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Quashes DVO Reference Against Slimtile As Colourable Exercise To Extend Limitation
The has quashed a reference made by an Assessing Officer to the District Valuation Officer (DVO) under , just a day before the assessment was to become . The bench, comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati, held that the reference was a aimed solely at extending the for completing the assessment of .
Background of the Case
had filed its return of income for the Assessment Year 2021-22 on , declaring a total income of approximately ₹8.18 crore. The return was selected for scrutiny, and notices under were issued in . The company responded to various queries under , including providing detailed explanations regarding asset purchases and payments.
In , incriminating material from a search and survey conducted on a group company, , was handed over to the . However, the Assessing Officer did not act on this material until June 2023, when show-cause notices were issued on and June 20. The company responded on , raising objections on limitation grounds.
On —just one day before the assessment was set to expire on —the Assessing Officer made a reference to the DVO for determination of the fair market value of the company's tangible fixed assets. The reference was premised on two grounds: (i) that the company had made unaccounted cash payments to group entities and shown an increase in fixed assets, and (ii) that the company had claimed depreciation on assets purchased in the names of individual owners.
Arguments Before the Court
For the petitioner, submitted that the reference was a , made solely to invoke of the Act, which excludes the period between a reference and receipt of the valuation report from the limitation calculation. He argued that the valuation of assets had no bearing on the alleged defects in the depreciation claim, and that the timing—one day before limitation—demonstrated a deliberate attempt to buy time.
The Revenue, represented by , candidly conceded that the reference on the depreciation issue was unnecessary, as the Assessing Officer could have directly disallowed the claim if it was found to be bogus. However, he defended the reference on the first ground, arguing that the valuation was necessary to ascertain whether unaccounted cash had been invested in tangible assets, given the incriminating search material.
Legal Analysis and Findings
The court examined the timeline closely. It noted that the search material was received on , yet the show-cause notices were issued only on and —a delay of nearly six months for which the Revenue offered only a "lame explanation." Crucially, those show-cause notices did not raise any issue concerning valuation of assets; they focused solely on alleged unaccounted payments.
The court observed that the company had already furnished detailed explanations about its asset purchases and payments in , and the Assessing Officer had not questioned those explanations until the very eve of the . The depreciation ground was conceded by the Revenue itself as unnecessary, yet the Assessing Officer used it as a peg to justify the reference.
Justice Supehia, writing for the bench, found 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
."
The court noted that the officer was
"very much alive to the
"
but
"showed remissness in completing the assessment."
The bench held that by creating an "
" through the valuation reference and the depreciation claim, the Assessing Officer attempted to extend time under
. The court concluded that the reference was "
" and a
"
."
Key Observations from the Judgment
The court made several pointed observations:
"The Assessing Officer has acted illegally in order to further strengthen his first ground for reference relating to the valuation of assets and attempted to create another ground of claim of bogus depreciation on such assets for extending the limitation, which was getting time barred on ."
"It cannot be countenanced that the Assessing Officer was ignorant of the provision of the , which regulates depreciation, investments etc., while making the reference on depreciation of assets by alleging bogus claim, which he could have disallowed."
"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 ."
Court's Decision and Implications
The High Court allowed the writ petition and quashed the impugned reference order dated . The decision reinforces that Assessing Officers cannot misuse the valuation reference mechanism under Section 142A as a tool to artificially extend limitation periods. It also clarifies that issues like bogus depreciation claims can be addressed directly by the Assessing Officer without requiring a valuation reference.
The ruling serves as a check against perfunctory and belated actions by tax authorities and underscores that procedural tools must be exercised , not as a cover for administrative delay. For taxpayers, the judgment provides a strong precedent to challenge valuation references made solely to circumvent limitation deadlines.
