valuation report of DVO cannot be considered as incriminating material – In absence of any incriminating material for the unabated assessment years, additions cannot be made

FACTS
The assessee was an educational institution operating through various institutions. On 13th March, 2014, a search action u/s 132(1) was carried out at its administrative office. During post-search operations, the DGIT(Inv) made reference to the Departmental Valuation Officer (DVO) for valuing the immovable properties. The DVO reported the value of the properties to be higher than the value disclosed by the assessee. Pursuant to the provisions of section 153A, an assessment for the A.Ys. 2008-09 to 2012-13 was undertaken and the A.O. proposed to make an addition based on the report of the DVO. The assessee objected to the valuation methodology adopted by the DVO; accordingly, the A.O. requested the DVO to reconsider the valuation. However, as the DVO did not submit the report within the statutory time limit of six months, the A.O. proceeded to make an addition based on the initial valuation report as called upon by the DGIT(Inv).

Before the CIT(A), the assessee raised the point that since the DVO did not furnish the report to the A.O. within the time limit, hence the reference stood infructuous. The CIT(A), exercising his co-terminus powers (as that of A.O.), himself made reference to the DVO; however, since the DVO did not furnish a reply within the time limit, the CIT(A) deleted the addition on the ground that since the DVO did not furnish a report, hence the earlier report of the DVO [as sought by DGIT(Inv)] stood non-est and could not be relied upon by the A.O.

On appeal by the Revenue before the ITAT, the assessee argued that, firstly, the DGIT(Inv) had no power at that point of time to refer to the DVO for valuation, and secondly, since there was no incriminating material found during the course of the search action, no addition can be made as the assessments for these years were unabated.

HELD
The DGIT(Inv) was empowered to make reference for valuation to the DVO only after the amendment in section 132 made vide the Finance Act, 2017 w.e.f. 1st April, 2017 and not prior to it. Thus, the DGIT(Inv) did not have jurisdiction to make a reference in the year 2014. Accordingly, the impugned additions were directed to be deleted relying on the ratio laid down by the Supreme Court in the case of Smt. Amiya Bala Paul vs. CIT [2003] 262 ITR 407 (SC) where it was held that reference to the DVO cannot be made by an authority that is not empowered to do so.

It was observed that assessments for the relevant years were unabated because no assessments were pending for those years before the A.O. as on the date of the search. Further, the accounts of the assessee were audited, and that neither the search party nor the A.O. pointed out any mistake in the correctness or completeness of the books. On perusal of the panchnama it was evident that the search party did not even visit the educational institutions. Thus, the reference made by the DGIT(Inv) to the DVO was without any incriminating material that was unearthed during the search proceedings. There was no whisper of any incriminating material seized during the search to justify the addition in these unabated assessments other than the invalid valuation report. Such invalid valuation report of the DVO cannot be held to be incriminating material, since it was not a fallout of any incriminating material unearthed during the search to suggest any investment in the building which was over and above the investment shown by the assessee. Therefore, no addition was permissible for unabated assessments unless it was based on relevant incriminating material found during the course of search qua the assessee and qua the assessment year.